Australia Startups Starved of Cash Despite Big Potential Returns

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(Bloomberg) — Australian startups lag far behind the US and China in funding raised despite the country’s historical effectiveness at creating unicorns.

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Since 2000, Australia has produced 1.22 unicorns for every $1 billion invested — the highest ratio globally and almost twice the number in the US, according to a study by Side Stage Ventures, Dealroom.co and Amazon Web Services. China — which has struggled with a private sector crackdown since 2020 — doesn’t even appear on the list.

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Australia’s startup funding trails highs reached a few years ago, and the nation is now trying to revive investment. Its relatively small domestic market and distance from the venture capital hubs of Silicon Valley and Beijing remain challenges, but the local startup community is pointing to global success stories such as Canva Inc. and Atlassian Corp. as signs of its potential.

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“Access to capital remains a big challenge when competing with companies and founders in other countries,” said Ben Grabiner, co-founder of Sydney-based Side Stage Ventures. “But more people are realizing the potential in the startup ecosystem here.”

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Software is the most dominant sector among Australia’s startups, underscoring founders’ focus on products and services that are easier to export beyond the local market. Besides design-app startup Canva and collaboration-program maker Atlassian, Australian firms including shipping-software provider WiseTech Global Ltd. and fintech Afterpay Ltd. have reached valuations in the tens of billions of dollars.

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Other key growth areas include energy, health and creative industries, Grabiner said. The region’s increasing demand for renewable energy is propelling innovations in solar power, he said.

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Yet the country is grappling with a funding winter. Its startups raised $3.4 billion in 2024, little changed from the previous year and down sharply from a peak of $6.5 billion in 2021, according to data from PitchBook.

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One challenge is the small pool of local capital and reliance on international investors, Grabiner said. In 2024, 39% of early-stage capital in Australia came from overseas, compared with 21% in the US and 27% in Europe.

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Early-stage startups are particularly underserved. Such upstarts attracted just $1 billion in investment in Australia last year — a fraction of the $24 billion and $10 billion their counterparts in the US and China drew respectively, according to the Side Stage Ventures, Dealroom.co and AWS study.

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Yet that also provides an opportunity, said Phil Cummins, managing director at investment adviser StepStone Group. He said seed-stage valuations and fund sizes are smaller in Australia than in the US and Europe, and there’s less competition.

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“At this point, it’s no longer a question of whether startups can survive in Australia, but rather how well they can perform,” said Grabiner.

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