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Ben covers the property industry and has a keen interest in entrepreneurship and travel writing. He speaks Mandarin and previously covered housing and urban affairs for The Australian Financial Review.

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Aussie startups could earn $109b – if nourished, says Google

Published 23 April 2013 10:54, Updated 24 April 2013 07:55

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Aussie startups could earn $109b – if nourished, says Google

Software startup Atlassian Sydney headquarters...Google says 1500 of these are needed each year for the projected $109 billion to come to fruition, with momentum building as success stories draw more investment into the sector.

Google believes Australia’s tech startup sector could add an extra $109 billion to the economy or four per cent of GDP by 2033, and add an extra 540,000 jobs, if nourished and allowed to grow.

An investigation commissioned by Google and conducted by PwC identifies 1500 Australian tech startups and argues a cultural change is needed to entice 2000 more tech entrepreneurs each year from the existing workforce to help the sector reach its potential.

The report The Startup Economy: How to support tech startups and accelerate Australian innovation argues Australia has a relatively favourable environment for entrepreneurship. It ranks 29 in the world in a PwC analysis of Global Entrepreneurship Monitor which looked at entrepreneurial activity, culture and regulatory environments. The United States is at number 24 and emerging markets in Africa and Latin America are at the top.

The study finds the majority of today’s start-ups began post-2007, with the vast majority in Sydney and Melbourne. They are mostly focused on the media, telecommunications and information sectors, with Google believing there are opportunities to target the finance, insurance, health and aged care sectors.

“Its really only in the last five or six years we’ve seen startup culture start to permeate this country,” says PwC partner Jeremy Thorpe.

Thorpe says 1500 start-ups are needed each year for the projected $109 billion to come to fruition, with momentum building as success stories draw more investment into the sector.

“Increasingly...we’re seeing technology break down traditional barriers to entry, both from firms entering markets but also from consumers being able to purchase products from anywhere,” he says.

“From a country perspective, if you’re not embedded with that startup culture that’s trying to see disruptive adoption of new technology, you’re going to be behind the game from a national perspective. Growth will increasingly be driven by those countries that can foster start-up-led industries.”

Eliminate fear of failure

The report calls for greater education directed towards entrepreneurism as an acceptable career path. Currently a “fear of failure” dogs Australians more than people from other nations. Of the startups studied, 29 per cent of the founders studied computer science, but only two per cent of domestic graduates each year have a computer science qualification.

While angel investors are the fastest-growing investor group, overall funding remains scarce. The value of investment deals from angels has doubled year-on-year since 2010, the report finds, but Australia invests only $US7.50 per capita in venture capital each year, compared to $US75 in the US and $US150 in Israel. Deal values, typically $1 million, are too small for super funds to take notice. But the report warns against artificially increasing funding into the sector before it is ready.

“A restricted pool of financing distributed through the rigours of the market can be an efficient way to weed out weak ideas and ensure that only the best ideas are funded,” the report argues.

“This view of the world suggests that if more money is available before an ecosystem is ready for it, weaker ideas will be funded which will reduce the return on the entire portfolio of investments to the investor, hence reducing the attractiveness of startups as an investment proposal in the future.”