Over the past couple of decades, Australia, an island continent of 26 million that became rich by, among other things, mining natural resources, has developed into a modern powerhouse that actively works to foster a dynamic tech and startup scene.
To fully capitalize on that progress, Australian startups will have to overcome challenges like shortage of access to late-stage capital and a scarcity of executives with scale-up experience. It’ll also need to address its lack of founder diversity and funding accessibility for women and people of color.
Australia is shaped just as much by its peoples as it is by its industry. Some Westerners today might think of it as a place where the descendants of British convicts now sip flat whites and Barossa Valley shiraz when they’re not surfing around sharks and deadly box jellyfish. But Aboriginal Australians and Torres Strait Islanders have traversed the land for over 60,000 years, telling Dreamtime stories to instill a sense of responsibility and care for the land around them. Australia’s tech scene could benefit from incorporating such an approach.
Whether it’s getting startups to scale or creating a more inclusive environment, the challenges Australia’s tech sector face today can be overcome, particularly as Australia begins to focus more on technology as an export. The government wants its tech sector to contribute AUD$250 billion (~ USD$164 billion) per year to Australia’s GDP and to see 1.2 million people in tech jobs by 2030.
Recent government initiatives, such as the new skilled migrant visa and national funds dedicated to boosting Australia’s industry and economy, point to the country meeting or even exceeding that goal. Australia’s cultural identity also lends itself to success in the startup arena.
The country’s relatively small population and geographic isolation has resulted in a startup ethos of going global from day one and being capital efficient while doing so.
“Historically, it’s been harder to raise, so you had to make your capital go further,” Kate Pounder, CEO of the Technology Council of Australia, a peak body representing Australia’s startup sector, told TechCrunch. “And I think at a period of time where investors are looking for profitability and well-managed companies, not growth at all costs, that tends to be a strength of Australian firms.”
Australia is also a wealthy nation with access to world-class education, making it a breeding ground for a talented workforce. But it’s not as wealthy as the U.S. or certain European nations, nor is its startup ecosystem as mature, which investors say could translate to startup valuations that are more reasonable than what you’d get in the Valley — especially when you factor in the currency exchange.
Investors, take note.
A handful of software and fintech unicorns, like Atlassian, Canva and Afterpay, have drawn international attention to Australian tech. Those companies, alongside strong government initiatives, also helped create an ecosystem that is now in its third generation, where alumni from legacy Aussie companies have not only founded their own startups but are also actively investing in the next round of early-stage firms.
The addition of new technology sectors into Australia’s landscape could also help attract the necessary capital and business acumen, while creating a more inclusive environment. Historically, the Aussie tech sector has been ruled by software-as-a-service and fintech, but climate tech and deep tech are now gaining traction.
Government backing, a shift toward inclusivity and a reputation for building global companies are both attracting investment and turning Australia into a mature startup ecosystem. In fact, the Antipodean country may find that it’s becoming one of the world’s next startup nations.
SaaS and fintech put Australia on the map
Australia made a name for itself as a center of software after the dot-com boom of the mid-1990s, when startups like Seek and realestate.com.au sprung up. Between the 1980s and early 2000s, companies such as Microsoft, Google and AWS began opening offices in Sydney, drawn to the shared language and proximity to Asian markets. Together they made foundational investments in cloud infrastructure, which has created an environment for Australian SaaS platforms like Atlassian, Canva, Employment Hero, Dovetail, SafetyCulture, LinkTree, Culture Amp, Envato and more.
Atlassian, which develops collaboration software for developers, went public on the Nasdaq in 2015 at a $4.4 billion valuation, raising $1.6 billion at IPO. [Numbers are in AUD unless otherwise stated.] The company is still headquartered in Sydney. So is Canva, the platform that’s democratizing access to graphic design. Canva hit a $40 billion valuation in 2021, which has since been marked down to account for shifting macroeconomic conditions.
Enterprise and business software was the second-most-funded sector in Australia’s startup landscape in 2022 at $1.2 billion, according to a report from Cut Through Venture and Folklore Ventures.
The top-funded segment in 2022 at $1.3 billion raised was fintech, one of Australia’s strongest exports. The country has a reputation for producing world-class financial institutions, a prestige that spans back to its Gold Rush in the 1850s. The infrastructure created then, coupled with a supportive regulatory environment and a tech-savvy population, has helped Aussie startups go on to revolutionize convenient solutions like buy-now, pay-later (BNPL) services, peer-to-peer lending platforms and digital banking alternatives.
