News & Analysis

Why tech startups play an important role in Australia’s economy

- August 15, 2013 3 MIN READ

A plethora of research reveals tech startups will play a significant role in the future of Australia’s economy.

While there is a lot of uncertainty around what may come about following the Federal election, a PwC report from April 2013 reveals tech startups have the potential to produce four percent of Australia’s GDP (Gross Domestic Product) by 2033.

Commissioned by Google Australia, the report estimates that in ten years, tech startups could contribute AUD$109 billion and 540,000 jobs to the Australian economy.

“The growth of the Australian technology sector is essential to the future success of the economy” (PwC: The Startup Economy, April 2013, p. 9).

Evidence from the Comprehensive Australian Study of Entrepreneurial Emergence (CAUSEE) suggests that even though the proportion of the population actively engaged in business creation is higher in the US (4.9 percent) compared with 3.4 percent in Australia, Australian startups compare well on indicators of quality.

The study finds that Australian startups are:

  • less likely to be motivated by necessity or lack of alternatives;
  • more likely to be growth oriented;
  • more likely to emphasise research and development; and
  • more likely to be based on young and/or sophisticated technologies.

Similarly, the Global Entrepreneurship Monitor (GEM) reveals that Australia has the highest proportion of startups motivated by “improvement driven opportunity”.

With over half a million Australians involved in early stage entrepreneurial activity at any point in time, it is safe to say we’re a serious contender on the global stage of innovation.

But there are five key actions, according to the PwC report, that need to be taken to accelerate the growth of Australia’s tech startup ecosystem:

1. Enhance culture and community engagement

To promote an increase in participation in the sector, Australia’s tech startup community needs to continue to build a culture of openness and inclusion by:

  • celebrating entrepreneurship and encouraging the broader community to participate;
  • encouraging entrepreneurs to try again and again; and
  • recycling knowledge and capital back into the community.

2. More entrepreneurs with the right skills

Australia needs to rapidly increase the number of tech entrepreneurs to 43,000 by 2033. Out of the 54 percent of Australians who find entrepreneurship an interesting career path, 19 percent will embark on their entrepreneurial journey. This means we need more people interested.

In the short term, we need to focus on getting the existing workforce interested in entrepreneurship and in the longer term, we need to encourage more Australians to study computer science.

3. Open up markets to Australian tech startups

The domestic market for Australian startups is relatively small with a population of only 23 million, compared with 314 million in the US and 63 million in the UK.

However, Australian governments and large companies are still significant consumers. The Australian Government had procurement contracts totalling $41 billion in the 2012 financial year. Australian businesses spent $2 trillion on total purchases of goods and services (including wages) in the same year.

But reaching governments and large companies has traditionally been difficult for startups. Australia needs to open up these markets and provide ways in for tech startups.

4. More early stage funding

Funding for the Australian tech startup sector exists, but is limited. There is considerable competition for funding at all stages of the startup lifecycle, particularly in the early stages.

Only $53 million was invested in 62 first round deals in 2012 out the $600 million that was available amongst 12 accelerators and incubators, 500 angels, 10 angel groups and 20 VC funds.

5. Improve the regulatory environment

Governments are often called upon to make sure the conditions are right for startups to flourish, however the role of the government in the ecosystem to create a supportive environment for innovation and entrepreneurship is limited.

There is plenty of potential for the government to do more in this area.

The PwC report also suggests that one of the biggest detrimental factors to startup growth is our overwhelming “fear of failure”. Given how well Australia is doing, it’s time to put the fear aside and take initiative. Think of a problem, find its solution, and your chances of success are pretty high.

Check out Dan Norris’ 12 actionable steps to build a tech startup for a kickstart motivator.