As the innovation capital of the world, Silicon Valley has given birth to some of the world’s most successful start-ups. Organisations that have grown to be the big brands infiltrating every aspect of our lives – Netflix, Facebook, Apple, eBay, among them. There are many more.
It makes you wonder, is there something in the water?
Do the Silicon Valley success stories all have a tried and tested formula?
What do these brands share? Aside from making us all wish we’d been the ones who thought of them first.
While Australia has a fledging start-up culture, the fact remains that most ‘unicorns’, that is start-ups whose value exceeds $1billion, are born in the US and Israel.
It typically requires a magic mix of creativity, bravery, innovation and substantial financial backing to make it past the first 18 months of business, let alone reach the nirvana of start-up world – an exit.
The CBI Global Tech Exits Report shows that half of last year’s tech exits were in the US. Australia came in at seventh place. We’re likely to see a continued upward trend locally as the start-up sector matures. In three to four years, we’re sure to see a steep increase in funding numbers – both from the government and private investors.
Do companies looking for an exit in the next couple of years need to follow the money and move to the Valley? The answer is no.
Prominent entrepreneur and CEO of Melbourne start-up Nitro, Sam Chandler, has been a vocal advocate for the Aussie start-up sector. He recognises that access to venture capital is the main barrier to further growth. While there are several measures in place to support new businesses – the R&D tax incentive being just one of them – the truth is US investors still have the deepest pockets.
One of our local clients who successfully made the transition, RangeMe, highlights the ease at which start-ups can raise capital from major venture firms in the US. On the flipside, given the rich pool of talent in the Valley area, there’s also stronger competition.
It requires a much more creative and succinct way of pitching. So say “adios” to long and tedious investment docs and come armed with a 10-page PowerPoint.
This streamlined approach gives investors working with early-stage companies greater clarity. Does the world need this product and will it scale? It also gives them a stronger sense of the ‘gut feeling’ they have towards the company – which to most is the ‘magic formula’ they use to pick winners.
Due diligence on profit, liabilities, contingencies and a business plan follow as start-ups grow and raise larger rounds Assessing early stage deal flow is a mix between an art and a science and selecting winning teams and pitches is a key component.
As RangeMe and other businesses have observed, being an Australian start-up in the US market comes with many perks. These include dual citizenship, which allows you to double dip on the benefits of being an Australian business in a foreign country – like retaining the R&D tax incentive. Although it can be a complicated process, partnering with an R&D expert to structure this properly will give you an extra two to three months’ runway when raising capital. That’s an incredible bonus.
Understanding of the Australian market is useful to your company, but is likely not seen as a huge benefit by your investors. At least not yet. That’s not to say Australia is insignificant due to the size of its population. Just look at Israel, a small country with a strong reputation in the global start-up community.
Australia is developing a name in the start-up sector because of recent activity in the market. However, until we have some more winners under our belt, the Valley will continue to consider Australia up and coming rather than a mature player.
If your goal is to create a unicorn, regardless of where you are, there are three key things you need to consider:
- Am I scalable?
- If you have all the systems in place to deliver a never-ending supply of product or service as you grow, then great. If not – moving to a different location probably won’t fix your issue and, if anything, will have an adverse effect.
- Can I penetrate the global market?
- This is the secret sauce in becoming a unicorn. Your investors will want to see how the business has a global audience regardless of where it was born.
- Can I plug into the start-up system?
- Australia has a solid start-up culture, albeit developing. By taking advantage of the industry niches and business circles around you, you’ll be plugging into an incredible pool of knowledge and doors will inevitably begin to open.
Ultimately, there’s benefits on either side of the coin. Depending on your industry, stage of growth and business challenges, you’ll need to consider carefully how to use time in Silicon Valley to your advantage.
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