Shannon Scott, SVP and global head of product at Airwallex, a fintech platform designed to help businesses grow beyond their borders, said that’s because Australian financial services were already well set up with peer-to-peer payments and tap-to-pay machines long before the U.S. was. As a result, U.S. startups built solutions to bypass financial systems, which could look like cryptocurrencies in the extreme case, or even solutions like Venmo.
“Australia didn’t need startups that were reinventing the entire system themselves, which requires a lot of activation energy and depth of investment to get started,” Scott told TechCrunch.
Airwallex last year raised a USD$100 million round at a USD$5.5 billion valuation.
Notable exits in the fintech space include BNPL companies Afterpay, which was acquired by Square for USD$29 billion in 2021, and BigCommerce, an e-commerce platform that went public on the Nasdaq in 2020 and hit a $5 billion valuation after its first week of trading.
Other standout startups include Zeller, which helps business owners accept payments, manage finances and pay recipients, which has raised $181 million; and Constantinople, a SaaS platform for banks that includes customer experience, banking products and more.
While fintech is still seeing investment in Australia, the sector’s hype may be deflating. It was notably absent from the top 15 most exciting sectors for investors in 2023, according to the 2022 report. By the end of the third quarter of 2023, fintech also dropped out of the top five funded sectors for the first time in two years, according to a separate quarterly report.
Climate tech and deep tech are the future
Meanwhile, Australian VCs are most excited about climate tech and clean tech. In Q3 2023, the sector dominated in funding and deal count, hitting the top five investor favorites after a post-2022 dip. Startups in these industries raised $116 million in the third quarter across eight deals. That’s up significantly from the $60 million invested in the segment in Q2 and $40 million invested in Q1, according to Cut Through Venture data.
“For a long time, a lot of the solutions that were attacking the climate problem were solutions that your typical software investor [didn’t have] in their skill set,” Dan Krasnostein, partner at Square Peg Capital, said. “There was heavy hardware, it was very scientific. And we are now seeing a lot of these climate solutions look much more like your typical software business, and software solutions that are driving some of those solutions.”
Investors have also pointed to Australia’s deep tech space, specifically quantum computing, as one that is growing quickly. The Australian government has a national quantum strategy to expand the quantum economy and assist the commercialization and adoption of the tech. Companies like Silicon Quantum Computing, which is building a silicon-based quantum computer, and Q-CTRL, a quantum sensing startup, have raised large rounds in 2023.
Gabrielle Munzer, a partner at Main Sequence Ventures, says Australia’s deep tech sector stems from a research ecosystem that’s “like an Aladdin’s cave: dripping with opportunity.”
“Because [deep tech] leverages a very strong education sector, which is a major export for this country, and a connectivity to some really strong sovereign industries like renewable energy supply chain and food production and manufacturing, for example,” Munzer told TechCrunch.
“Deep tech investing is exciting when it comes out of a research sector that’s highly ranked. And we’re fortunate to have that in Australia over many decades. The scientific institutions here rank in the world’s top 1% in more than 15 fields of research.”
Health and medtech also have a role to play in Australia’s startup future, said Pounder of TCA. Advancements are driven by large government investments into healthcare research, a generous public healthcare system and a population that’s increasingly willing to pay out of pocket for private healthcare, according to Pounder.
“We also have a really diverse population so the datasets that creates are quite novel for the world when trying to diagnose conditions that are more prevalent within certain populations,” she said.
Startups like Harrison.ai, which uses AI to create medical devices, and Eucalyptus, a telehealth platform, have brought on foreign investors in recent years. Other software-focused health tech startups like HealthEngine, WoeBot Health and Mable are close to reaching unicorn status by some metrics.
Government initiatives designed to help startups scale
To attract fresh talent to help local firms acquire specialist workers, on December 11, the Australian government announced its 10-year migration strategy, including the new “skills in demand” visa: a four-year visa that aims to attract fresh talent to help local firms acquire specialist knowledge, niche technologies or research expertise not available in Australia.
The Tech Council of Australia and other peak bodies applauded the visa change as it provides a pathway to address critical shortages of talent in the tech industry.
