Candid Conversations with World-Leading Startup Ecosystem Leaders - Featuring Kate Cornick
Listen to the full recording and read the conversation below.
JF Gauthier, Founder & CEO of Startup Genome - We've been working with you for four years. As you know, now we have Adam Bregu, from Melbourne as part of our team to make sure to support and pay close attention to Melbourne. We've seen quite an evolution and getting such a large budget increase is a big success. Can you tell us a bit of a background? How did you get here? Maybe start with the growth of the startup ecosystem.
Kate Cornick, CEO of LaunchVic - Absolutely! LaunchVic was established five years ago in 2016, as the state government's independent agency to grow the startup ecosystem. The minister at the time recognized that startups were critically important to economic development and wanted to start an agency and establish LaunchVic. Since we started, we've had some success. There had been some unicorn brands like SEEK coming out of the late 90s and creating billion dollar valuations. There was some recycling of capital and people who were SEEK executives were coming back and reinvesting in the ecosystem, whether they were founding new companies or setting up venture funds. The ecosystem was still quite disparate, there was no real central point of coordination.
That was LaunchVic’s job four years ago, it was really to start to piece things together. We ultimately wanted to create more billion dollar companies and really imagine what our economy is going to look like. It was coming off a very low basis, we had startups, but it was probably in the order of 100s of startups, by no means 1000s. Although we had some success in demonstrating you could grow billion dollar companies from Melbourne, it was really the general psychology of the ecosystem to move to San Francisco. The people who desperately wanted to create a startup and had a big vision, had a roadmap to move to San Francisco and Silicon Valley and start operating from there. We saw a lot of brain drain happening.
LaunchVic, started with a $60 million fund from the Victorian Government and we invested it in programs. We didn't invest directly in startups. Our job was to invest in programs that would put in place the right infrastructure of the ecosystem. We had a real attention towards accelerators, and pre-accelerators, education programs, events, and building connectivity. Through that period of time, we invested in over 110 programs, accelerated over 300 companies, and helped over 5000 entrepreneurs hone their skills and ideas. It's been very practical on the ground. It's not place based, we've very much been focused on Melbourne, because that's where the majority of entrepreneurs are, but we haven't tried to do a specific precinct. We've really just thought about where are the highest quality programs and how can we help those programs deliver.
Alongside all of that we also had a research agenda when we came in. We had very little data on Victoria's ecosystem. All the knowledge we had was very much around what we thought, not what we actually had hard data to show. We partnered with Startup Genome and also ran our own local survey to get even deeper insights and qualitative research to help inform investments. We've worked very closely with Startup Genome and also our local survey every year so that we can continually have this very fast feedback cycle between knowing what's happening on the ground and then implementing programs. That research has really been very important to us in driving the right programs to help the ecosystem grow.
JF Gauthier - Then I imagine your role has changed. How much has the ecosystem grown over these last four or five years?
Kate Cornick - We now have 2000 startups in Victoria. It's growing at a rapid rate and we are very pleased to see our movement in the Startup Genome rankings improve year on year. I think we improved six places in the last ecosystem rankings in 2019 and 2020. We are around 36th in the world, and definitely a growing ecosystem.
We've also had some success with unicorn creation as well. We are seeing more companies come through. We've had a couple of really big fintech successes in Airwallex and Judo Bank, as well as Afterpay. We have some strong biotech companies that have all reached billion dollar valuations in Clinuvel, PolyNovo and Mesoblast, and then there's others coming through. We are definitely seeing the number of exits increase, we are seeing the ecosystem size grow, and we are generally improving on all the measures that Startup Genome ranks us on. Some faster than others. There's definitely a lot more work that we need to do, but it's a very exciting ecosystem to be part of.
JF Gauthier - We've been part of the journey and seeing you go from the Activation Phase to the Globalization Phase makes LaunchVic one of the most dynamic Members we’ve had at Startup Genome. Dynamic meaning you're changing as your ecosystem is changing, and now you're becoming more of a scaleup ecosystem.
How has your role changed in the last couple of years now that the brain drain has reduced and some of the most ambitious and the best are staying to create large companies? What's your new role?
Kate Cornick - Well, I think part of our role is advocacy and awareness. When we started out, it was very much about programs. When we were talking to the ecosystem, we were talking to the people who identified as being part of the ecosystem. Now our role really is around—how do we talk to everybody—whether that's someone who aspires to be a founder of a company and doesn't necessarily recognize that they're a startup founder, because they're living in regional Victoria and don't understand necessarily what a startup is—as opposed to a small business. Or whether it's an expat living in California that for a variety of reasons, is looking to move home. We've definitely got a much bigger communications program than we've had. I think a big part of our role now is bringing in new people to the ecosystem and continually feeding that.
A part of that is focusing on talent. We really have moved from focusing on founders only to continuing to focus on founders, but focusing on investors and talent as well. Because it's not just about getting the entrepreneurs going, it's about making sure we've got a really viable investment ecosystem so when those startups begin to scale there's a supply of quality talent that is going to help those companies grow. So we've really broadened ourselves out in the talent piece.
