Unicorns are mythical and enchanting creatures, which is why the term ‘unicorn company’ refers to a privately owned start-up that has attained a valuation of at least USD $1 billion. The unicorn was chosen to represent the statistical rarity of such ventures.
It may be a statistical rarity but our recent APEC survey results show 41% of Australian organisations are investing in start-up businesses, compared to 36% of APEC organisations.
Of course, not all investments are expected to reach unicorn status, though when C-suite executives globally were asked which countries (apart from the US and China) have the right conditions to spark the next unicorn startup, responses were as follows:
Interestingly, on the same question Australian respondents were wildly more optimistic, with 69% of our C-level executives placing our nation as the number-one economy with the right conditions to spark the next unicorn startup.
As Aussies we like to back ourselves in adverse situations, but in this case are we displaying misplaced arrogance or just a plain lack of awareness of what it takes to create a unicorn? There seems to be a clear sense of optimism that we have the right conditions for creating unicorns.
But what does it take to create a unicorn?
Let’s look at three key factors behind unicorn creation, if Australia is to have an opportunity to live up to our bullishness on unicorn creation:
1. Exposure to market opportunities: Most unicorns have emerged by addressing a market gap where no ‘business as usual’ solution was emerging. For example disruptive tech to captivate customers such as ride-hailing services Uber, Didi Xuching and Grab, or Flipkart in India which addressed an opportunity to create an e-commerce infrastructure are great examples of unicorns.
Nothing stops Australian businesses from becoming unicorns in today’s ‘Fourth Industrial Revolution World’ with an open global market and a globalised supply chain trading services on world markets.
In reality though, Australian entrepreneurs are distant from and not exposed to large markets such as China or India. Due to sheer population scale and lack of common infrastructure, these are countries where innovative approaches and breakthrough inventions to solving market problems are most needed.
Question: What more can Australian business and supporting policies do to expose Aussie entrepreneurs to huge innovation-hungry opportunities in the Asia and wider global market? Are there unicorn opportunities here at home?
2. Risk-taking investors: Anecdotal evidence suggests the venture capital investor community in areas such as Shenzhen, China, Hong Kong or Silicon Valley are much more geared towards making risky, speculative investments into start-ups compared to the venture fund community in Australia, which is more limited in scale and presence. For example the PwC Chinese unicorn report shows support from China’s capital market has been essential for the growth of their local unicorns, with support also from Government policy and the diversification of financing channels in China.
Question: Is it worthwhile to beef up our venture capital scene in Australia, or should we leave it to Aussie entrepreneurs to seek funding from Silicon Valley and other investors?
3. Enabling regulatory and policy environment: According to the OECD, Australia ranks only 33rd in the world in the numbers of patents registered annually, which immediately suggests that more could be done to bring Australian business to the forefront to tech-enabled innovation. Last year’s Federal Budget also cut R&D funding, to the tune of A$2.4 billion, not helping the unicorn cause. Local corporate tax rates (30% or 27.5% for certain small to medium companies) being higher than those in Singapore (17%) or Hong Kong (16.5%), or the US (21%), don’t help either. Australia is last in the OECD when it comes to collaboration between companies and universities and research centres.
Question: How do we make the enabling corporate taxation and innovation environment more amenable to encourage start-ups?
One respondent summed it up by saying we have:
‘Very good infrastructure, a well trained and educated workforce together with [a] creative and dynamic approach to problem solving’. But as another aptly put it, ‘Australia [are] early adopters of technology. However, size of economy and [the relatively small] population makes it difficult to commercialise’.
We may not have the market locally to justify being ranked the most likely country in APEC to produce the next unicorn, but there is scope to do more in building our innovation and risk-taking appetite, as well as Aussie entrepreneurs’ exposure and collaboration across world markets, and across industries and universities.
We are the ‘lucky country’ but we need more than just luck to win in the unicorn space.
TMT Lead Partner, PwC Australia
Tel: +61 3 8603 0815
National Thought Leadership Leader, PwC Australia
Tel: +61 2 8266 3229
National Thought Leadership Manager, PwC Australia
Tel: +61 (2) 8266 0252