Deep tech startups are addressing some of society’s biggest problems and creating the jobs of tomorrow but they’ve been neglected in the government’s love affair with co-working spaces, according to Petra Andrén, the CEO of Sydney-based super incubator Cicada Innovations.
Ahead of her appearance at the Global Mobile Internet Conference in Sydney, earlier this month, Andrén spoke to Dynamic Business about Australia’s deep technology sector including the work Cicada Innovations is doing with startups.
She described Cicada Innovations, which operates out of the Australian Technology Park in Sydney, as an “accelerator-driven incubator”, explaining “we’re in the business of creating, validating and nurturing science- and IP-driven startups, which may involve commercialising IP out of our partner universities”. As part of this undertaking, Andrén said Cicada Innovations provides startups in its cohort with business support including deep tech facilities, a pathway to capital (“from seed through to series B”) and access to talent – notably, the leadership they require at each stage of their business journey.
“The person who’s the CEO in the early stages of a deep tech company – and that’s generally the technical founder – isn’t necessarily the best person for the role in the company’s later stages,” she said. “When a company starts to scale, we think it’s usually best for them to have a CEO who is more finance, business or sales focused.
“We act like an executive search firm for our startups, sourcing CEOs for them through our network connections or from within our own community. We also rotate CEOs across our community of 70 companies. There are CEOS in our community who are a great fit for an early-stage company, others who are perfect for mid-stage, scale-up companies and those who are ideal for the international or exit phases.”
Andrén said that part of Cicada Innovation’s entry criteria is that startups must have two founders (“statistically, one-man or one-woman bands don’t tend to make it – perhaps due to the burden involved”) and that a technical founder must be involved (“we work with founders who know how to build whatever it is they’re building”). In addition, Andrén said that when the incubator is approached by a startup, it considers the size of the opportunity, including the addressable market, and whether the founders have a ‘defensible position’.
“It doesn’t necessarily have be a patent but we want the founders to have a ‘moat’,” she explained. “By that, I mean something that protects their IP and ensures it can’t be easily replicated. Also, it’s important for them to perform a freedom to operate analysis to ensure that whatever they’re working on, whatever IP they’re developing isn’t infringing on someone else… we don’t want them to find out a few years down the track that they’re infringing on someone else’s patent and then get sued.”
Andrén said Cicada Innovations is not afraid to turn applicants away and will often require founding teams to complete “homework” before accepting them into the fold – “One of our startups, now in our community, was given homework and they joined us two years later, after ticking all the right boxes… we never write anyone off!”). In addition, she said the incubator will “move out” startups that fail to meet agreed-upon commercial milestones – “When something isn’t working, it’s not wise to keep it on life support.”
Andrén said that Australia’s deep tech startups have traditionally had to seek funding abroad, with Europe being a key source of capital when it comes to ventures specialising in hardware. She explained: “Historically, Australian investors have, unlike their European counterparts, lacked the domain expertise and willingness to back pre-revenue, hardware-driven ventures.”
Fortunately, Andrén said it’s becoming easier for deep tech startups to find investment in their own backyard due to a ‘record year’ in terms of local funds raising capital. She singled out the contributions Main Sequence Ventures and IP Group will make to the deep tech sector. The former, established in December 2016 to manage CSIRO’s Innovation Fund, has $100 million to invest in deep tech founders but there are plans to make a further $100 million available. The latter, meanwhile, has entered an agreement with leading universities across Australia and New Zealand to invest $200 million in commercialising academic-developed IP.
“That’s potentially a $400 million investment in deep tech,” Andrén said. “The funding available to deep tech startups will, of course, depend on which industry vertical they operate in (i.e. agtech, medtech, spacetech and advanced materials) but generally, the sector hasn’t previously had access to that level of capital.”
Despite this “large chunk of money” now available to deep tech startups, Andrén believes government must seek to better understand the requirements of the sector. In an article penned for the Australian Financial Review in August, she took aim at the NSW Government’s $35 million Sydney Startup Hub, which is set to open its doors by early 2018.
“The point I was making was that throwing more space at startups is a quick fix when it comes to rates of innovation in Australia,” she explained. “Yes, co-working spaces provide startups with access to a like-minded community…but startups that are working on, say, an app or a digital marketplace have very different needs to deep tech companies, which require more space than a co-working facility can afford them.
“For instance, a deep tech founder who’s developing a drone or working with robotics will likely need makerspace, which is a space that is equipped for them to undertake rapid prototyping. Another reason why you couldn’t put a deep tech founder into a traditional co-working space is that they’re working with IP and need to safeguard it against leaks. Unfortunately, I haven’t see any initiatives that cater to the sector in this way. I think the state and federal governments should look into the provision of high-end makerspace. After all, deep tech startups are, through impactful technologies, generating new industries, addressing some of society’s biggest problems and creating the jobs of the future.”