Looking for startup funding can be daunting, but it's not always big business venture capital. It can be simpler and closer to home.
Financial and commercial support for start ups in Australia abounds
So many voices bemoan the lack of funding available in Australia to those chasing their entrepreneurial dream. The voices have become so loud and the views so frequently expressed that they often go unquestioned. They frequently claim that going abroad, particularly to the supposedly greener pastures of the US and Silicon Valley, is the only option available to ambitious Australian entrepreneurs.
But an extraordinary amount of support is available to start ups in Australia. Sydney Angels is one group leading the charge. Sydney Angels’ members invest in innovative early-stage companies with high growth potential. Sydney Angels Committee Members – Vivian Stewart, Richard Dale, Mathias Kopp – all believe that Australia has a lot to offer start ups, but this is sometimes overlooked because of the draw of larger markets overseas.
Richard Dale comments that, “Entrepreneurs move to the US or abroad because they believe there is easier access to funding. This perception is driven by the successful promotion of US-based start up funding vehicles, the publicity given to success stories and the sheer scale of the business ecosystems relative to Australia.
Funding not definitively easier to come by in the US
Vivian Stewart successfully founded Australia’s first ISP and is an ICT industry veteran. He commends start ups who chase the larger markets of US, Europe and Asia. However, he says that moving overseas is not necessary to secure early stage capital investment. Contrary to the perception that funding is easier to come by in the US, Stewart argues the opposite is true. “Because of the sheer scale of the entrepreneurial ecosystem in the US there is more funding available in real terms, but there is also an immense amount of competition to secure that funding.”
Certainly, local success stories don’t receive the same amount of attention. Bubble Gum Interactive is an independent children’s entertainment studio based in Sydney. The venture received start up funding from Australian and regional angels and investment groups, government grant programs including Commercialisation Australia, Screen Australia and the NSW Interactive Media Fund. The company also received the first investment from the Sydney Angels Side Car Fund. The business is successfully establishing itself.
This level of government funding is not unusual. Tim Staley, patent attorney and Principal at Griffith Hack, a supporter of Sydney Angels, has a number of start up IT clients who have benefited from generous government support and Sydney Angels funding.
Paul Gray, Chief Marketing Office and Community Director of Bubble Gum, notes that he and his team were all highly experienced in both the kids entertainment sector and in business, giving comfort to prospective investors. He speculates that for unproven talent, perhaps without adequate business credentials, securing funding may have been more difficult. His own perception is that the Australian business ecosystem is thriving, albeit on a smaller scale than what is on offer in Silicon Valley. In Gray’s experience, “From a very early stage there is support available, both strategic and financial.”
Success bias masks the fact that going overseas is a high risk strategy
According to Richard Dale, going to the US for start up funding is “the highest risk strategy available”. Dale has over 20 years experience in management consulting, new venture development, early-stage venture capital, and research and development engineering. He is enthusiastic to hear success stories wherever they occur, but cautions “there are a staggering number of ventures pursued in the US which fail either to secure funding or to turn a profit. These never receive coverage so people’s perception of the opportunity and risk in the US is skewed.” Dale encourages start ups to build locally and consider global options as they expand.
Going abroad can be the right thing – at the right time and for the right reasons
Of course, in some circumstances, going abroad can be the right thing. As Mathias Kopp readily acknowledges, for those who can get it, the speed at which capital can be raised in the US is faster. And start up capital beyond $2 million is difficult to find in Australia.
With a career spanning financial services, management consulting and business investment in Europe, Asia and Australia, Kopp believes that businesses generally need to be where their markets are. For this reason, companies with a global vision are likely to consider relocation overseas as they expand.
However, Stewart argues that decisions made later in business life are often confused with priorities during the start up phase. It is inarguable that there is greater venture capital available in the US than in Australia, but this tends to cloud the generous government support system and developed private sector network of business investment available to start ups. Early Stage Commercialisation Grants of $50,000 to $2 million through Commercialisation Australia, various state based schemes and R&D tax incentives up to 45 cents in the dollar all contribute to an environment that encourages entrepreneurism.
Dale goes further and contends that even growth stages can be undertaken from Australia, particularly for online businesses. He argues that seeking venture capital to fund growth overseas does not make relocation abroad inevitable. According to Stewart, “There is no reason why an Australian online company cannot receive global funding and have global reach operating from Australia.”