News - Written by Renai LeMay on Friday, September 20, 2013 12:50 - 10 Comments
End of the dot com winter: How Australia’s tech startup scene bloomed again
full opinion/analysis by Renai LeMay
20 September 2013
Over the next two weeks, Australia’s technology startup industry will explode with over a hundred diverse events that will vividly demonstrate its vibrancy and potential. The long winter after the failure of the dot com boom a decade ago is finally over: Australia’s startup spring is here, and its energy is infectious.
If you were watching closely, and very few people were, the year of 2008 was a pivotal one for Australia’s long-dormant technology startup scene.
At the time, the US technology startup scene was feeling its full strength and power. Startups such as Twitter, Facebook, YouTube and others — companies which provide services which the global community takes completely for granted today — had launched and were growing extremely rapidly, bolting on the kind of traffic which only companies of the calibre of Google were used to seeing to their sites. The availability of venture capital was exploding and hundreds of millions of dollars was being invested in the sector.
The epicentre of the boom would prove to be a large house in Atherton, California, where entrepreneur and investor Michael Arrington had turned blogger for his site TechCrunch, and started throwing what would become highly influential parties attended by the new startup kings of Silicon Valley. The buzz at the time was well-captured in an article published in Wired magazine, as well as a widely read book by technology journalist Sarah Lacy. Entitled Once You’re Lucky, Twice You’re Good, the book did much to remind the technology industry that this wasn’t the first time its startups had conquered the world.
However across the Pacific in Australia, the situation was very different. In fact, while the US technology startup scene at that point could be said to be exploding in a firework-like show of splendour and power, in Australia the sector was more or less, well … dead.
It had been that way for at least half a decade. As in the US, the late 1990’s and early 2000’s saw a bevy of Australian technology startups grow up and rapidly expand. Those with long memories will recall that names such as Sausage Software had placed Australians at the centre of the dot com book at the time, but that many of the companies had spectacularly failed, leading to half a decade of somnolescence for the industry.
Australia’s more traditional technology sectors, namely the corporate IT market dominated by companies such as IBM and Microsoft, as well as the telecommunications industry, were thriving, as big business and government organisations continually adopted new technology, and as competition in the telco sector fuelled the expansion of fast-growing ISPs like iiNet. But the startup sector, whose potential had proved so revolutionary in the past, seemed to be asleep.
Of course, there were exceptions to the rule, but usually along quite traditional lines. Online employment site Seek listed in April 2005 to great fanfare, as its mission to steal job advertising dollars from major newspapers hit full force, and hotel booking site Wotif.com created a similar splash in 2006. But these were companies very much modelled on similar sites which had already been successful overseas; it’s hard to say that they were based on genuinely new ideas.
However, like the first thaw after a long winter, 2008 was significant because it heralded the first signs that the first new green shoots of spring had started to approach, for the nation’s technology startup scene.
PricewaterhouseCoopers staffer and DataPortability.org founding member Elias Bizannes was one of the first to notice what was going on. At the time, Bizannes made a small splash in the technology press by launching a new Google Group focused on supporting local tech entrepreneurs. The long-term aim of the group was to build a Down Under version of Silicon Valley. The name of the group? Silicon Beach Australia.
“Now what?”, Bizannes wrote on the site at the time. “Plan — what plan? Contribute to this discussion list, and let’s see what we can build together, to create a more unified, supportive Australian information sector.”
There were also other indications that the startup sector was active again. Companies like Streem, Omnidrive, Cinergix, 2Vouch, RedBubble, Spellr.us, Plugger, ExitReality, Stateless Systems and others had launched, attracted investment and were trying to grow. Most would eventually fail, but a few made it through the minefield of early stage startup world to see the light at the end of the tunnel to becoming viable, sustainable businesses.
And the startup industry also started to see a new wave of events focused on helping would-be entrepreneurs make the transition from the corporate world to the often confusing and treacherous land of technology startups. The most notable event was Startup Camp Sydney, a weekend event which actually resulted in the creation of new companies by volunteers who came together for the experience. Again, most failed, but some of the ideas generated proved to have enduring power.
