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WA Startup Ecosystem Preliminary Report 2015

Drones, apps, games, casinos, big data, robots, augmented reality, AI and laser shooting robots in Australia's mining capital.

We are delighted to present the second of our reports on the early stage digital and internet technology sector in Western Australia (WA). This preliminary report (download here) builds on the 2013 Perth Startup Ecosystem Report and shows that the local tech-industry has grown substantially since then.

The report was produced by Boundlss commissioned by StartupWA, and generously supported by the WA Department of Commerce and the City of Perth. Information was gathered through community workshops, interviews, data scraping and research.

The report is a preliminary report with the final report to be published in February 2016 with the addition of recommendations and numbers on later stage tech companies.

This preliminary report focuses on early stage digital & internet technology companies operating throughout Western Australia. Due to the time constraints and the geographic spread of the region the report mainly focuses on the Perth metro area, but we hope to identify more regional tech startups for the final version. 

Perth & Western Australia
And if you have never been to Perth or anywhere else in Western Australia, WA is Australia’s largest state occupying the entire western third of Australia. It has a population of 2.589 million across 2.5 million square kilometres — is the second largest country sub-division in the world — and as you can see from the map, mostly fairly empty. It’s main industries are energy and resources, exporting 58% of Australia’s energy and minerals.

What do we mean by Tech Startup?
Back to startups. So what do we mean by digital and internet technology ‘startup’. Firstly we are just focussed on early stage, so just those established since January 2010. It’s not that we’re ageist, its just the scope of the research. And by digital and internet technologies we mean those companies developing their own intellectual property in technologies such as computing, software, mobile applications, internet focused companies, electronics and hardware; particularly those hardware companies that incorporate software such as wearables, sensors, drones, robotics and autonomous vehicles. We call these ‘startups’ for short throughout the report.

The Numbers

The report identified over 420 digital and internet technology startups operating throughout Western Australia since January 2010, of which 335 remain active. We found approximately 3,000 people who are working in and building early stage technology startups.

These numbers are substantially larger than the 100+ startups we identified in our 2013 report. There are several reasons for this, namely increased awareness & interest in the space, increasing opportunities in the space (such as accelerators and programs), leading to increased formation rates (with 103 companies alone formed in 2014). Additionally our process for finding startups is improving.

We didn’t identify as many as expected in the current year (only 69 in total), however we assume this to do with that fact that the most recently formed startups are probably not yet out there publishing their birth to the world. If we did this again in 2016 we’re certain the number would be similar to 2014.

Another thing to note is that the total numbers are probably higher than 420. There are almost certainly many active startups that we missed and it is quite difficult to dig the dead companies out of the grave and identify the remains. If I was to take an educated guess I’d say there could be between 670 and 1,000 in total that have been born since 2010, roughly a 167 per year birth rate (or 64.5 startups per million people).

Market Focus

Of these 420 startups, a wide range of market focus was evident, with particular clusters emerging in eCommerce, Fin-tech, Health-tech, Resource-tech, Education-tech and more unexpectedly in areas such as Gaming and Human Resources. Product and technology types were diverse, ranging from mobile applications and machine learning to 3D printing. 

Technologies did however seem inclined to less complex technologies rather than more complex emerging technologies such as drones, advanced robotics and machine learning. This is probably due to a combination of factors: 

  1. the relatively small number of computer science graduates and electronic engineers completing university courses in Western Australia,
  2. the scarcity of available capital to fund more resource intensive technology development such as drones, robots and AI, and
  3. the previous abundance of very well paid engineering jobs within the WA resources sector.

As you’d expect many startups focused on communication services, consumer marketplaces, entertainment (all the cool kids like these things) and as expected in Australia’s mining capital a large number in resources-tech (eg. Newton Labs, Sentient, MiPlan, Track’em). 

Gaming
Surprisingly there was a reasonable number of gaming companies (25+), with a decent number operating out of SK Games (a gaming co-working/incubator-ish space). Based on discussions with the folks at SK Games we actually think the number is substantially higher. There are over 300 members of Perth’s gaming community and I’m told the majority of these produce a few working games per year, of which at least 1 would make it to market on Steam or the like. Sadly these guys and gals are super under funded with a minimal $10-$50K of funding going into the gaming space.

Other Cool Clusters
Some other interesting clusters we saw were fin-tech (35), health-tech (27), ed-tech (24) and hr-tech (19). There were also a smaller number of companies doing interesting things with drones and geo-spatial technology, like listed mapping company Spookfish (ASX: SFI) which is developing new technology to do high resolution, cheap, quick imagery and raised $M. Or subsea drone companies such as Geo Oceans, factory automation Autronics. Surprisingly, we didn’t find many startups at all doing ag-tech, given the size of the market. But the guys at OVASS are just launching and this looks very cool.

Autonomous Vehicles
We were particularly disappointed to not identify a single startup working on autonomous vehicle technology despite the fairly substantive adoption of autonomous vehicles by all three of the largest resource companies. Just Rio Tinto alone has 1 autonomous train in operation, a number of autonomous drilling and blasting systems and 69 Komatsu Autonomous Haulage Systems (AHS) operating on it’s mines, and has an agreement with the Komatsu to ramp the number of AHS up to 150 by 2018. 

Weirdly Rio Tinto has well over double the number of self driving vehicles operating in the remote far north of Western Australia than the 32 cars Google has driving around Silicon Valley. 

