startup-ecosystem-mapping-report

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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:
1 in 1,000 COMPANY STAGES This diagram separates the startup stages by revenue. From people ‘interested’ in entrepreneurship, to those that actually found a New Startup, and through to growing and mature technology companies. Yellow information represents the current size and distribution of startups within the ecosystem, and black represents the size and distribution of the ecosystem in 2025. Developing high growth technology startups is a high risk endeavour with a small proportion of companies achieving the growth required to move to the next stage. Approximately 90% of bootstrapped or angel-funded startups fail, and between 30% to 40% of venture backed startups fail. Even fewer digital technology companies grow beyond $1b in revenue, or reach a $1b valuation - less than 0.1% for either. 24,25 300+ 20-40 50+ 10-20 10+ 1 1+ 0 3,000+ 220+ 20,000+ 1,000 POTENTIAL FOUNDERS SEED STAGE STARTUP EARLY STAGE STARTUP GROWTH STAGE TECH CO. LATER STAGE TECH CO. UNICORN TECH CO. 20% Portion of people interested in entrepreneurship who start a company.
Page 1 and 2: South East Queensland 2014 STARTUP
Page 3 and 4: CONTENTS Foreword 4 Dashboard 5 Abo
Page 5 and 6: Summary statistics as at July 2014
Page 7 and 8: Why is digital technology important
Page 9: THIS REPORT ESTIMATES THE POTENTIAL
Page 13 and 14: Startup formation rates FORMATION U
Page 15 and 16: TrekTraka (advertising) Trinity Sof
Page 17 and 18: 1500000 35000000 30000000 Investors
Page 19 and 20: Investors and Investments FUND FLOW
Page 21 and 22: Growth accelerators INCUBATION Orga
Page 23 and 24: Network CENTRALITY PEOPLE 30 Most C
Page 25 and 26: Location, Place and ENTREPRENEURIAL
Page 27 and 28: BRISBANE GOLD COAST SUNSHINE COAST
Page 29 and 30: Target market and product type of s
Page 31 and 32: The role of the arts in Queensland
Page 33 and 34: TOP COMMUNITY ISSUES: RANKED BY WEI
Page 35 and 36: Lawrence English Lee Waters Leigh A
Page 37 and 38: KEVIN GOSSCHALK CHRIS MACAULAY MATT
Page 39 and 40: TOP TEN COMMUNITY ISSUES BY REGION
Page 41 and 42: People ECOSYSTEM Paul Jansz Darren

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