It is no secret that start-up funding in Australia, at seed, angel or venture capital (VC) stage, is not as robust as advanced markets such as the United States. The past 12 months have certainly seen much improvement with companies such as Blue Sky and Blackbird Ventures pumping in over $50 million into the market.
But we still have a way to go. Lacking definitive industry statistics, Rick Baker, managing director of Blackbird Ventures ‘guesstimated’ last year that for about 1,000-1,200 start-ups, about 100 got funded.
In addition to a spate of new angel investors, grants, incubators, and VC’s financial and growth support for the start-up sector is coming from an unlikely source, one that has traditionally been deemed as competition – big corporations.
The big end of town active in start-up sector
James Moody’s Sendle, a door-to-door parcel delivery service that competes with Australia Post by offering to move packages under 10kg for less than $10, recently closed a $1.8 million funding round, of which $1 million came from The National Roads & Motorist’s Association (NRMA).
NRMA is not alone in this space:
- Westpac launched a $50 million tech-focused venture capital fund Reinventure Group.
- Telstra Ventures has invested in 19 global and local high growth technology and solutions companies.
- AMP launched AMP New Ventures to invest in start-ups.
- Cisco invested in Blackbird Ventures.
This level of robust activity and funding in the start-ups is great because it helps fuel the innovative spirit of the nation and gives confidence to those with visionary ideas and solutions for existing problems or market gaps to make their dream a sustainable reality.
A few decades ago, business lines were clearly categorised and each sector had its role to play. The internet of things and digital disruption changed all that and made innovation and technological acclimatisation imperatives to success. As disruptive players such as Uber and Airbnb get entrenched into how we function as a society, we are beginning to see their influence extend beyond business and marketing functions to impacting governments and public policy.
Big companies have realised that to be relevant in rapidly fragmenting customer lives, they have to innovate and go to market quicker. Unfortunately, their structures are not conducive to the speed change required.
Moody credits the rise in corporate ventures to the fact that start-ups can do many things corporates can’t. He says that start-ups can iterate quickly and focus on just one product – and make it a beautiful one. Uber and others are proof that it is better to have a 100 per cent solution for 80 per cent of the market, than to have an 80 per cent solution for 100 per cent of the market (which is what many corporate players have).
Corporate venturing is not new; Intel – the poster child in this space – has been doing it for decades. But the pace has definitely picked up over the last few years – in direct parallel to the start-up culture. The Economist says that over the past five years the number of corporate-venture units worldwide has doubled to 1,100. America’s corporate investors have been involved in 18 per cent of the country’s venture-capital deals in 2014. The investors are pouring in from varied industries such as convenience stores (7-Eleven), chemists (Boots), financial firms (Visa and Citigroup) and carmakers (BMW).
Dotcom era comparisons
Sceptics are wary about this trend given that the last time we saw this level of corporate investments, it was the dotcom era and, we all know how that bubble burst.
But as an investor, I argue that the major difference now is that investors are not just handing out cash for profits as it was in the past. Corporates are more vested in using their expertise to invest strategically in start-ups aligned with their business values. They, like others in this space, want the talent, product and services that make start-uups the success they are or could be in future.
Over the coming years, we can expect more big names to start investing in start-ups – particularly in technology. As Moody says, “Ultimately, all industries will be in the ‘tech space’ and software will continue to disrupt traditional industries. There are only two types of businesses: those who know they are software companies and, those that don’t know they are software companies yet.”
With shrinking revenues from traditional industries such as minerals and manufacturing, it is time for corporate Australia to stimulate the next phase of economic growth by investing in innovation. Australia’s growing start-up ecosystem needs funding to create more locally driven global success stories and ensure future growth. In this hyper-converged reality, collaboration and mutual support will be the roadmap to economic prosperity.