The number of venture capital firms in Australia has increased by 70% over the past three years, while number of accelerators and incubators have more than doubled, according to data from Decode System, a data and networking platform owned by venture capital firm Artesian.
But Jeremy Colless, managing partner and chief executive of Artesian and founder of Decode, says while the growth reflects a maturing of the market, it’s this kind of data that’s key to maintaining it.
The Decode platform is mapping Australia’s innovation ecosystem, and analysed changes in the startup space between August 2015 and August 2018.
The data shows the number of venture capital and corporate venture entities has grown from 40 to 68, a 70% increase over the period. The number of accelerators and incubators has more than doubled, from 17 to 36.
These figures follow reports of increased investment in Australian startups — with a record $848 million invested during the 2017-18 financial year, according to KPMG’s Venture Pulse report on global VC trends.
A separate report from the Australian Private Equity and Venture Capital Association (AVCAL), published in November 2017, found venture capital funding had doubled over the previous 12 months, reaching $1.32 billion.
Speaking to StartupSmart, Colless says this data shows the Australian market is growing in “a fairly diverse way”.
Venture capital firms are starting to hone in on key areas, such as either early or late stage capital or corporate capital, while there’s an “early emergence of venture debt sector”.
Among both the VCs and accelerators, there’s also more focus on distinct sectors such as fintech or agriculture, or on technologies such as robotics or the Internet of Things. These shifts are all “signs of a maturing market”, Colless says.
The increase in the number of accelerators, particularly, is something of a “chicken and egg” situation, and “a global phenomenon”, he says.
With a lower barrier to entry for new startups, there are more founders looking for mentors and networks, as well as investors.
“Accelerators are a response to that demand,” says Colless.
At the same time, the accelerators that have been around for more than three years “are finding niches” and reacting to changing funding demands to meet new opportunities and challenges.
For example, BlueChilli is on both the August 2015 and the August 2018 lists, but launched its SheStarts female-only accelerator at the end of 2016.
“Diversity and energy is extremely positive for the potential for the market,” says Colless.
According to Colless, Australia’s startup ecosystem is only part of the way through a cycle “that could take years”, but this kind of data is important for understanding the market as a whole.
“You can’t measure the success of a project unless you have a baseline measurement,” he says, and this kind of information can allow “policy and decisions to be made on fact rather than anecdote”.
This is a “really key issue”, and the only way to make it happen is through creating data records, and adding to them regularly, he adds.
Colless says Decode is working on mapping the whole startup ecosystem to analyse which aspects are weaker or stronger, in comparison to previous years, which will allow for decisions to be made “about where dollars and efforts should be placed in the future”.
A collaborative effort is required to get people thinking about where the ecosystem could improve, and “taking it seriously in terms of measurement and accountability”, he says.
“It’s a very small market in the scheme of things, but it is the area on which the Australian economy may in 20 to 50 years depend.”
The good news for startups is there is more funding available than ever before, and new opportunities like equity crowdfunding and venture debt, as well as more specialised support.
“Good startups have more opportunities than ever,” Colless says, “but the cold, hard truth about the startup ecosystem is that 90% will not have a material exit”.
This “starts to skew the conversation” he says, and “increases the importance of real data [over] anecdotes”, while also creating “noise” suggesting there is not enough funding available.
Having a system of records, or a map of the whole startup ecosystem, “would rapidly accelerate the potential for startups to go from two people with an idea to a seed round, and angel round and later growth, with relevant networks and connections along the way,” Colless says.
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