Monthly Archives: September 2018

Why Can Sydney Emerge As The ‘Startup Capital Of The World’?

 

Sydney is the land for startups

 

Earlier this year, the Startup Genome Report confirmed the status of Sydney as the biggest hub for startup businesses in Australia (and indeed, one of the best places in the world for setting up a new business). Close to 65% of all the startups in the country are located in Sydney, with Melbourne and Brisbane taking up the (distant) second and third spots. Young, knowledgeable and enthusiastic entrepreneurs (average age –> 29.7 years) are driving the scene forward, and financial technology is the biggest startup sector in the country – with edtech and adtech startups also being fairly common. In fact, the Global Startup Ecosystem Report 2018 reported that Sydney is the best destination in the entire Asia-Pacific for startup owners to ‘get connected’ and ‘build their professional networks’.

By the first half of 2017, the total number of startups in Sydney had touched the 1600 mark. Every quarter, this figure continues to swell at impressive rates. What are the factors that make the ‘Harbour City’ so attractive…and so rewarding for startups? Let’s take a look:

  1. A strong, thriving economy

More than 27 years – that’s how long the Australian economy has managed to stay away from recession (the last recession in Australia happened in the early-nineties). That alone gives us a clear indication about the strength and sustainability of the domestic economy. In terms of per-capita income, Australia occupies the 9th slot (the list is, somewhat surprisingly, topped by Luxembourg) in the world. The robust growth rates of the job market is a key factor, with minimum wages hovering around the $15 mark. The healthcare facilities and public education infrastructure – two essential pillars in any economy – are also excellent here. For startups, the strong economic growth and stability in Sydney (in particular) and Australia (in general) works like a charm.

Note: USA and China have the two largest economies in the world. Australia comes in at the 13th spot.

 

      2. Sydney and tech startups: a match made in heaven

Really, there is no other way of putting it. On the national level, tech startups are expected to deliver a whopping $110+ billion to the Australian GNP by 2033 – and Sydney is fast emerging as the best city Down Under for these startups. The Tech Startups Action Plan, which was kickstarted in 2016, is molding the infrastructure and is playing a key role in the creation of a pro-startups ecosystem – making talent acquisition easier, providing easier & better investment opportunities, establishing stronger business connections, and giving a significant boost to entrepreneurship in general. Over the last decade or so, not only has the number of jobs in Sydney grown manifold – but there has also been a definite shift towards professional-level business and financial services. As such, startups belonging to these domains have rapidly come on to the scene. By 2030, Australian tech startups will generate >500,000 jobs.

Note:Springboard Enterprises Australia has been right at the heart of the growth of women entrepreneurship in the country.

 

       3. Excellent networking opportunities for startup founders

Some of the biggest business conferences in the world are hosted in Sydney every year. These high-profile corporate events serve as great platforms for the startup-owners to go out there, meet like-minded people, grow their professional networks, and (hopefully) strike up mutually beneficial strategic partnerships. In addition, there are also scopes to pitch businesses to highly targeted attendees – facilitating greater awareness levels among industry experts and getting startups off to a strong start. Sydney effectively busts the myth about business networking being only about making phone calls & sending emails – the city actually allows entrepreneurs to meet, interact, and UNDERSTAND each other’s businesses.To meet over a coffee’ is a buzzing catchphrase in the city – and lots of important business discussions take place at these meetups. The fact that Sydney’s coffee culture is top-notch also helps!

 

Note: As a result of the easy networking scopes available for entrepreneurs, the number of co-working spaces in Sydney is also rising rapidly.

 

      4. Strong venture capital fundings are helping

In 2018 Q1, the total venture capital (VC) investment in Australia was northwards of $130 million, with both national as well as overseas investors showing ever-increasing interest and commitment levels. From a not-so-strong position even 3-4 years back, the Australian economy – led by Sydney and Melbourne – have undergone a complete makeover, and have emerged as extremely ‘VC-worthy’ markets. Given that Australia is one of the wealthiest nations across the globe and the business environment over here is excellent, it’s hardly surprising to find that there is ample scopes for new startups to enter, and thrive, in practically all the sectors. What’s more, there is an increasing willingness among young Aussie entrepreneurs to take calculated risks…to check out new, innovative lines of business. For a Sydney-based company, getting access to VC funding is definitely not a problem.

