When I visited Melbourne in early March, I found that it was for easier for Australians to punt on the Melbourne Cup than invest in private, emerging start-ups. In fact, Australians bet an estimated $140 million alone on last year’s race. Australia’s investment culture has an innate problem when short risks (yielding lower rewards) is preferred over longer term investment with lower risk.
As a start-up adviser who has worked across international markets, I’m perplexed by the concept. Upon further analysis of the culture and sentiment around investment, it’s not hard to see why. A huge requirement exists for the Australian start-up ecosystem to work with industry and policy makers to make money work smarter, bring new capital and investors into the market and change the way people view start-ups as an asset class.
During my recent visit to Australia with Startupbootcamp Melbourne, it was clear that upon speaking to investors (both inside and external to the start-up scene), the desire to invest exists, however the environment is hostile and confusing, particularly for newcomers. It is evident that Australians are exceptionally limited in their capacity to invest in start-ups and not much is being done to make this attractive.
A common question I am usually asked is how can the sector improve the palatability of investing in local rising stars? My advice is to look to global leaders like the UK and Europe, iterate and build a better model. There are three key ways to do this.
Firstly, reduce risk. Tax incentives like the UK’s EIS and SEIS tax schemes provide a good way to invest with lower stakes. Australian initiatives like the ESIC tax incentives or recent passing of the Corporations Amendment (crowdsourced equity funding) are a good start, but red tape and lengthy applications are deterring founders and investors from applying. Policy makers need to implement easy-access incentives, like tax-back safety nets to make failure safer, tax relief to make success more likely and tax breaks to build investor confidence.
Secondly, drive education. With any investment, an understanding of the asset class is crucial. Put simply, if people don’t understand start-ups, they won’t invest. Limited knowledge and awareness of the space is detrimental to growth. More education and awareness among everyday Australians is needed to change the sentiment around start-up investment to attract new dollars.
Accelerators and start-up organisations have a responsibility to drive awareness and education among new audiences about the space. At Startupbootcamp we’re actively trying to engage with the market and invite new individuals in to learn about the ecosystem through events, meetups and programs. We’ve recognised a lot needs to be done to rebuild credibility of accelerators and organisations, particularly in the eyes of corporates who have been sold the start-up innovation dream by agencies but have failed to see results.
Finally, it’s about better supporting start-ups to increase the chances of success. This includes helping them network and connect with the right corporates, mentors and advisers who have specialist knowledge and can open doors for them. Access to capital and influential people can be make or break for a start-up, and recent policy reforms around accessing international talent may have a negative impact on this.
The reforms announced to the 457 Visa are concerning for both investors and start-ups in the Australian market. Although tightening the rules to limit unskilled or underqualified overseas graduates may be a sensible policy to local access to these jobs, it is counter-productive for the tech sector which has a skills shortage. As start-ups scale for global success, hiring world class talent is crucial. Atlassian, the shining light in Australian tech scene has 25 per cent of its 1000 staff on 457 visas. Without access to these staff, Atlassian would unlikely be as successful as it is. Investors also become wary when government policy creates unnecessary hurdles to success, especially when access to talent is as crucial as investment in early stage companies.
Realistically, Australia currently produces a much smaller number of successful start-up exports in comparison to more developed markets, however it’s not hard to recognise a strong pool of passionate, talented entrepreneurs and a receptiveness from both Government and industry to drive the sector’s growth. But Australia’s investment mindset needs a complete overhaul. By tweaking policy, driving education and building stronger support structures, Australia has exceptional potential to unlock a lucrative market.
Andy Shannon is global COO of Startupbootcamp
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