- Thomas Thurston
Innovation in Australia: A Yank’s Perspective
As an American venture capitalist who recently moved to Australia, it’s been fun to notice differences in how the US and Australia innovate. I’ll be the first to admit I’m no expert on Australia. For what it’s worth, however, I thought I’d share some novice observations in the hope that it’s somehow helpful to other cross-border innovators pondering these same types of things.
At first glance, Australia’s startup landscape seems almost indistinguishable from typical “non-mainstream” US venture capital markets like Austin, Boulder, Las Vegas, Portland or Pittsburgh (basically… anywhere other than Silicon Valley or Boston). When you look at the streets of a big Australian city like Sydney, Melbourne, Brisbane or Perth, you see lots of sky scrapers and bustling streets with sharply-dressed businesspeople. Australians call Brisbane a “small country town,” but its city population of 2 million is more than twice the size of Seattle.
Australia has a growing number of startups, incubators and accelerators. There are universities trying to spin out startups, government efforts to encourage innovation, meetup groups, pitch-fests, hackathons and a number of corporate-sponsored hubs. A scrappy, passionate, underdog entrepreneurial vibe fills the air, and panel discussions are routinely held on some version of “how can we become the next Silicon Valley?”
Despite the similarities, I’m getting the sense that Australia has a much weaker Angel investor ecosystem than what’s typical in the US. Australia has angel investors, but the number of active per capita angels feels low. This hunch has been echoed anecdotally by entrepreneurs, investors, service providers (ex. lawyers, accountants) and people in government I’ve spoken with.
While it would be nice to have better data, AngelList seems to support this notion. According to AngelList and census data, roughly 1 in 40,000 Australian residents are angel investors. By comparison, in Oregon it’s 1 in 850, Colorado is 1 in 1,118, Texas is 1 in 5,549 and California is 1 in 7,013.
These data have flaws but are directionally in line with venture capital data showing fewer available per capita dollars for Australian startups. In 2016, Australian venture capital funds raised an all-time-high of $568 million (whereas US funds raised an estimated $52.4 billion, down from the prior year of $77.3 billion). Even when adjusted for population, the US had 6 times more startup capital available for every man, woman and child.
Vibrant angel communities are something I realized – to my surprise – I’d taken for granted in the US. Years ago I spoke with angel groups in places like Bellingham, Washington (a small rural town near the Canadian border) and Boise, Idaho. While not on anyone’s short list of startup hubs, even these areas had vibrant groups of engaged angels keen on finding startups. In Australia, I’m learning, it can be a different story.
If Australia’s angel investor community is indeed too small, there should be flashing red lights and sirens in the hallway. Angel investors, more than venture capitalists, are the bedrock of startup ecosystems. They’re the first line of fundraising. Without a solid angel base, all the incubators, accelerators, government initiatives and panel discussions in the world will fall short of their aspirations. Whether through increased outreach to potential angels, greater availability of angel investing education, cultivation of angel networks, or other related activities, this has to be addressed or many other well-intentioned innovation activities will be in vain.
Australia seems to have a sparse mentorship community for entrepreneurs. A lot of successful Australian businesspeople made their money in mining, real estate or professional services (lawyers, doctors, bankers, accountants). While some of their business acumen can be helpful to startups, I’m being told there’s a gap when it comes to entrepreneurial role models.
I’m not comparing Australia to Silicon Valley, but to non-mainstream locations. For example, you can hardly visit a coffee shop in Portland without noticing mentorship sessions all around you. Meanwhile, the message I’ve received from Australian entrepreneurs is that relevant mentorship is hard to come by.
A huge (and often overlooked) source of great mentorship in the US isn’t the dot-com-millionaire so much as employees of big companies. Portland’s startup community was largely rooted in employees (current and former) of Nike, Intel, Xerox and Tektronix. Seattle has the Microsoft/Amazon/Boeing/Starbucks crowd. Boulder has IBM, Covidien, Seagate and Amgen. New York has IBM and the financial sector, which spawned the FinTech boom after the GFC.
The list of Australia’s biggest firms is dominated by banks and mining companies. This goes a long way towards explaining Sydney’s current boom in FinTech startups, but it also begs some unanswered questions. Does Australia need a stronger culture of mentorship between corporate employees and startups? Should it stick to its strengths, focusing on FinTech and mining-related startups? How can it better encourage or develop mentors?
Australians keep telling me their culture is risk-averse. I’m not sure if I agree with this, having met Australians along every waypoint of the risk-tolerance spectrum. That being said, I’ve noticed what seems like a difference between how large companies make decisions in Australia versus the US.
In the US, business relationships tend to start out somewhat hostile at first. Corporate Americans are wary of strangers and try to wall themselves off (unless it’s part of their job to reach out, such as in sales). Then, over time, external relationships improve as value is demonstrated leading up to a deal. Assuming both sides have shown value and built trust, the final decision to deal is relatively quick and definitive. There’s a sense of slowly climbing a mountain, but once you get to the summit it’s easy for both parties to quickly plant a flag.
In contrast, I’ve seen a handful of large Australian companies following a starkly different pattern. Unlike US firms that are standoffish at first, Australian firms seem to be initially warm, welcoming and easy to engage. Then, after value is demonstrated and trust is built, when it’s time for the final decision to deal, everything grinds to a sudden halt. There’s a sense of speeding towards the finish line, but once you’re almost there everything freezes – Matrix-style – and stops.
Keep in mind, not every big Australian company does this. Yet I’d be lying if I said it hasn’t stuck out like a sore thumb on occasion. My Australian colleagues tell me this is a to-be-expected cultural combination of FOMO (fear of missing out) and risk aversion. Companies are warm at first because they want to know what’s going on and value meeting people in their relevant markets. Yet many big Australian companies don’t encourage or reward their managers for taking risks on new startups or technologies.
This has the effect of incentivizing inaction: if no decision is made, corporate employees keep their jobs. If they do take a risk that works well, they usually don’t receive special rewards. If they take a risk that doesn’t work out, it’s a career black eye.
To the extent that this is true, it may be another challenge for Australian startups who depend on large domestic corporations as potential customers, channel partners, marketing partners, supply chain partners, acquisition sources or otherwise.
I’m bullish about Australia and its innovation potential. The levels of creativity, passion, entrepreneurial spirit and subject matter depth I’ve seen in Australia are world-class and rival any nation on Earth. I love living here and highly recommend it to anyone, entrepreneurial or otherwise, who might be tempted to check it out. Like anywhere, there are specific differences and challenges to overcome, and I won’t pretend to have a full grasp of how Australia works. These were just my initial observations as I try to sort out what’s the same, what’s different, what small role I might play to help, and what shape Australia is taking as its innovation puzzle comes together.