Note: Despite coming to Australia much later, Uber currently has a higher adoption percentage here than in the United States. Blackbird, AirTree and SquarePeg are classic examples of Australian businesses that raised big funds in 2017.

 

       5. It’s a question of perspectives & outlook, and Sydney’s winning

Sydney is one of those cities where you just know that you can ‘get things done’, so to speak. The telecom infrastructure in the city is great, IT systems and intelligence are cutting-edge, public transportation is smooth & hassle-free, and due importance is placed on the maintenance of law and order. The typical Australian way of life – mixing innovation and creativity with sheer hard work and dedication – is ideal for drawing in the best talents from all over the world to this country. With Sydney fast emerging as the ‘tech startup hub of the country’, it’s only natural that a large cross-section of this multicultural workforce end up working in this city. Add the attractions of the beautiful beaches, the nothing-short-of-awesome sights & scenery, and the clean & healthy environment, and it becomes evident why Sydney is held in such high regard by startup founders from all over. The city has a true global outlook – and it’s a great place to do business in.

Note: The Sydney timezone overlaps with those in several capital cities in Asia, as well as that in the West Coast of USA. This is particularly helpful for startups that have overseas offices.

 

    6. The government is helping in a big way

Sydney Angels, the biggest angel investment group Down Under, has invested in 50+ startups since 2008, according to a report last year (the total investment figure is $193 million). The government is doing its bit to bolster angel investments – a key element for the success and sustainability of startups – further. For starters, there are lucrative deductions from the annual tax bills of angel investors – and what’s more, these savings are outside the purview of capital gains tax (CGT). For startups actively involved in research activities, the hefty R&D tax credit system (amounting to more than 40% of the total research spendings) is a great incentive. It is not mandatory for a company to report profits, to be a beneficiary of R&D tax credit. As a result, it is easy to arrange the required funds for in-depth researches, and the hiring of skilled executives. Yet another factor that helps Australian startups is the expert advice and consultations provided by seasoned entrepreneurs. When a startup in Sydney applies for angel investment, it is likely to get much more than just the money.

Note: The government also offers a series of grants and aids – like funds for startup hubs, local and state-level aids, and of course, the research grants.

 

     7. Growth rates are encouraging

According to a Startup Muster 2017, nearly 20% of all Australian startups are located in Queensland – making the latter the 2nd most attractive place for startups. At the head of the pile is New South Wales, with Sydney right at the forefront of the startup scene. The state growth rates are uniformly high, the universities are playing a pivotal role in the generation of talented manpower, and there are openings for entrepreneurs to actually use the services and expertise of one another. The growth momentum of Sydney as a haven for startups has been continuing for several years now. Startup owners view this as a positive signal and gradually gravitate over here. It’s a classic case of ‘growth fueling further growth’.

Note: The friendly governmental regulations make the task of purchasing or renting properties in Australia relatively straightforward. As a direct result, the total number of properties in the country is steadily going up.

 

    8. Value for money is what you get in Sydney

Sydney is an upscale global city, and as such, boasts of a uniformly high standard of living. Things are not particularly cheap – and big investments are required if you wish to establish your company in the city’s Central Business District (CBD). Acquiring skilled manpower is not exactly cheap either, thanks to the relatively high minimum wages. The general prices (yep, including that of coffee!) might also seem to be just a tad on the higher side. However, it has to be understood that Sydney is a city where you get what you pay for – right from posh locations for your business and top-class business networking, to the best workforce and, of course, amazing coffee. Entrepreneurs over here have realised one thing – that good things often cost a bit more – and they are absolutely okay with it.

Note: The cost of living index in Sydney is 78.67. The CLI is ~190% higher than that of New Delhi, but almost 22% lower than the CLI of New York.

 

    9. Sydney – The land for innovators

Right from people with interesting, out-of-the-box ideas, to the necessary support infrastructure to get them implemented – Sydney in particular, and New South Wales in general, has just the ideal ecosystem for startups. It won’t be stretching things to refer to the city as being in a state of ‘constant transition’ – with newer, better innovations coming into the picture (the recent $80 million investment by the government shows that the authorities are also well and truly invested in this growth). Dynamic, forward-looking startups are dominating the business scene in the country – and technologies such as artificial intelligence (AI) and IoT are being harnessed for a wide range of purposes. Contrary to the popular misconception of the Australian business sector being mostly about mining and manufacturing, the high-tech startups are the ones that are generating the most value. The reports of senior tech entrepreneurs returning from US and European cities to start businesses in Australia bears testimony to that.

Note:Tonsley is the name of the very first ‘innovation district’ in Australia. It is primarily focused on 4 key domains – renewable energy, energy/mining, software development, and medical/healthcare services.

 

    10. Relatively lower competition and easy availability of resources (including labour)

As we have discussed earlier, venture capital is abundant, and rather easy to access, for startups in Sydney. However, the number of companies actually looking for funds at a given point of time is typically low – and that, in turn, keeps the overall competition levels manageable. Apart from increasing the probability of getting the investment, it is not particularly difficult to get coworking spaces and be a part of accelerator programs either. Another thing that has to be kept in mind while analysing the popularity of Sydney as a startup hub is the affordability of labor and other key resources (read: rent, capital). On average, these are considerably cheaper than the corresponding costs in, say, Melbourne or San Francisco. Sydney is not quite the ‘new Silicon Valley’ yet, but it’s getting there.

Note: A recent study revealed that 1 out of every 3 Australians wish to start their very own business.

 

      11. A change of mindset is driving things forward

Meet the new-age Aussie entrepreneur – a person who does not hanker after profits and money, but wishes to work for the ‘greater good of the society’. That is the picture painted by the recent ILO (International Labour Organisation) report – which revealed that an overwhelming 85% of startup owners in Australia are no longer driven by monetary incentives alone. More interestingly, it was found that around 38% of these entrepreneurs were solely interested in creating ‘great products’. Right through Sydney, and across most other parts of Australia, this new wave of thinking – balancing global transformation with personal profits – is taking over. More and more entrepreneurs who are like-minded are coming together, resulting in a proliferation of the startup scene in the country. Startups need to mean more than the revenues they generate, and the experts in Australia are already well-aware of that.

Note: In many major European cities, the level of governmental support for new enterprises is gradually going down. Sydney offers a welcome exception to that.

 

    12. Economic stability is making long-term planning easier

The startup picture is indeed rosy in Sydney at present, with the government pitching in, high-speed support infrastructure services being readily available, and a conducive entrepreneurial ecosystem already in place. However, the billion-dollar question (both literally and metaphorically!) revolves around the viability of this scenario in the long-run. There have been numerous cases of promising startups fizzling out within the first few years. In Australia though, there are no such risks in the foreseeable future – and the credit for facilitating a long-run mindset among entrepreneurs lies with the country’s stable economic and political system. At a time when both the United States and Europe are being affected by political/economic uncertainties, the stability of the Australian society comes across as a key factor for driving up the growth of startups over here. There are little or no chances of Sydney’s ‘startup revolution’ slowing down in the foreseeable future.

For all the factors going in favour of Australian startups, there are a couple of points to worry about as well. Traditionally, many Australian venture capitalists are extremely reluctant to take risks – and that mindset has to change, to give innovative startups a chance. The overall business culture – with the success of non-local companies not always looked very kindly upon – has to evolve as well. For a number of Aussie startups, the absence of suitable exit strategies is a common pain point. Fortunately, each of these hurdles are already getting resolved – and in the next half a decade or so, Sydney will consolidate its position as one of the world’s ‘startup capitals’ further.