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Why Australian Startups Could Look To China For Growth, Instead Of The US

Business Insider Australia’s coverage of CeBIT 2014 is presented by the Microsoft Cloud providing flexible enterprise cloud solutions for business.
Getty/Graham Denholm

Australian startups should consider expansion to China, not just Silicon Valley, a tech expert says.

Speaking at CeBIT in Sydney this week, Rebecca Fannin, Silicon Dragon Ventures founder and journalist said there was a lot of talent and energy in Australia’s startup scene, but this wasn’t reflected in venture funding.

“If you look at the [Australian] market over the last ten years you can see that the VC market its raised $2.1 billion,” she said.

However as the chart below shows, looking at the venture capital investment numbers compared to what’s going on in the US, China, India and Europe, Australia is still a small player with just $111 million in VC funding reported in 2013.

There has been a lot of talk about the slow strengthening of Australia’s startup scene.

Fannin said over the past decade funds have invested about $1.5 billion in 250 companies and support from government was a shining light on the Australian startup scene.

“The government has been an active proponent of startups in Australia,” she said, adding another positive for the Australian market is the rise of angel funds and startup support ventures.

“We’ve seen a number of new angel funds get started, Blackbird Ventures started last year with $30 million,” she said.

“We’ve seen a whole startup ecosystem develop here with incubators and accelerators, a whole group of them, in fact I’d maybe say there maybe an accelerator bubble.”

But one aspect of growth, Fannin says has been largely overlooked, is the prospect for startups to grow in the Chinese market.

“The China opportunity for Australia, I think that is a bright spot based as well on the proximity, if you’ve got the right product, the right culture and the right team there is an opportunity to use Australia as a gateway to China,” she said.

“I know a lot of the Australian startups look to Silicon Valley, they look to Silicon Valley to raise capital and as an expansion and a sales and marketing strategy but I think China also has its own opportunities.”

Many of the opportunities for Australian startups looking to China are in the mobile and social media spaces, and are driven by China’s huge population and thirst for technology, Fannin said.

“I think Australia can be used as a gateway to China,” she said.

But to take advantage of these markets, Fannin said, “Australia has a lot of catching up to do”.

“The numbers are not exactly very flattering to the Australian startup community, I do think if you look at the VC fund raising its really small compared to other markets, compared to its percentage of the GDP,” she said.

“VC investments have been declining if you look at the numbers and there’s a big gap in fund raising, it’s very hard to get to the next level if you don’t go outside the home market in Australia to raise money.”

Bridging that gap, Fannin said Australia will need to reform its tax regulations around R&D and offshore investors as well as clock up a few more wins.

“It [Australia] needs entrepreneurial heroes that are going to encourage more venture capital investors to come into the market for startups to get started,” she said.

While Silicon Valley remains the tech hotspot of the world innovation in China is heating up, Fannin said.

Pointing to Weibo and WeChat, Fannin said when it comes to “social media I think China has got a lead in the world”.

“China’s great at copying things and then adding to it and also not just copying things any more but actually innovating,” she said.

But there is still a fair amount of risk in the Chinese market for startups to consider including censorship, the difference in the rule of law, limited IP protection, and a consolidation of power in the country’s big three tech conglomerates collectively known as the BAT. The BAT includes China’s biggest instant messaging provider Tencent, search engine Baidu and e-commerce giant Alibaba.

“If you’re a startup today and you’re trying to get started in China a big hurdle is to do something that can’t be copied easily by the BAT,” she said.

“What you want to do today in China is to do something really unique that the BAT are going to want to buy in a big multi million dollar sum because they are buying up a lot of startups in China.”

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