Private investment in local tech startups is falling, representing just 0.3 per cent of total investment in all WA businesses.
Investment in early-stage companies is in sharp decline despite the tax breaks on offer for investors, the vibrancy of the local startup scene, and an increased awareness of startups.
This finding comes from Techboard’s latest annual report, which measured 895 startup-funding events across the country in 2019-20, including those in Western Australia.
The headline figure is that private investment in WA-based tech startups and early-stage scalable businesses fell by 25 per cent last year. This was on top of a 23 per cent decline the previous year.
Not only that, this level of investment is equivalent to only 0.3 per cent of total investment in all WA businesses (using corporate finance data from Business News Data & Insights as a comparison).
Moreover, this proportion is also falling. Last year, an amount equivalent to 0.6 per cent of total WA equity funding went to early-stage businesses.
Don’t blame COVID-19
While WA has handled the pandemic relatively well so far, startup funding in those states harder hit by the virus rose last financial year, even throughout the early months of COVID-19.
Indeed, total funding to the sector rose to $7 billion across the country, which was a 7 per cent increase on FY19, and double that of FY18.
Within this total, private funding (such as angel and venture capital investment) almost doubled across the country to $4.48 billion, with an average deal size at a healthy $11 million.
However, with only one venture capital firm actively investing in WA – the RAC-backed BetterLabs Ventures – local startups have to search far and wide for their funding.
Of the $25.7 million invested in WA startups in 2019-20, $12 million was into fintech PictureWealth, and a further $5 million was from Sydney-based VC firm Blackbird investing in local firm Roborigger. That left only $8.7 million in total for every other WA startup across the entire year.
(Blackbird also backed Perth-founded Canva, which has since been based in Sydney and is now worth more than $8 billion.)
“WA startups have taken a double hit over the past three years with a decline in both public and private funding, even though both are on the increase nationally,” he said.
“Listed, early-stage tech companies raised $152 million last year – a fall of 20 per cent from the year before – but even this was six times what the private sector managed.”
The decline in public funding in WA is due to several factors, including the ASX making it harder for early-stage startups to list.
“The overall numbers are relatively low, and are certainly going in the wrong direction,” Mr van Bruchem said.
0.3 per cent not enough
Whichever way you slice it, investment in WA’s early-stage tech sector is poor compared to our eastern states cousins, and falling further behind.
Meanwhile, well-backed overseas-owned tech companies are advancing strongly into our markets.
Think Apple, Google, Facebook, Netflix, Airbnb, Uber, Tesla, Spotify, WhatsApp, Instagram; like you, I use nearly all of them, but where are the home-grown tech companies?
While it is true that not every startup deserves to be funded, it is surely evident that we will need to provide more of our investment funds to the sector than 0.3 per cent. Even a move to 1 per cent could make a real difference; 99 per cent can still be invested in everything else.
We are going to have to do better to ever find the next potential unicorn – defined as a private business valued at more than $US1billion – and (this time) keep it here.
At a macro level, and as a former economics teacher, I can argue that, with interest rates so low, there is not much room for governments to grow the economy via monetary policy. Fiscal policy also has its limitations, as governments can’t borrow and spend forever.
Innovators can help get us out of COVID-19, and it’s to the early-stage tech sector (of all stripes and sizes) that we should pay more attention.
The best ones will deliver fast-growing businesses and well-paid jobs.
Charlie Gunningham is founder and principal of digital strategy advisory business Damburst