Melbourne - becoming Australia's hub of tech hubs

Jason Lim evaluates the rise of Melbourne

This is a contributed piece by Jason Lim, General Manager at the York Butter Factory & Associate at Adventure Capital

Right now, the Melbourne startup ecosystem is booming, and it’s increasingly gaining recognition as one of cities known on the global stage for driving technological innovation. True, it’s not yet punching in the same weight as either Silicon Valley or Silicon Roundabout in terms of the venture capital money being thrown around, but for the startups here, that’s fine – we’d just rather get on with it, and that can be something of a blessing. As our market matures further, the shift in perception will only accelerate; tech startups are continuing to proliferate, and recently successful founders have begun putting more money back into the early stage startup community.

Like many of the aspiring tech hubs across the world, there are myriad factors that have contributed to Melbourne’s growth and the increasing saturation of startups here that are working on truly innovative ideas. Aside from the fact that it was voted the world’s most liveable city last year by the Economist Intelligence Unit (for the fourth year running), chief among the growth factors is the pivotal role played by the State of Victoria government in laying the groundwork for startups to flourish and innovate.

Generous tax incentives are affirming the State-wide drive to push tech as a key focus, providing a boost to R&D initiatives by offering a 45 cent in the dollar refundable tax offset – as a result of this, Melbourne’s Tax Index has been ranked by KPMG above Berlin, Sydney, and Tokyo among others. To startups with big ideas but often precarious finances, this has had a hugely beneficial effect, equating to a tax burden that is around 88% less than the USA for companies in Melbourne undertaking research and development.

Melbourne also benefits from a surfeit of skilled engineers from an array of sectors, including automotive, aerospace, defence and manufacturing. More than 145,000 people work in technology roles across the state of Victoria, equating to around 31% of Australia’s total and this wide range ensures that there is always someone taking a new approach. With a more collegiate approach to innovation, Melbourne perhaps lacks the cut-throat competitiveness of Silicon Valley, (and benefits from doing so), and without the likes of Facebook and Google hoovering up talent whether they need them or not, startups are able to attract the best and brightest at prices which may not be cheap, but don’t suffer from unnecessary inflation.

With a big student population focused on tech - Melbourne boasts more than 34% of the nation’s technology and engineering graduates – the universities play a significant role too, backing the city’s start-ups by partnering with industry to ensure skills are developed that are relevant. A number of universities are now offering courses in entrepreneurship (the University of Melbourne offers a $20k grant AUD (USD $1,600) to selected entrepreneurs) to assist students in taking the next step to become business leaders, and we’re seeing a higher rate of people launching ideas straight from university – there’s definitely an easy transition from one nurturing learning environment to another.

Fundamentally though, one of the key factors I see as driving the start-up scene is the proliferation of shared working spaces dedicated to tech. Co-working spaces, like the York Butter Factory, of which I’m the General Manager and which is home to over 70 tech companies at various stages of development, have a considerable impact on driving innovation. Working in such close proximity with others who are looking themselves to push the envelope and build something amazing, promotes both collaboration and healthy competition, as entrepreneurs are able to share insights and inspiration in an open environment. This is replicated throughout the city – pockets of innovation that are pushing along the development of Melbourne’s knowledge-based economy and making the city a hub of tech hubs.

Yet, as with all growing tech ecosystems, we aren’t without our challenges. A lack of big league VC funding remains somewhat of a stumbling block - the Australian venture capital model has not yet reached the same rate of growth as in other locations like the United States or the UK, but there are highly encouraging signs that this is changing at a rapid pace. And, there are major success stories already emerging - companies like Envato, a rapidly expanding online marketplace, recently paid out $224 million in commissions to its global community of designers, developers, photographers, illustrators and producers, and now is on course to lead the charge of Melbourne’s future unicorns, growing exponentially from its bootstrapped beginnings.

As the startup ecosystem continues to flourish, more founders will return as angel investors themselves, bringing both investment and their local market expertise to the table, and further bolstering the culture of innovation that’s fast emerging. Many startups here were as recently as just four years ago little more than pitch decks – now, they are accelerating to huge success, and this is a trend that is unlikely to slow any time soon.