Australia’s government has been providing support on a national level to the tech sector for years. Dedicated schemes like the Venture Capital Limited Partnerships (2002) and Early Stage Venture Capital Limited Partnerships (2007) have offered tax incentives for VC investment, which has encouraged the flow of funds into early-stage, high-growth startups.
The government also provides R&D tax incentives and grants to Australian businesses looking to expand internationally. Other programs, like the Entrepreneurs’ Program and the Incubator Support program, provide funding, mentoring and networking opportunities.
The Australian government has also taken steps to facilitate institutional investment in venture capital. Australia’s superannuation funds — which collectively manage one of the top five pools of retirement savings globally at over USD$3 trillion — invest heavily into VC and even specific startups.
On a more local level, the Victorian government has been backing its startup sector with funds and programs dedicated toward helping fuel early-stage growth. In 2020, the Victorian Budget delivered a landmark $2 billion Breakthrough Victoria Fund to stimulate commercial activity in the state and create a pipeline for almost 16,000 tech jobs.
VCs in Australia told TechCrunch that these initiatives have been instrumental in boosting the startup sector and supporting a more robust venture capital scene, but that there is more work to be done. For example, diversity in Australia’s startup and funding landscape is inadequate.
More opportunities needed for women and indigenous founders
When thinking about racial diversity in Australia, a scene from a YouTube comedy series called “How to Talk Australians,” a skit about an Indian linguistics school that’s teaching prospective Australian migrants about the country’s culture and idioms, springs to mind.
“A recent survey revealed that 30% of Australians are casual racists,” says an Indian man in a deadpan voice, pointing at a pie chart with a kangaroo claw back scratcher. “Which means that the other 70% are full time.”
Australia is a racially diverse country, but non-white populations are still very much the minority. Many have detailed the everyday racism they face in the country. When it comes to the startup landscape, representation is not on par with the country’s ethnic breakdown.
There’s little data to back it up. In fact, we couldn’t find any measures of how many startups have non-white founders and how much venture capital goes to those companies.
When it comes to indigenous founders, the data is also lacking. The State of Australian Funding report says there was a rise in 2022 in the number of indigenous startups, but doesn’t go into specifics. The report does allude to there being more pathways to capital, investment allocation, dedicated accelerators and funds and organizations that support indigenous entrepreneurs.
One such new investment network has been dubbed the Blak Angels, which is supported through a collaborative partnership between the U.S. Consulate General in Perth, the Minderoo Foundation (a nonprofit tackling global issues like climate and inequality) and a team of First Nations investors from Australia. (In Australia, “Bla(c)k” represents Aboriginal and Torres Strait Islanders, African Australians, Pacific Islanders, etc.)
“The goal is to give access to First Nations people to be part of the startup ecosystem and build wealth from having an investment vehicle that gets access into high asset building ventures,” Darryl Lyons, co-founder of climate tech company Rainstick, told TechCrunch. Lyons belongs to the Maiawali Nation of Queensland, and noted that he personally only knows of two other indigenous founders who had received investment in Australia.
Lyons said the initiative is one part investment vehicle, one part trade mission. In April, the Blak Angels will travel to the U.S. to engage with and learn from investors from Native America, Latino and Black communities in the U.S. investment ecosystem. The following month, a delegation of American investors will visit Australia to meet with the Blak Angels and other indigenous leaders and organizations.
The Minderoo Foundation has also provided $150,000 in seed funding to startups with Aboriginal or Torres Strait Islander founders and helped attract more than $4 million from angel and VC investors. Startmate, an accelerator, invested in at least four indigenous startups from 2021 to 2022, including Rainstick, Pearlii, Vets on Call and Provvy.io.
First Australians Capital, an indigenous impact fund, has attracted in the second half of 2023 over $12 million in funding to its Catalytic Impact Fund, which offers debt finance of up to $2 million for Indigenous-led businesses creating social and environmental impact. The fund has secured support from Jack Dorsey, former Twitter CEO and founder, and the Cages Foundation, a philanthropy dedicated to providing opportunity for indigenous Australians.
Despite the lack of opportunity for indigenous founders historically — and despite the fact that Australia just voted against a referendum to include an indigenous voice in Parliament — the unique value proposition of Aboriginal founders may be hard to ignore.
