Strategy & benchmarks
Capital efficiency–it's in our DNA
All else being equal, Aussie founders are scrappier than their overseas counterparts. And we have the numbers to back it up.

As investors shift their focus from growth to capital efficiency, we look at why Australia is well positioned to survive and thrive in the current market conditions.

Australia is home to just 0.3% (26 million) of the world’s population. While we’re in close proximity to Asia, we’re somewhat geographically isolated from the populous northern hemisphere. 

Despite this, Australia is the 12th largest economy by GDP, and we’re renowned for “punching above our weight” on the world stage. Be it in the sporting arena, geopolitics, our healthcare system or having a disproportionate share of the world’s most venomous creatures!  

The numbers are less impressive when it comes to VC funding. Australia currently receives less than 1% of Global VC investment. By contrast, Singapore and Israel, with much smaller economies and populations, each receive around 1.5% of global VC investment. VC capital in Australia has historically been scarce–it's why many of Australia's first-generation startup successes like Atlassian, CampaignMonitor and Aconex bootstrapped their way to raising rounds from US investors.

We’re playing catchup to our global counterparts, but each component of the ecosystem–founders, funding, players, talent and exits–is now working to enhance the other, signalling an overall maturation of the venture capital space. VC investment in Australia has grown significantly over the last 10 years, reaching a record US$6.3bn in 2021. Although there has been a decline in 2022, VC investment for the year is still on track to exceed 2019 and 2020 combined. 

International investors are starting to take notice, attracted to the relatively low valuations or entry points, lower operational costs and the huge scalable potential of Australian startups. However, current VC investment levels are well below our international peers in relative terms.

These dynamics–limited capital, geography and population size–have shaped our startup ecosystem and guided our uniquely Australian entrepreneurial spirit. All else being equal, our founders are often scrappier than their overseas counterparts–because they've had to be.  

Because early-stage VC funding has been limited, we’ve learnt to do more with less. In a broad sense, capital efficiency is a measure of how effectively a startup is in using its available capital to grow and develop its business. As the cost of capital increases, so does the focus on capital efficiency. 

Over the last 5 years, Australia has been one of the most capital-efficient producers of unicorns in the world. For every US$1bn of VC investment, we’ve generated 1.7 unicorns. That’s 2x as many as the UK, and significantly higher than Israel and the US. It's also significantly higher than China, India and SE Asia where venture backed startups have tended to be dominated by domestic focused consumer companies that tend to be much less capital efficient.

Funding, or lack thereof, is not the only origin of capital efficiency. 

Our small population gives rise to a global mindset. Similar to Israel, Australian founders need to think global from day one as domestic markets do not generally provide enough scale. In Australia’s case, large customer bases are thousands of miles away, leading to a culture of highly efficient Go-To-Market models and a bias towards B2B software and technology. Founders adopt high-volume, high-velocity product-led growth models to access international markets (e.g., Atlassian, Canva, Linktree, Go1), without needing large sales teams on the ground. These companies all tend to rank in the top quartile for net burn ratio (ratio of cash burn to newly added revenue) compared to companies of similar size.

The next few years, while challenging, hold a unique opportunity for companies that can move quickly and focus on capital-efficient growth. Recruiting will become easier, consolidation will see competition reduce and the constraints felt by businesses will breed creativity. Australian startups are well-positioned to see this through. 

While the lack of capital has worked in our favour, it’s not the status quo we want to maintain. The Australian and New Zealand ecosystem is moving into 2023 with a tonne of dry powder, ready to fund the next generation of transformative companies on the horizon. The biggest beneficiaries of the current market will be those that have built high-growth models with strong capital efficiency in their DNA. Australia is a world leader in producing these exact sorts of companies, and these structural tailwinds get us excited about investing in our market over the next few years.

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