STARTUP ECOSYSTEM PRELIMINARY REPORT

CAPTURING DISRUPTION
DISRUPTIVE TECHNOLOGIES
Within Australia the software and internet
technology sector is still relatively youthful.
However as information technology is increasingly
deployed throughout industries the composition of
the national economy will change. The question is,
will this wave of economic and social disruption
be driven by companies imagined and built on
Australian soil, or will it be driven by foreign
technology companies?
In order to understand the potential impact
of digital disruption on the Australian
economy in 2025 we looked at a range of
estimates. McKinsey’s 2013 report “Disruptive
Technologies: Advances That Will Transform
Life, Business, And The Global Economy”,
identified the top 12 disruptive technologies that
have the greatest potential for economic impact
by 2025. 11 McKinsey estimated the potential
economic impact that these 12 technologies
alone had: “the potential to drive direct economic
impact on the order of $14 trillion to $33 trillion
per year in 2025.” 11 Approximately 11% to 26%
(or a mid range of 19%) of total world GDP, with
higher disruption in developed world economies.
Seven of the twelve disruptive technologies
McKinsey identified fall within our definition of
digital technology: Mobile Internet, Automation
of Knowledge Work, The Internet of things, Cloud
Technology, Advanced Robotics, Autonomous
Vehicles and 3D Printing.
IMPACT OF DISRUPTIVE TECH ON WA
Deloitte’s 2012 report “Digital Disruption:
Short fuse, big bang?” analyses the impact of
digital technology on Australian industries. It is
more bullish and estimates 33% of the economy
facing disruption from all digital technologies.
Approximately $732 billion of economic impact in
2025 on the Australian GDP (assuming Australian
GDP is approximately $3 trillion). 1
“One-third of the
Australian economy
faces imminent and
substantial disruption by
digital technologies and
business models — what
we call a ‘short fuse,
big bang’ opportunities,
for both business and
government.”
Deloitte: Digital Disruption: Short fuse, big bang?
Using these two reports as a guide we estimate
an upper and lower range for the impact of digital
technology on the Western Australian economy
in 2025 of between 18% to 33% of Gross State
Product (GSP), or $55 billion to $101 billion of
economic impact per year in 2025. Our mid range
estimate is that 25% of the Western Australian
economy is impacted by digital and internet
technology in 2025, equating to approximately $76
billion of GSP.
Based on our mid range we estimate between
$5 billion to $25 billion of the ‘disrupted GSP’,
could be directly captured by digital technology
companies in 2025. 13
GROWING UNICORNS
With these estimates in mind we examined what
the digital technology sector could look like in
2025, assuming that all this ‘disrupted GDP’ was
captured solely by local tech companies. Using our
startup formation model and current formation &
failure rates at each stage of growth we estimate
the total number of technology companies required
to capture the disruption in economic value in
2025 ranges between 4,846 to 6,000 companies,
across all stages of development, from potential
founders to mature unicorns. With over 20,000
people directly employed by high-tech companies
and an additional 100,000 that provide or extract
value from the industry. 14
Our modelling estimates that startup formation
in 2025 would be 788 companies, or 292 startups
formed in 2025 per million people in WA. By
way of comparison US technology hubs such as
Boulder, San Jose, Cambridge and San Francisco
had yearly startup formation rates per million
people ranging between 97 to 256 in 2010 (the
last recorded data we could find on the US).
Given the age of US figures and the methodology
the Kaufmann Foundation used to come to these
figures we think that actual formation rates in the
US are currently higher and are almost certainly
set to increase substantially by 2025. And if tech
startup formation rates approach normal business
formation rates we still have along way to go, with
the formation rate across all business types in the
USA at 1,342 per million people. 15
With this in mind a formation rate of 292
per million people is not unreasonable given
substantive support to grow the WA sector.
ESTIMATED TOTAL FUNDING REQUIRED
2014-2015 BY STAGE
Stage Stage ($50K per company) $535M
Early Stage ($300K)
$909M
Growth Stage ($2M)
$792M
Later Stage ($20M)
$1,000M
Unicorn ($80M)*
$240M
ESTIMATED TOTAL FUNDING REQUIRED
Based on these company numbers we estimated
the total required funding to seed and develop this
number of technology companies by 2025.
Assuming average total lifetime investments per
company ranging from $50,000 for seed stage to
$80 million for unicorns, we estimate the total
funding required to develop the industry over the
coming ten year period is approximately $3 to $3.5
billion. 16,17,18 With per year funding levels, across
all sources, increasing from an average of ~$17
million on the trailing six year period to between
$700 million to $1.5 billion in 2025. Average
funding per capita over the ten year period of $106
to $129 per person, and as high as $266 per person
in 2025.
By way of comparison average per capita VC
investment across the USA is $81, in Israel it is
$183 and in Silicon Valley estimates have it as
high as $4,241 per person (note these numbers
exclude angel investment, public markets and
government grants). 18,20,21
Compared to traditional industries all these
numbers pale in comparison with $47 billion
invested in Mining & Resource projects in WA in
2014FY: $18,319 per capita of investment.
WA RESOURCES VS TECH FUNDING
Investment in Resources - 2014FY ($47B)
Investment in all Tech - 2025 ($1B)
Investment in all Tech - 2014 (