A few years ago, we published the first iteration of Australian tech companies with a valuation chart of over $ 100 million. Since then, things have only sped up, and we have the numbers to back this up.
In 2018 Australia had a lone unicorn: Canva. At the time of publication, more than a dozen companies had joined the unicorn club, and we know there are a ton of acorns that will soon be listed in the table below.
Research by the recently formed Tech Council of Australia found that:
The economic contribution of the technology sector has increased by 79% since 2016, exceeding the average growth of the economy by more than four times;
The sector contributes 167 billion dollars to GDP, equivalent to 8.5%. By 2031, the Australian sector could contribute $ 244 billion annually to GDP; and
Tech jobs grew more than twice as fast as the average job in the last decade. By 2025, the tech sector could employ 1 million Australians.
We are fortunate to have a front row seat to this spectacular display of ambition and innovation. So what have we learned and observed along the way? And what do we hope to see from here?
Here is the view from AirTree
When I was running my startup in 2013, there were only a handful of companies that you could point to as breakout successes – now, there are almost too many to keep track of!
It’s especially great to see that more and more of our top startups are recognized as global category leaders. From Canva in design to A Cloud Guru in cloud security training, and Go1 in business learning. These companies are putting Australia on the map as a superior ecosystem for technological innovation.
It’s clear to me that there is a self-reinforcing success loop that begets success, with industry success encouraging:
More startup training, since the founders see starting a startup as a viable path;
More scale-ups, as successful startup founders and employees share their knowledge and experience; and
More investment, not just from funds like AirTree, but also from founders and employees leaving and reentering the ecosystem through angel investing.
I’m especially excited that businesses are transforming the way we live and work, especially if COVID has accelerated those behaviors.
A couple of companies I work with that have hit the mark here include:
Mr. Yum, who are advocating for the switch to contactless ordination; and
Chemist2U – they are changing the way people buy medicine.
I’ve also been digging into the climate tech space and would love to see more AUS breakout companies there. There is a great market opportunity, which is also important for our society. If you are building something interesting in those spaces, I would love to chat!
A magnet for the best talents
Every time I see this graphic it reminds me of Matt Clifford’s excellent history lesson on “Technologies of Ambition”:
“What the most ambitious people choose to do with their lives has a profound impact on society, the economy and culture.”
Centuries ago, the most ambitious young people joined the church or the military. More recently, they disengaged from finance and consulting. In recent years, the technology of ambition has shifted towards entrepreneurship.
This chart demonstrates what we notice in our meetings with the founders each week: more and more ambitious people are choosing to start companies, and companies who choose to start have higher ambitions.
The chart is a lagging indicator. Considering the acceleration in quality and the aspirations of early stage startups in Australia and New Zealand that AirTree is gathering and investing today compared to 2014, I would expect those logos to increase exponentially in the coming years.
Our silent unicorns
It’s a great time for the Australian tech scene, and it’s only going to get better. Successful tech startups spawn the next generation, creating a snowball of talent, angel investors, mentors, and innovation. We saw it in Silicon Valley, Tel-Aviv, London, Beijing, and Berlin.
Australia excels in cloud software (eg Atlassian, Canva and Xero, our Kiwi friends), lifelong learning (eg Go1, ACG, SCW) and fintech (eg Afterpay, Synthetix ), especially when the product is global from day one.
Aussies tend to outperform on the global stage, just look at our Olympic results, and this also applies to our startups! I hypothesize this is because we have a bias towards product led growth (with Atlassian being the pioneer) over sales led growth as we place less cultural value on sales and have no sales teams global on the ground from day one.
I hope our government sees this performance and invests more in this economic engine. The current market caps of Atlassian and Afterpay would put them at ASX 10 and 20, respectively, alongside Xero, with Canva not far behind. R&D grants are very useful for startups, but the government could fund much more, for example, computer science and machine learning education.
So where to go next? I think more talent will move into technology and startups, particularly early in their careers. More capital will be allocated to the sector as investors view the history of the sector, diversify investments and seek returns. Australia and New Zealand will continue to build globally leading cloud SaaS (e.g. no-code productivity tools, cybersecurity), lifelong learning (e.g. adaptive microlearning), and fintech companies (e.g. DeFi , InsureTech). I would love to meet you if you are building something in these spaces!
