How the Australian startup industry is using a lack of venture funds to its advantage

While the Australian startup scene may not be as cash-rich as its American cousins in Silicon Valley, these shortcomings may actually lend themselves to the advantage of local entrepreneurs.

It goes without saying that Silicon Valley, as the premiere destination for the United States' cutting-edge tech industry, is flush with billions upon billions of dollars in investment seed money. As Tech Republic notes, one U.S. venture capital firm — Accel Partners — single-handedly raised two funds worth a total of $1.48 billion in March — and that's just one firm in one month of the year.

On the flip side, the sum total value of Australia's private equity and venture capital fund — for the whole country, across the entirety of 2014 — is just $2.5 billion. Even more disheartening than that comparison is that, according to the Australian Private Equity and Venture Capital Association Limited (AVCAL), this year's investment total fell by 13 percent compared to 2013 levels.

Taken at face value, this would portend bad news for Australian startups. After all, less seed money to go around means overall fewer opportunities for local entrepreneurs to get their new business up-and-running. Or does it?

"The absence of seriously cashed-up venture funds and other backing may in fact be encouraging local tech entrepreneurs to develop a compelling market offering early on in their businesses' life cycles, giving them no other option but to establish a profitable model from the outset," writes Leon Spencer for Tech Republic. Scribd founder Tikhon Bernstram adds that this ecosystem forces entrepreneurs to "get more resilient, because you're not going to get funding as easily, so you're going to have to grind things out harder, you're going to have to be more persistent, and get by on less resources."

For this, Tech Republic points to the Australian software startup Atlassian, which was founded in 2002 and had acquired over 2,000 clients just two years later — generating enough revenue to buy another company, Cenqua, in 2007. It was only in 2010 that Atlassian received any sort of venture capital investment, years after it had already turned plenty of profits on its own. 

While Atlassian is just one example, it does point to how a lack of readily available investment funds is forcing Australian entrepreneurs to create companies that, right from the start, better lend themselves to generating profit and showing the potential for growth, long before any venture capital firms get involved.

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