There were even acquisitions. We might think of the amount of money involved as being paltry, but some will remember that online video startup Omnisio, which had built a number of tools designed to sit on top of YouTube, was bought by the video giant for a reported US$15 million. The amount of money involved made Omnisio’s three founders rich — but it also unleashed new corporate knowledge on the Australia startup scene about how to sell small, early stage companies to giants like Google.
2008 was also significant for another reason. The year saw the birth of a partnership between two technologists who would come to several of the most influential individuals in Australia’s growing startup scene: Mick Liubinskas and Phil Morle.
Both were already veterans of the technology startup scene. Liubinskas’ career dates back to the late 1990’s, but really kicked off with the sensational Australia-based file-sharing network Kazaa, which shot to global fame in the midst of the Internet content piracy boom in the middle of last decade, before eventually faltering under the weighty load of a number of severe lawsuits. For his part, Morle also worked at Kazaa as its chief technology officer and also had several other startup encounters under his belt.
In a blog post about the period published this year, Liubinskas characterised the industry in 2008 as follows:
“There were a few good people around, a few startups, a few events, and a few investors. It was highly fragmented, poorly organised and high risk. There were no real heroes or success stories other than the category winners (Seek, Carsales) and some dot com boomers like Looksmart. Companies like Sitepoint, Atlassian and Campaign Monitor were doing well but it was still early days. Looking at this landscape and thinking that there is opportunity there takes an entrepreneurial spirit.”
At that stage, launching any tech startup in Australia represented a risky venture. The US might have been booming, but the availability of capital in Australia was severely limited, staff willing to work in the industry were hard to find, and most people were dubious about whether the successes of the dot com boom could ever be repeated.
Liubinskas writes: “When we started it was near impossible to get good people to work on Startups. We looked at Y Combinator but didn’t feel the model would work here yet. We had to hire the team, pay them OK salaries, try to train and support them as best we could and make it work.”
However, like Bizannes, Morle and Liubinskas decided not just to bet on the success of individual startups. The pair formed a consultancy, Pollenizer, which aimed to use its founders’ experience to help new startups grow.
It took guts and a lot of hard work. But both efforts eventually paid off, and very quickly indeed. The sparks lit by these two efforts, and dozens more which I haven’t chronicled here, quickly became a roaring fire.
The evidence of the growth could be seen starkly displayed at the 2010 Christmas Party held jointly by Pollenizer, along with the Silicon Beach community started by Bizannes. At the event, held on the rooftop balcony above Pollenizer’s trendy offices in the inner Sydney suburb of Surry Hills, hundreds of startup founders, angel and venture capital investors mingled with pizza and beer. The highlight of the night — chronicled on video by Delimiter — was Liubinskas’ appearance, drag queen-style, in a dress, as the result of a lost bet with the founder of startup 99dresses.
And there were other pivotal points along the road. Just a few months later, local online megalith Yahoo!7 made one of the largest acquisitions in the recent history of Australia’s tech startup sector, buying Pollenizer-backed group buying site Spreets for an amount reported to be a cool $40 million. The deal made Spreets’ founders’ millionaires, unleashing yet more capital on the local scene, but also fuelled the growth of Pollenizer itself, which had been an investor in the company and largely built its platform.
It feels like it was at this point — three years after the formation of Pollenizer and the Silicon Beach community (which had also grown massively over the same period, helping thousands upon thousands of entrepreneurs) — that those outside the IT startup scene really started to realise that dot com was back. Not only was the acquisition of Spreets a landmark event for the local sector, but a clutch of other companies — firms like Atlassian, Freelancer.com, Bigcommerce and others were rapidly growing and starting to make their mark as major global software as a service and crowdsourcing concerns.
