There is no other industry that can create such immense wealth and long term benefit to the world, with such capital efficiency as the technology industry.
The top 150 companies in Silicon Valley, California, such as Apple. Microsoft and Google, have annual revenues of $620bn, employ 1.2 million people directly, net more than $100bn in profit, and have a market capitalisation of $1.8 trillion.
They are creating this wealth faster and faster. It took Apple about eight years to reach $1bn in revenue; Google took five years; and discount coupon provider Groupon and social games provider Zynga did so in 2.5 to three years as businesses selling through websites or mobile applications have the ability to reach more than two billion customers.
According to a recent Harvard study, from 1978 to 2008 almost 100% of the job creation in the US came from start-ups as well as being responsible for 70% of job destruction. Labour productivity in Silicon Valley averages $157,000 of value per employee and over the last decade this has grown by 47% (compared to US$113,000 and 29% for the US as a whole), according to US Bureau of Labor Statistics.
By the technology industry I mean high growth, scalable, long term, job creating, intellectual property based, value producing businesses. I’m talking.
It is an absolute national imperative in Australia to build the technology industry, which encompasses software, internet, life sciences, hardware and promising new areas such as next generation applications of machine learning and artificial intelligence, robotics, nanotechnology and biotechnology.
With our population of 22 million and labour force of 12 million, there’s no other industry that can deliver long-term productivity and wealth multipliers like technology. Today our economy is hailed by our Prime Minister, Julia Gillard, as a “miracle”, but the reality is it’s in the stone age.
Our gross domestic product (GDP) of A$1.6 trillion is 69% services but our “economic miracle” of GDP growth comes from digging rocks out of the ground (mining 19%), shipping the by-products of dead fossils (natural resources 5%), and stuff we grow (agriculture 3%). This is great while commodity prices are going up and we still have stuff left in the ground to dig up, and people still want to buy it.
Australia is also particularly in need for the productivity gains and export earnings that a robust information technology (IT) industry would offer.
And we’re missing out.
The number of students studying IT in Australia has fallen by more than 60% in the past decade, according to Simon Kaplan, director of NICTA’s Queensland Research Laboratory. The most important thing, therefore, is for Australia to build a world class technology curriculum in its K-12 system. In Estonia, for example, 100% of publicly educated students will learn how to code starting at age seven or eight in first grade, and continue all the way to age 16 in their final year of school.
At my company, Freelancer.com, we are lucky to get one software developer applicant per day. On the contrary, when I put up a job for an office manager, I received 350 applicants in two days.
Mike Cannon-Brookes, chief executive of Australia-based Atlassian, said he was trying to figure out from where he will hire his next 400 software developers. He lamented that he would love to do this here in Australia but it’s impossible because we simply don’t have enough good graduates.
And of the 12,000 IT graduates each year in Australia, 8,000 are overseas students as universities have reoriented themselves to focus on educating the best and brightest from other countries, because they simply make more money this way after cuts to their funding.
Likewise, our venture capital (VC) industry is stillborn. According to the Australian Private Equity and Venture Capital Assocation’s 2012 Yearbook, the country has the lowest active number of VC managers doing deals compared to any time in the last 10 years. In the entire of 2012, outside of renewable energy, only A$40m was raised by three venture capitalists for new funds. This A$40m was half of 2011, which in turn was half of 2010’s total.
As a result, total investments by Australian venture capital has declined for the past 5 years to A$122m across 133 investments. Total exits in the year fell 72% to A$28m from 14 companies.
The government has set up a $350m fund Innovation Investment Fund spread over 14 years, which is $25m a year for early stage companies commercialising Australian research and development (R&D). This is less in nominal dollars than the A$361m committed by the government over the 14 years from 1998.
By comparison, the graduates of Y Combinator, a single incubator in Silicon Valley, have raised over $1.5bn in venture financing after leaving the programme, resulting in the creation of household names such as Dropbox, Airbnb and Reddit.
Thank heavens all the big US venture firms are starting to prospect here. The only problem for this country is that the companies that they invest in will likely move or flip up to a US holding company, complete with a US management team, and the Australian operation will diminish as it all too regularly does to be an offshore R&D subsidiary. The big successes will end up listing on the US’s NYSE or Nasdaq stock markets (as Atlassian surely will), not the Australian Stock Exchange (ASX).
So, to do something about this we along with others are creating an industry action group, Startup Australia – #startupaus