At DeFi, the global implementation of Web3 and crypto is one area where we could excel. We have several ‘silent unicorn’ teams (token market cap> $ 1 billion) that are pioneers in the crypto space (eg Synthetix). Now younger crypto projects are receiving more and more global investment (eg Zeta, Acala *, VHS Labs).
Firepower to back up our most ambitious founders
The local ecosystem has dramatically improved in recent years to support more world-class Australian companies to succeed on the global stage.
A thriving local startup ecosystem needs:
Ambitious founders with the vision, resilience and determination to create Australia’s global category leader;
Exceptional talent to help bring that vision to life; and
Depth of capital to support those ambitions.
We have witnessed incredible growth in each of these areas over the last decade in Australia. But when it comes to depth of capital, historically there was not the quantity and quality of local venture funding to support our most ambitious founders.
There are several companies in this table founded before 2010 that never raised Australian venture capital: Atlassian, Invoice2go, Campaign Monitor, to name just a few. In 2014, when AirTree raised our first fund, only AU $ 200 million was raised over the entire year. By last year, this had increased six-fold to $ 1.2 billion. AirTree’s funds under management grew 10 times in this same period from $ 60 million in 2014 to more than $ 600 million now. We have had the privilege of investing in and partnering with many of the companies listed in this table during that time. I’m excited that the quantity and quality of local venture funding is increasing to better support our most ambitious founders. There has never been a better time for the founders to create a world-class company from Australia.
Looking ahead, Australia remains in the bottom half of the OECD countries for venture capital investments as a percentage of GDP, so there is still plenty of room for growth from here. One sector that I would personally love to see better represented in this table is elderly care. With the aging population and increasing problems of social isolation due to COVID-19, I would love to see technology play a significant role in enhancing the human experience for our elderly.
Our next breakout star could come from anywhere
As VCs, we’ve long hoped that the startup ecosystem could play an important role in helping drag the Australian economy into the 21st century (and away from our dependence on digging things out of the ground). It’s great to see this start to play out.
I am asked all the time how we can accelerate this growth, particularly how we can replicate the success of Israel (the Startup Nation) and where I spent much of my early days as a VC). I feel like the answer is always a bit disappointing. While we can learn some great things from Israel’s culture, chutzpah, and the general attitude to risk, they also have a huge structural advantage that we don’t have: conscription. All 18-year-olds perform military service, with the best of the best joining Unit 8200, Israel’s equivalent of the NSA or GCHQ. This acts as a nationwide startup incubator and pumps out a large pool of trained technical graduates. It’s a very effective way to increase the number of startups, but it’s probably not that popular politically in Australia …
Instead, I think a better analogy for the Australian startup ecosystem currently is the UK in 2015. There were about half a dozen startups that had broken the $ 1 billion mark (including Farfetch, Just Eat, Zoopla), and like Australia, they had reached a clear turning point. 5 years later, the number of UK-based unicorns has increased 8-fold, dominated by fintech and machine learning companies.
We can learn a lot from these comparisons, but our ecosystem is emerging with a uniquely Australian flavor. If we go back 10 years, you never expected Australian startups to dominate in areas like graphic design (Canva) or developer training (A Cloud Guru). This is important to remember because the next generation of emerging Australian startups could come from anywhere and from any industry. The key is to support the great founders and be open-minded about the problems they are solving.
It takes a town to create a startup
My first foray into startupland was as a uni student entering a startup competition in 2010. During the networking session, I met someone who told me about this revolutionary new concept called the ‘startup coworking space’ and that I should see a initiative to be launched soon: Fishburners.
In 2012, I met Matthew Ho, who let me know about the ‘Sydney Startups’ Facebook group that James Martin had created (in 2010). At that time, it had just over 300 members.
Today, Fishburners has empowered more than 1,000 entrepreneurs. The Sydney Startups Facebook page has over 23,000 members.
We now have hundreds of coworking spaces, accelerators, early stage mutual funds, educational programs, government grants, and grassroots startup communities. We even have a recently established Technology Council to represent our industry.
Successful startups don’t happen in a vacuum.
Behind this infographic of impressive fast-growing companies is a whole town of passionate and talented superstars actively contributing to a vibrant ecosystem.
Thanks to each of you for creating this magic!