Then too, the money was pouring in. Several other companies, such as Tjoos, had been sold, and angel investors were proliferating as the founders of many of the companies which were making it started to help fund the next generation. Long-time startup entrepreneur Niki Scevak started coordinating angel investment in an approach similar to the scientific method taken by US incubator Y Combinator, and even veterans from the first dot com book — such as Simon Baker, who ran Realestate.com.au — started getting into the game. The list of investments which were made in 2011 and early 2012 became staggering, for an industry which had heretofore struggled to get any capital injections at all. Here’s a few examples:
- April 2012: Just a few months after launching, Web 2.0 collaborative consumption firm Airtasker gets $1.5 million in local funding, after raising an initial $140,000 in seed capital
- April 2012: After launching in 2009, field management cloud company Connect2Field gets $600k in funding from local ASX-listed company Reckon
- February 2012: Visual data startup Thereitis.com wins $2 million worth of angel investment, after winning an initial grant from Commercialisation Australia of $250,000
- February 2012: Car-pooling startup Jayride gets $400,000 funding
- January 2012: Pollenizer portfolio company Pygg gets $600,000 in funding
- January 2012: Pollenizer portfolio company Friendorse gets an investment from local publisher APN News & Media
- January 2012: Bug-tracking software company BugHerd gets $500,000 in funding from Melbourne venture capital firm Starfish Ventures
- December 2011: Local video game studio Halfbrick open Sydney studios with funding from the NSW Government to develop the next version of their Fruit Ninja game, as part of a $3 million fund the state is using to invest in interactive media
- November 2011: Local investment firm the Future Capital Development Fund invests in two local companies, The AgendaDaily.com and BlueChilli technology, bringing the total number of local companies it has invested in over the past 2-3 years to 14
- November 2011: Local cloud computing startup OrionVM gets several hundred thousands dollars of investment from investors including local PIPE Networks co-founder Stephen Baxter
- November 2011: Australian startup consultancy and incubator Pollenizer raises $1.1 million for local startup funding
- November 2011: Local crowdsourcing startup DesignCrowd gets $3 million in investment from Melbourne VC firm Starfish
And the list of startup incubators and shared working spaces also exploded in that same period:
- March 2012: Brisbane-based incubator River City Labs is officially opened and invites applications for its program this year
- February 2012: Melbourne incubator AngelCube invites invitations for its funding program this year
- February 2012: Sydney incubator Startmate invites applications for its funding program this year (in the same article)
- December 2011: Sydney incubator Pollenizer invites applications for its program for this year
- December 2011: The University of NSW creates a new IT startup incubator
- March 2011: Local IT startup incubator PushStart opens its doors and invites applications
There were still high-profile failures going on, and the mainstream media jumped on a few to claim that Australia’s startup ecosystem was stillborn. However, the evidence was becoming overwhelming — the nation was going through a second dot com boom.
If you want to see how far the industry has come even since that point in 2011 and 2012, you need only look at what’s happening in Australia over the next several weeks. From this week until the 9th of October, the industry has organised a national festival of startups, Startup Spring 2013, which rivals any other festival — music, film, sport — anything. Events are being held in every city, pretty much every day.
Let’s take Sydney, for example, over the next few days. On Wednesday, no less than five events were held, ranging from talks with famous US investors such as Bill Tai to how to handle accounting practices for research and development, to a presentation on marketing to Chinese Australians. Yesterday there was a tech startup meetup, along with a guide to building a search optimisation plan. This morning an event was held to give entrepreneurs an idea of how to pitch to investors, while Monday will see Google host a day for entrepreneurs. And the list goes on. For the next several weeks, a constant string of such events will be held all over Australia, on virtually every topic which involves technology startups. No matter what area you’re interested in, there’s something for you.
“Australia has film festivals, music festivals and wine festivals which are a tremendous celebration of our culture. Now, it’s time for the country’s first startup festival,” says Google Australia engineering director Alan Noble, in a media release announcing the festival. “With today’s focus on how Australia can maintain its wealth beyond the resource sector, there’s never been a better time for Australia to become the creators, rather than just the consumers, of technology. We want to see Australian kids growing up not just aspiring to be lawyers, doctors, or bankers, but also to see entrepreneurship as a valid and rewarding path.”
