startup-ecosystem-mapping-report

Creating high growth startups.
BREEDING UNICORNS & ECOSYSTEMS
UNICORNS ARE REAL
The term “unicorn” has been adopted worldwide as
a label for high growth technology companies that
achieve significant scale ($US 100m revenue or $US 1b
valuation/market cap). Startups that achieve this scale
are rare but vital to the creation of a vibrant economy.
Unicorns have the ability to spawn hundreds of new
entrepreneurs, many of whom go on to found or invest
in startups. The IPOs of Google, Facebook and Twitter
alone created almost 4,000 new millionaires. Similar
examples can be seen in Sweden (Skype acquired
by Microsoft for $US 8.5b; Spotify has a market cap
of $US 4b), the UK (Betfair IPOd at $US 2.4b and
lastminute.com acquired by Sabre for $US 1.1b), and
Israel (NDS acquired by Cisco for $US 5b). 15
The network effects of the digital economy and ubiquity
of technology mean that they exist in increasingly
winners-take-all markets and grow with astonishing
speed, creating large numbers of jobs both within the
company and as part of the larger ecosystems that
surround them.
According to the UK innovation agency NESTA, the 6
per cent of UK businesses with the highest growth rates
generated half of the new jobs in the UK between 2002
and 2008. 16
“A small number of high-growth businesses are
responsible for the lion’s share of job creation and
prosperity… This has significant implications for the
direction of economic policy. It shows that enabling
innovation is good for growth. Just as importantly, it
shows that focusing attention on growing businesses and
promoting excellence, far from being an elitist policy,
gives rise to widespread job creation and prosperity.”
Jonathan Kestenbaum, CEO NESTA 16
BREEDING UNICORNS
For Queensland to grow a vibrant startup ecosystem it
is essential to create an environment that is conducive
to creating and retaining unicorns on local soil – and
attracting foreign unicorns.
In a global, highly-connected economy, unicorns can
grow in any geographical region and access global
markets with ease. So far most unicorns have come
from the USA, and it is likely that the upcoming
digital disruption will be created by US firms unless
Queensland and Australia invest in united and focussed
efforts to develop some home-grown unicorns.
Governments are increasingly recognising the
importance of entrepreneurship and high growth
technology startups - implementing programs to create,
attract and retain these unique value creators. Examples
include the UK Government’s Future Fifty 17 program;
Startup America; 18 the Singapore Government’s $14b
commitment to the National Framework for Innovation
and Enterprise; and Sweden’s national network of 43
startup incubators, 12 seed investment funds and 33
science parks that have been incubating over 950 highgrowth
technology companies per annum for the last 20
years.
These programs focus on the small number of
companies with the highest growth potential rather than
broad support for traditional new businesses and SMEs.
CREATING CLUSTERS
Vibrant industry clusters and ecosystems are critical
for increasing the productivity of companies, driving
innovation, stimulating new business creation and
breeding scalable high-growth companies. 13
The factors that contribute to a flourishing technology
ecosystem have been well defined by researchers, policy
makers and entrepreneurs: An entrepreneurial culture
with a large number of active participants; mentoring
from experienced entrepreneurs; a supportive regulatory
environment; a culture of collaboration and networking;
visible successes and role models; risk tolerance; easy
access to risk capital; government policy with a longterm
focus; and access to good technical skills.
Many of these factors are cultural, rather than structural,
and in many ways a strong culture comes prior to
structural changes (e.g. greater access to capital or
supportive regulation). According to PwC’s The Startup
Economy:
“Culture is the key to accelerating the growth of a tech
community. In the 1970s the tech communities of Silicon
Valley and the area around MIT… were similar in size.
But by the 1990s Silicon Valley was dominant. The
accepted explanation for the difference in growth rates
is the open and collaborative culture of the Valley. This
same culture is what is driving growth in both Boulder
Colorado and Israel.” 13
Richard Florida’s work on the rise of the creative class
also demonstrates how critical the culture and liveability
of a city are for the attraction and creation of innovative
startups:
“Despite all the predictions that technology—from the
telephone and the automobile to the computer and the
Internet—would lead to the death of cities, the creative
economy is taking shape around them. Urban density,
the clustering of people and firms, is a basic engine of
economic life. Place is the factor that organically brings
together the economic opportunity and talent, the jobs
and the people required for creativity, innovation, and
growth.” 19
Richard Florida
FUNDING QUEENSLAND’S STARTUP ECOSYSTEM
So the elements required for a flourishing ecosystem
are well known, but how much effort is required for
Queensland to realise the next decade’s economic
opportunity?
To answer this, this report estimated the growth from
the current state of the ecosystem to one that meets
the Queensland Startup Summit’s goal. The diagram
opposite shows the various stages of company size, the
number of each in the ecosystem both now and in 2025,
and some current examples.
This model also takes into account startup failure rates
and the proportion of technology companies that make
it through each stage of growth - extrapolating from
historic data where available.
The report’s assumptions are that startups require:
• $50,000 funding to launch a business,
• $250,000 funding to achieve $1m in revenue,
• $2m to achieve $10m in revenue,
• $20m to achieve $100m, and
• $110m funding to achieve $1b.
Given these assumptions, this report estimates that
over $2b to $5b in total funding needs to flow into the
sector over the next ten years to support the ecosystem’s
growth.With the rate of investment increasing from their
current average of ~$23m per year to between $500m to
$1b per year by 2025.
Approximately 20-30% of these funds would go to seed
stage startup activity (generally pre-revenue), and the
majority of these startups will fail, close, or be acquired.
~30% of funding would go to early stage startups in
the $1m-$10m revenue band, ~20% to expansion/
growth stage technology companies in the $10m-$100m
revenue band, and the remaining ~10% to the handful of
mature later stage companies with revenue at $100m+ -
the unicorns of the pack. 23
TOTAL ECOSYSTEM FUNDING REQUIRED 2014-25
Seed Stage: