As a journalist at iTnews:
As a nation that is home to a well-developed education system and world-class research institutions, Australia is often lauded as fertile grounds for innovation. But the outlook for young entrepreneurs may not be so rosy.
The technology industry is rife with anecdotal evidence that although ideas may be born down under, start-ups often move to larger markets such as the U.S. or Asia to grow.
"Australia does have good innovation networks, markets for development, access to capital and funding," said Rob Fitzpatrick, who is the Director of Commercialisation at national research organisation, NICTA.
"The biggest challenge for start-up companies," he said, "is in Angel funding, which is just not well organised in Australia."
Angel funding is one of the few avenues for start-up companies in their very initial stages to obtain seed funding to further grow their business. In return, Angel investors receive a percentage share in the start-up company.
It is a high risk, high return investment, and one that is not particularly common in the Australian culture.
In the U.S., however, it's a different story. According to the Center for Venture Research at the University of New Hampshire, Angels are the largest source of seed and capital funding in the U.S. As of 2007, there are more than 250 angel groups in the U.S., which is approximately equal to the total number of angel groups in all other countries combined.
Thankfully, globalisation is allowing U.S. Angels and other similar groups to spread their wings over start-ups in other countries too. TechStars is one U.S.-based group that extends its start-up funding and incubation program to companies across the globe.
The program offers up to US$15,000 in seed founding to ten start-up companies each year, in exchange for five per cent equity. Over the course of three months, selected start-ups will be given access to legal advice, office space, and experienced mentors.
Start-ups in the program will also be required to spend most of the three months at TechStars's offices in Boulder, Colorado – a potentially expensive relocation that might offset the seed money altogether.
But it's not just about the money, according to Techstars founder and Angel investor David Cohen.
"If you're thinking about the money, you're not thinking about the right thing," he said.
"The funding we provide is simply enough to keep you alive while you are here - that's all a motivated first time entrepreneur should need."
"The value of the mentorship and connections we provide should be the true motivator," he said.
Of the ten start-ups enrolled in TechStars's 2007 program, eight companies are now venture - or angel - backed and profitable, Cohen pointed out, with some companies even receiving credible acquisition offers.
Credibility is traditionally a big issue for start-up companies, which Cohen said could be mitigated by the support of established backers like TechStars.
"If you're two people, a dog, and an idea, it's hard to convince customers or partners that you're capable of delivering something interesting and worthwhile," he said.
"The other major problems are lack of market (startups doing things nobody wants) and team problems (founders who can't stick together)," he said. "I would specifically exclude access to funding - it's very easy if you have a great team, execute well, and are building stuff people want."
Admittedly, the atmosphere for start-ups in the U.S. could be the strongest in the world, with early stage capital widely available for good ideas and teams.
While saying that he tends to focus mostly on his local area, Cohen speculated that there seems to be a reasonable amount of start-up activity in Western Europe and Australia also.
"We get lots of interest in TechStars from Australia," he said. "Last year we did have one founder from Sweden, but otherwise they have all been US-based."
"Last summer was our first [year in operation]. There were ten companies consisting of 26 founders. One of those founders was from Sweden. Ultimately, they incorporated in the USA, [after] intense debate."
According to Sydney-based venture capital company OneVentures, however, the Australian market does offer some advantages over the larger, more established U.S. market.
"U.S. companies do get advantages of immediate access to a much larger market but often this is highly competitive and market entry is costly," said Michelle Deaker, the company's founder and CEO.
"It is traditionally difficult to raise capital for emerging high growth technology companies in this [Australian technology] market, but I would like to say that entrepreneurs shouldn't give up hope."
Besides assessing capital and resource management, Deaker highlighted company structure, market entry, team building and strategy as issues that plague start-ups. Formerly the co-founder and executive director of her own start-up, E Com Industries, Deaker said that Angel investors can sometimes help in providing professional networks as well as capital to help entrepreneurs.
In addition to leveraging any opportunities in the local market, Deaker also recommends looking offshore for opportunities to grow a start-up business.
"The AU market is small," she said. "Stepping offshore can be daunting but maybe necessary to make the business into an entity that an investor would be interested in and allow the company to capture a bigger market or seek capital from offshore investors."
"The government supports offshore activity with Export Market Development Grants for example. We [OneVentures] do our best to help smooth the way for this process."
NICTA's Fitzpatrick agrees that the market for technology companies goes beyond any international boundaries. He cited a NICTA project in the mobile telecommunications application area that currently is in negotiations with developers in China.
"Most of our start-ups are now born global," he said.