Backing the entire festival is a new organisation, #StartupAUS, formed in late 2012 to boost the development of tech startups in Australia. The group formed from a small number of backing individuals and organisations (Alan Noble – Director Engineering Google Australia, Matt Barrie – CEO & Founder Freelancer.com, Michael Fox – CEO & Co-Founder Shoes of Prey, Peter Bradd – Executive Director Fishburners, Bill Bartee – General Partner Southern Cross Ventures, Niki Scevak – Founder Startmate), but now includes many more. Its site states, regarding #StartupAUS’s most significant undertaking previous to the Startup Spring festival:
“In March 2013, over 50 members of Australia’s startup community – from tech CEOs to educators – got together to work out how we can ensure our country has a vibrant tech ecosystem. The output of this forum with additional research conducted by PwC as the request of Google Australia led to The Startup Economy report. This report, prepared by PwC, looks into the state of the Aussie tech sector, with a roadmap of how we can build a strong technology industry for the country. We believe that by 2033, the industry has the potential to reach $109bn or 4% to the economy and employ more than 540,000 people. And we are committed to working towards this goal.”
And even the massive stock exchange listings are back.
Last week, it was reported that local company Freelancer.com, which was only formed in 2009, had received a $400 million acquisition offer from Japanese JR and recruitment giant Recruit Co. Outspoken Freelancer.com chief executive Matt Barrie didn’t even blink, but announced his company would list on the Australian Securities Exchange instead.
Barrie had been publicly stating for years that it was “a national imperative” to build the technology industry up in Australia. The company’s ultimate goal is to build “Australia’s first big global internet company”, and it is proud to be keeping its operations local, according to a statement issued by Freelancer.com. “We believe that out of all the current options in front of us that this path gives us the best opportunity to achieve that while staying masters of our own destiny,” The company said.
Barrie added: “We need to build the ASX up for technology like we have for resources. We have been spectacularly good at that – more money has been raised on the ASX in the last five years than NASDAQ.” One wonders whether other major Australian IT startups will follow in Freelancer.com’s footsteps.
Back in 2008, it would have been hard — impossible, even — for Australia’s tiny cadre of startup entrepreneurs and investors to have imagined that it would be possible for such huge levels of activity, investment and entrepreneurialism to have been developed in only a few years. But then, that is perhaps the definition of a startup, as opposed to a small business — startups are supposed to have revolutionary growth potential — they’re supposed to expand fast.
The last time around, the dot com sector reached ludicrous levels of hype which weren’t supported by commercial reality. Confidence around the technology industry collapsed, and it went into hibernation for many long, lonely years.
But this time, there’s something different. Pollenizer’s corporate tagline, ‘startup science’, says a lot about the maturity of Australia’s startup sector. What we’re seeing now is not so much a repetition of the first dot com boom, but rather an evolution of it. The process of startup failure, and its impact on the evolution of startups, is much better understood now, as is the iterative process which leads to success. Generating a startup is a process, and there are common elements in that process which every startup can learn from. Those lessons are being enshrined and codified into institutional knowledge in places such as Pollenizer and Silicon Beach Australia.
Then too, there are many more organisations involved in the startup sector this time around. There are now dozens of co-working spaces in major cities, and universities, too, are getting involved in the sector, encouraging students to join university-backed startups rather than meekly entering the mainstream corporate world. This video about a new Sydney co-working space, the Hub, paints a vivid demonstration of the community growing up around certain spaces in this vein.
Right now, Australia’s economy is still fundamentally based on several of the old pillars — resources, housing construction, agriculture, tourism and services. But the Australian technology startup sector is clearly one of the massive growth segments of the economy. That wasn’t true just a handful of years ago. There’s no way to predict how far it will go in the next five years to 2018, but one thing is clear: With so many influential figures and groups all rowing the same way, it is unlikely the industry will ever return to those cold wintry days before 2008, when it seemed like the technology startup landscape would never boom again.
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