What’s holding Australia back from becoming the land of startups?

A lack of appropriate risk capital and a cultural fear of failure are main reasons why many startups are struggling to take off, according to Deloitte

Startups could be a big part of the Australian economy, but a lack of appropriate risk capital and a cultural fear of failure are deterrents to making that happen, according to the leader of Deloitte’s Technology Fast 50 Program, Joshua Tanchel.

In a video panel discussion on startups, Tanchel said corporates and governments need to get off the sidelines and ramp up capital investment in new ideas.

“The danger is that we leave our entrepreneurial talent unfunded and untapped. The proportional amount of capital raised in the early stages is five times higher in the US than it is in Australia.”

The founder of technology startup BlueChilli, Sebastien Eckersley-Maslin, said there is strong investment at the R&D stage of ideas and there are government tax incentives and money being poured into research.

"Where we are lacking is in the commercialisation of those ideas so getting them into the next level which is the venture capital and private equity markets," Eckersley-Maslin said.

“We are seeing there is a gap here at the angel or early series of investment. So what we need to do is educate our angels a lot more. Angel investors or first time angels investors are going out there and making investments, startups and brand new ideas, but they are generally having a pretty bad experience with it.

"Why? Because most of the failures for startup businesses occur at the early stages. We need to… educate angles about the potential pitfalls they may face in that investment.

“We need to provide some government-level support around it as well. One of the key areas that can be increased and where we can actually put some change in is to look at incubators... and use government match funding at the incubator level. Incubators do a fantastic job at de-risking investment by educating the founders and providing a means for angles to come in at a mitigated risk level.”

Australian entrepreneurs also face the challenge of working in a culture where failure is condemned rather than seen as evidence of their experience and knowledge in running a startup business, Tanchel said.

“In the US, investors respect you if you have had two or three failures. They know that smart people learn from mistakes and are in a better position to get it right next time. In Australia, we attach stigma to failure. If you fail here, even if you are an entrepreneurial with exceptional ideas it is hard to get back on your feet.”

Eckersley-Maslin said shareholders in an organisation and governments usually don’t want to take risks.

“You can restructure the way they think about innovation and risk by thinking about it as an investment in their research and development," Eckersley-Maslin said

"By simply making that contextual change internally, suddenly that same person who makes that claim back to their shareholders is doing so with a lot more risk-mitigated perspective. That I think is what needs to change so that corporates and governments can adopt risk and be innovative and make change.”

Tanchel said there is a huge opportunity being missed in Australia by not properly fostering the startup sector. He cited a report from Google Australia released in April this year showing that by 2033 Australian startups could add $109 billion or 4 per cent of gross domestic product to the economy, creating 540,000 new jobs over the next 20 years.

“If we genuinely believe these people could have a dramatic impact on our economy then we need to scale up our commitment.

"Corporates need to actively look at bringing outside innovation into their organisations and we need to raise and direct a lot more capital. And our governments needs to redefine their involvement from education to infrastructure to funding.”