Funding

We identified over $101.7 million in total funding over the past 6 year period to 77 startups, ten of which raised funding by listing on the Australian Stock Exchange (ASX). The average fund pool allocated each year was $16.96 million, and average per startup was $1.32 million. However the median funding per startup was $183,500. A very low number. The average is much higher due to a small number of startups (such as Spookfish, 1-Page, Tagroom, Virtual Gaming Worlds and Brainchip) which all raised between $9 to $15 million each.

We identified 113 rounds and 137 transactions. We would expect to see more transactions given the number of rounds, which makes us think we certainly missed some of the transactions that took place. You can check out the top 38 startups by total funding below. If we missed anyone please let us know. 

Total funding across WA results in an average per capita funding ratio of $6.61, one of the highest levels seen nationally, however still substantially lower than international ratios which go up to $183 in Israel and $4,341 in Silicon Valley.

Venture Capital funding per Capita. Note the Perth and SEQ numbers include funding types additional to just VC, such as angel, crowdfunding and government grants. 

Australian Stock Exchange (ASX)

We saw ten startups listing on the ASX, raising near $40 million in total from the ASX (40% of total funds). These startups were, by market cap at 27November 2015: 1-Page (ASX:1PG), Norwood Systems (RAP), Resapp Health (RAP), Spookfish (SFI), Brainchip (BRN), Activistic (ACU), Rewardle (RXH), MyFiziq (MYQ), XTV Networks (XTV) and iCollege (ICT).

It’s interesting to note how young these companies are when listing. All had little or no revenue at time of listing, most were in the R&D phase (Spookfish, Resapp, Brainchip, Activistic, MyFiziq) and Resapp barely even had a team with only 1 staff member — the CEO. We haven’t got a number for this but our sense is that these are in general older teams.

Given WA’s venture space is virtually non-existent we think startups are turning to the ASX as an alternative avenue to raise money. Listing on public markets at a much earlier stage than what you would normally assume. 

There are also a number of startups listing on the ASX that aren’t born and bred in WA, such as 1-Page (San Francisco based) and Resapp (commercialising IP from Queensland uni and run by one of Queensland University’s ex-commercialisation directors). However these end up registering a head office in WA in order to get access to the ASX through our strong stock broking industry.

Meetups, Events, Groups & Universities

The report found that across Western Australia there was a substantive number of meetups, hackathons and community driven educational activity in the ecosystem. Over 12 co-working spaces have arisen in the past 6 years in the Perth CBD, Leederville, Joondalup, Fremantle, Geraldton in the Mid West, and as far south as Pollenators in Bunbury. There are also a number of cool maker and hacker spaces. Co-working spaces include: Bloom, F-Sapce, Spacecubed, Minespace, sixty27, Sync labs. And maker/hacker spaces include the Artifactory, SW Makers and the Vic Park MiniLab by Enkel. 

These places serve as a vibrant catalyst for innovation and entrepreneurship and are increasingly moving up the innovation value chain from offering sharing office space to formal startup accelerators providing seed capital for early stage commercialisation. Spacecubed in Perth’s CBD now hosts 5 accelerators and seed accelerators (Amcom Upstart, RAC Seed Spark, Unearthed and Founder Institute) along with multiple hackathons throughout the year.

Universities

WA Universities have a history of commercialising innovation, out performing east coast universities when viewed through the lens of company formation and university spinouts. There is also an increasing number of student led programs, hackathons and incubators arising out of universities, such as UWA’s Bloom Labs. However compared to US and UK university company formation rates (1 to 3 startups per $100M in the Uk or US, compared to 0.4 in Australia) there is still much Western Australia can do to develop more innovative startups. This is a sorry state of affairs. As former Chief Scientist Ian Chubb states:

“We can wait for the one in a million natural-born entrepreneur to successfully seize the once in a lifetime opportunity to create change. Or we can make our own luck by using the education system to give people the skills and knowledge that will make them entrepreneurs.”

Future Growth

Technology is increasingly restructuring the global economy, with technology companies increasingly entering traditional industries such as mining, transportation, insurance and accommodation. Foreign companies are taking market share at a rapid pace, with a case in point being Uber which is estimated to have secured near 8.8% of the Australian taxi market in under three years, as of early 2015. Based on current economic and technology trends this report estimates the potential economic impact of disruptive digital technologies on Western Australia’s economy in 2025 could be over $76 billion per annum, approximately 25% of Gross State Product (GSP).

This shift in economic value provides a tremendous opportunity for new and established companies to rapidly create substantial value. If Western Australia is to do this successfully taking advantage of our proximity to the worlds largest and fastest growing consumer markets in Asia is almost certainly necessary.

Conclusion

The early stage technology industry in Western Australia is still in it’s infancy with a few breakout successes that have managed to overcome regional isolation and sparse support. Nevertheless, Western Australia has a promising level of engagement in some of the most innovative new technologies coming to market, such as Fin-tech, Health-tech, Resource-tech and the Industrial Internet. Given a substantive effort by all participants in the ecosystem — entrepreneurs, investors, educators and government — the state can almost certainly take advantage of its deep entrepreneurial roots to ride the next great economic revolution.

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Download

You can download the full report here: Download 
You can download the summary slide deck here: Download

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Ok there's no laser shooting robots, we lied about that one.
But there could be... 

Jonah Cacioppe