Investors in Australia told us that what they’re looking for in a startup has changed. Where once the priority was growth-at-all-costs, now it’s about sustainability and impact investing. Indigenous businesses are known for prioritizing social capital and long-term goals over short-term financial gain. They focus on sustainable practices, cultural preservation and community development — values that are finally getting attention in the VC funding environment.
Funding for women in Australia is also rather dire, although less so. In 2022, only 23% and 10% of the total deals went to teams with at least one woman and all-women founding teams, respectively. The percent of total capital invested in teams with at least one woman founder and all-women led teams fell to 10% and 3%, respectively. The U.S., by comparison, saw its total capital to teams with women founders rise from 12% in 2020 to 16% in 2022.
While early-stage funding was somewhat available to female founders, late-stage was absent. The majority of women, 83%, say they believe their gender affected their ability to raise.
Stalling at the scale-up phase
Australia’s tech ecosystem has hit a maturation phase, but to keep that going, the country will need to help startups scale up.
Early-stage investment boomed in Australia in 2022, but later stages saw a decrease in overall investment. That’s not exactly unique to Australia. Globally, investors were more cautious last year amid inflation and fears of a recession. But Australia’s later-stage deals fell in numbers even in comparison to funding in 2019.
Part of the problem is a talent one, which is where initiatives like the skills in demand visa can help.
“We have structural gaps in our market for highly experienced, deeply technical talent, which is kind of a function of systematically undertraining people over multiple decades at a level that did not keep pace with the rate of growth in tech jobs,” Pounder said. “That accumulates over time, and you find you get this problem of needing a person, not just with technical skills, but with 10 years’ experience. Like if you’re looking for a senior cybersecurity specialist or a CEO, you can’t take someone with only a few years’ experience.”
Executives with scale-up experience are more rare in Australia than other startup ecosystems; only 1% of people working in Australia’s tech sector have experience scaling up a firm, Pounder said. Singapore, for comparison, has around 17%.
“When you’re starting to build global companies and exporting from very early on products built for global markets, the experience of doing that before is really invaluable,” she said.
This is where the talent problem in Australia becomes a bit of a vicious cycle. Since startups in Australia have less scale-up experience than their counterparts in other nations, they have trouble getting the funding needed to make it past Series C and really scale. Lack of funding, which is also due to Australia’s ecosystem being young and remote, also limits startups’ ability to attract and retain experienced talent. That’s especially true when the salaries in the U.S. far exceed those an Aussie tech company will usually pay.
But it’s not like Australians are suffering financially. Tech industry salaries are still high, and quality of life in Australia is top-tier. Melbourne and Sydney are consistently ranking as some of the most livable cities in the world, and this year took third and fourth place in the Economist Intelligence Unit’s June 2023 survey. That ranking was in part because of the cities’ robust economies, low unemployment rates and high average incomes. Aussies with global experience who are sick of the American grind-set might be ready to come home and bring their know-how with them. And with the government’s new skilled migrant visa in place, many others might be attracted to the idea of a laid-back lifestyle and a safe place to raise kids.
“I just think the quality of life is through the roof in Australia,” Scott said. The Airwallex executive spent over a decade working at Palantir overseas before coming back to Australia. “For me personally, I think it was just a recognition that Australia was a really great way to live your life and that it’s big enough and has a strong enough economy to still be able to provide these great tech scale-up opportunities.”
The startup has retained its product engineering and design roots in Melbourne, despite being a global company. This is a trend that many Aussie startups follow, and it might be attractive to investors. While Airwallex says it pays world-class salaries to attract and retain world-class talent, not every Aussie startup would have the resources to do the same. Investors could see that as an opportunity to boost excellent local talent at a more affordable price point.
“Only 10 or 15 years ago, if you raised a round from a U.S. venture firm, you were expected to move your whole engineering team to the U.S., and also your sales and marketing teams,” said Craig Blair, co-founder and partner at AirTree Ventures. “We think it’s a competitive advantage to keep your engineering team in Australia.”
Startup Genome puts Australia’s top ecosystem, Sydney, in “attraction” phase, meaning its primary goal is to attract global talent and expand into the so-called “integration” phase. Australia has the bones to do that, to become a global hub of knowledge and innovation and a self-sustaining growth engine, with global business models and reach. The country has punched above its weight on a global scale for years. Now it’s time to see if the ecosystem can attract the funding and talent, and become inclusive enough, to play at the top.