Over a year ago I wrote a piece on how being an Australian startup sucks. There were a lot of factors during that period that I felt strongly about, particularly being a relatively new startup in the Australian space.
Almost 18 months later I feel like Australia has made huge headway at putting ourselves on the map when it comes to being a great place to build a startup.
Here's some of the reasons why:
The Government Is Starting To Realise The Importance Of Startups
Back in September, Malcom Turnbull was sworn in as Australia’s 29th Prime Minister.
Malcom comes from entrepreneurial roots. He was one of the key members of OzEmail, an Australian email service that was the first to list on the NASDAQ. Two years later, it listed on the ASX, then in 1999 was purchased by WorldCom. Malcom Turnbull sold his stake in the company for a cool $57 Million (which in 1999 was an incredible amount of money).
With that in mind, we clearly have a Prime Minister that understands the importance that Startups bring to the Australian economy. Whether it’s through employment, exporting our services overseas or innovation, he understands that for too long we’ve placed too much importance on mining, and not enough on tech innovation.
There is a lot of innovation in Australia and in fact there is much more venture capital available to Australian start-ups and technology companies now than there used to be.
There’s already a few key initiatives and interesting things happening:
- LaunchVic has announced a new $60M startup fund aimed at creating hi-tech jobs for the state.
- ZenDesk has announced a partnership with the Victorian Government to bring 175 new jobs to the state.
- Malcom Turnbull is expected to announce his Innovation Statement this month which will outline a set of policies that will focus on how we attract and retain talent, how we support and encourage startups.
Employee Share Scheme Tax Changes
The ATO has launched changes to their Employee Share Scheme.
Under these rules, and provided certain conditions are met, Options will not be taxed on grant, vesting or exercise. Rather, the taxing point will be deferred until the sale of the shares which will generally be a CGT event. The 50% CGT discount will apply if the sale of the shares occurs at least 12 months after the grant of the Options.
This is a huge win for startups in Australia, and removes the risk of employees getting hit with unfunded tax liabilities.
Upcoming CGT Changes To Corporate Structure
Currently it’s very costly for a startup or small business to change legal structure, as it incurs CGT (Capital Gains Tax).
There’s changes proposed in the 15/16 budget that would allow startups with a turnover of under $2M to change their structure without incurring CGT costs.
This can be very useful, as we all don’t necessarily know the most optimal way to setup our businesses (especially for tax purposes) when we’re just getting started. Then, before you know it you are stuck with that structure.
From 2016, this (hopefully) will be a thing of the past. Until you’re making more than $2M annually of course.
Immediate Tax Benefits For Small Businesses
There’s new legislation running through to June 30 2017 that allows businesses with an aggregated turnover of less than $2M to instantly depreciate any asset costing less than $20,000.
This means you no longer have to depreciate big purchases over multiple years and you can claim the full tax benefit of buying assets for your business.
EMDG Grant Is Great For Global Startups
Even though we’re an Australian business, around 95% of our customers are overseas. This means that we essentially export our product to a fairly wide audience.
The EMDG Grant or Export Market Developer Grant is a scheme to encourage businesses to develop or export their products to overseas markets.
You can claim back a wide variety of things (all which require quite hefty proof):
- Overseas marketing costs (Google/Facebook Ads spent overseas)
- Hosting costs serving overseas customers (for marketing purposes)
- Costs for trade shows or conferences
- Costs to setup overseas offices or hire sales/marketing staff
- Website development costs (provided they are for marketing purposes)
- Marketing visits to overseas customers
- Registration of intellectual property overseas
The grant allows you to claim 50% of eligible overseas expenses back (anywhere up to $150k). For us, this allows our business to accelerate overseas marketing by a factor of 100% (for the same cost).
We had some help from the awesome guys over at Rimon Advisory with our EMDG + R&D grants if you need help in this space.
R&D Tax Incentive Is Great For Tech Heavy Startups
The R&D grant is a funny one. We’ve completed this for the last 2 years, and whilst the refund was nice it wasn’t really significant enough for us to make more hires or R&D decisions.
This particular Tax Incentive isn’t great if you are:
- Hire any developers overseas
In the scenario above it becomes more like a 15% net benefit after tax.
However, if you are:
- In a loss position
- Hire developers locally in Australia
Then you can get a 45% cash rebate on eligible R&D expenditure. This is huge for venture funded startups that want to scale quickly before focusing on revenue generation, you can either use it to increase your runway (and decrease your risk), or use it to add more resource to the R&D activity.
Whether you are in either position, this grant is worth spending the time on. Both this an the EMDG grants both become easier from Year 2 onwards (as you have a structure for submission).
Larger Australian Funds Emerging
We have seen a explosive growth in larger funds entering the Australian space in the last year.
Adventure Capital is a VC fund based out of the York Butter Factory in Melbourne. They were looking to raise a fund of ~$60M back in Feb.
Some of their notable investments include: Omny, Oomph & Peazie
Blackbird Ventures announced a $200M Fund in September (which is one of the biggest I’ve seen in Australia).
Rick, Bill and I formed Blackbird three years ago inspired by the great feats of business achieved by the likes of Atlassian, Campaign Monitor and Envato on zero capital and very little help. With some capital and the help of a network of successful founders, the rate of production of the next generation of successful startups might go way up.
Some of their notable investments include: Canva, CoinJar, DesignCrowd, LIFX & Shoes Of Prey
Follow[the]Seed is a new $50M data driven VC fund which aims to use its RavingFans algorithm to identify investment opportunities.
I asked one of the partners, Andrey Shirben recently to score Gleam (for curiosity sake), but the datapoints definitely seem more geared towards B2C startups and mobile apps (whereas we are B2B2C).
Some of their notable investments include: Ingogo, Kenshoo, Jayride & Open Learning
Airtree Ventures is a $60M fund that focuses heavily on Series A rounds, specifically for companies that have high potential global growth opportunities.
Some of their notable investments include: Brosa, Canva & DesignCrowd
BlueChilli is a startup fund and accelerator, they are based in Sydney and Melbourne. Much more focused on Angel and Seed investments, along with supplying startups the tools (and advice they need to succeed).
Some of their notable investments include: Divvy, GiggedIn, Sittr & The Paleo Way
Brandon Capital recently announced another $200M fund aimed at Medical VC.
We want to find the next Cochlear, CSL or Resmed
Some of their notable investments include: Nexvet, Snap & Verva Pharmaceuticals
OneVentures is a $100M fund aimed at second stage investments designed to drive growth. Their fund aims to bridge a gap in the Australian marketplace for startups trying to raise beyond Seed or Series A rounds.
Some of their notable investments include: Paloma, Peak3 & The Best Day
Tank Stream Ventures
Tank Stream Ventures is a $20M fund aimed at investing in game-changing mobile, ecommerce and software startups. They focus on Seed and early Series A rounds.
Some of their notable investments include: BugHerd, GoCatch & Pocketbook
SquarePeg Capital just announced a $200M fund aimed at growth stage online and technology companies based in Australia, NZ, SE-Asia and Israel.
Some of their notable investments include: bellabox, Canva & fiverr
Larger Global Startups Build a Presence
We’re starting to see more global brands build a presence here in Australia.
- Slack are coming to Melbourne
- WeWork is planning to open co-working spaces in Australia
- Square has opened a Melbourne office
- Dropbox opened an office in Sydney
- LinkedIn built an amazing new office in Sydney
- Telsa opened a showroom in Richmond
Changes Coming In The Crowd Funding Space
The Australian government has promised to create legislation around crowd funding by the end of the year. Malcom Turnbull has already indicated that Australia could follow New Zealand’s lead on Crowdfunding laws.
This would allow normal people (or people that typically invest in the stock market) to invest in their favourite businesses instead (via platforms similar to Kickstarter), then reap the benefits of success.
Key Growth And Funding Of Some Global Australian Startups
There’s been a number of fantastic success stories this year coming out of Australia.
- Atlassian will soon list on the NASADQ and is aiming for $5Bn market value
- Canva recently raised $15M at a $150M valuation
- SurfStich is now valued at $0.5Bn after a number of key acquisitions
- Deliveroo secured $140M in Series D to expand into Asia.
- We have grown over 800% in the last 12 months, now doing 120M pageviews globally a month (still bootstrapped)
There’s no doubt many more success stories that could be mentioned, but I certainly get the sense that our ecosystem is maturing, the barriers to doing businesses around the world are decreasing every day and investors from around the world are not afraid to invest in Australian businesses that show global potential.
The USD -> AUD Exchange Rate
This is probably one of my favourite things to have happened over the last 18 months. The Australian dollar has really tanked against the US.
This means if you are an Australian SaaS company charging in USD then these rates work significantly in your favour (compared to charging in AUD).
We currently charge local Australian’s in AUD and overseas in USD. Considering that 95% of our revenue is outside Australia, this is a significant revenue increase for us (which has allowed us to hire more developers).
I used to loathe Monday mornings. I never thought I’d say this but, now it’s my favourite day of the week.
Why? Is this person mad?
See, when you run your business from Australia and have a lot of customers overseas, the majority of them are still enjoying their weekend when you start on a Monday morning.
This really makes Monday’s a productive and distraction free day for me. Tuesdays on the other hand 😳
Co-working Spaces Are Exploding
The number of places available for you to work now is amazing, there’s over 30 different co-working spaces in Melbourne alone.
We normally rotate between working from home and 2 or 3 co-working spaces in Melbourne (Inspire9, Queens Collective & York Butter Factory).
I think rotation is good to have, it allows you to experience new things every day and not get bored with the same space. Co-working spaces are also a great way to scale your startup initially (before you make the plunge to get your own office space).
If you’re searching for space in Australia I highly recommend checking out Creative Spaces.
Remote Working is Booming
With the way we’re able to communicate with teams via Slack or HipChat, I feel like the barriers for remote working are dropping very quickly.
You’ve probably heard the term Digital Nomad before. Well, it’s becoming easier for freelancers with design or development skills to live a fantastic life anywhere in the world they want.
We have 3 remote developers, a remote design team and two local developers who work from home. We all communicate via HipChat, Skype and Github.
This gives Australian startups a unique advantage to tap into talent (or contractors) from around the world to work for them. Especially when the Australian dollar is so strong it makes complete sense for us to leverage this advantage by hiring overseas.
The whole idea of the agile workplace is something I hope we’ll see more corporates adopt over the next 5-10 years.
What are your thoughts, do you think Australia is making positive progress forward for startups and innovation? What would you like to see the Government do?