Investment is another big piece and we are increasingly moving into the investment world. Through our new budget we are not going to be investing directly into startups, but we will be investing alongside through some fund of funds model into startups. The role is definitely changing and growing all the time.
JF Gauthier - We are going to go to the funds next. I wanted to ask you before going there, if you look back to the last four or five years, you're talking about building infrastructure and startup support. Is there one or two things that are not obvious that you look back and say, this was very important, and sometimes it's indirect actions that indirectly affect the ecosystem, but allow you later to actually accelerate?
Kate Cornick - I think the report Startup Genome did for us in 2018, that coming to Melbourne, and doing a deep dive, was a pivotal moment because you really gave us the data that gave us very strong evidence for things that we already knew. An example was when you shared that our investor landscape was poor, we didn't realize how important that was. You also identified an Australian $100 million shortfall year on year in seed and seed funding and that's obviously a massive problem for the ecosystem.
That report was seminal for us having the evidence to say we need to move into the investor landscape and that led us into a variety of different things. First of all, you pointed us to Josh Lerner and we worked closely with Josh on a fund of funds model. The second thing we did was work closely on educating investors. That is something that people often think, well, investors know how to do they have money, they don't need support. Well, the reality is, investors don't necessarily pay for their education so we need to make sure we are doing everything we can to educate investors. We've set up a fabulous program at the University of Melbourne to help and educate investors and that's been hugely successful. The third thing was we really focused on launching new angel networks and getting people that were investing competently to catalyze networks and formalize networks around them to help educate.
One thing led to another and now here we are with a couple of investment vehicles, three in fact, and that all came out of that one report. It was not what we were intending that report to be, but it certainly changed our vision of what we were trying to achieve. I think that was a really big one.
JF Gauthier - The report was about activating the community and talking about yourselves locally and globally. Then it became a source of insights and actions. I'm glad that it had this impact. What we see is really positive results, especially the new $186 million in money. Can you tell us how will you use these funds? Please go into a bit more detail. I want to see really, how is it structured?
Kate Cornick - Absolutely. LaunchVic is going to be responsible for managing $110 million directly and there's another few million on the side. LaunchVic itself will be managing a $60 million fund of funds practice and will be managing government contributions to a fund of funds, which we match with $60 million from the private sector. We'll be establishing a $120 million fund of funds that will specifically invest into early stage venture capital companies. That's really about lifting seed series, a funding gap that you've identified that we've done a little bit to help with our angel networks. There's still a massive problem there, exacerbated by COVID, we believe, that's 60 million. We then have a $10 million women's angel sidecar fund and that's really focusing on the fact that we recognize that women founders only constitute 20% of our ecosystem. We can't expect to have late stage female founders if we are not getting female founders funded at the seed stage. We will be co-investing alongside our angel groups into any female founded company. We won't be making the investment decision, we'll just be making sure that they get enough seed capital, so that their seed round is large enough. We know from your data that the larger the seed round, the more likely they are to reach Series A.
JF Gauthier - We've seen a lot of research showing that there is an investor bias towards female founders. Thank you for doing that. This is great.
Kate Cornick - Then we'll have $40 million for LaunchVic to continue to do what it does. That will be continuing to run programs, to support founders, investors and talent and continue to do marketing and awareness raising activities around entrepreneurship and the startup ecosystem, as well as research and policy advocacy.
Then there is a $25 million contribution from the government into a venture growth fund, which is a venture debt fund for Series B companies. That will help companies access capital at relatively low cost. Venture debt is an attractive model for later stage companies not having to give up as much equity. That's particularly important in an economic recovery sense.
Then the final sum of money is actually a loan scheme related to the federal government's R&D loan initiatives in Australia. So we've got a very attractive R&D scheme where companies can get rebates on their taxes if they're undertaking research and development. The state government is actually loaning companies in advance of them getting their R&D tax benefits. That is just about getting cash into startups as quickly as possible, particularly through this economic recovery stage.
JF Gauthier - Wow, this is quite a good portfolio view of how the money will be used. It's a real big step forward compared to the budget you had. Remember last year and the year before when even last year was contracted and we kept saying together “No, this is the way of the future, the new economy, digital economy.” I think with COVID the transition to that digital economy was accelerated. It is great to see that your team and your government really saw the light and said this is the time to invest more aggressively not to contract. Congratulations on that.
Kate Cornick - I have to commend the Victorian state government for really recognizing that innovation is the key to recovery and the startup sector is important.
And one thing that I will also say is the government's investing $2 billion in innovation more broadly. There's a $2 billion breakthrough fund, bearing in mind, we are a state government of Australia, which is globally a relatively small company. As a country this is an enormous contribution into innovation in our state. That's also very exciting. There's more work to be done on the breakthrough fund, but that will undoubtedly also relate directly to the startup sector in the context of commercialization, technology transfer and innovation and capability growth. It's very, very exciting to be in Victoria right now.
JF Gauthier - This is so great. It’s great for us to hear that because our message is to always add a zero to your budget. This is the most important investment you're making and I can see that in Victoria you have got there, you added a zero.
Thank you so much, Kate, from LaunchVic in Melbourne, Victoria. Thank you for your continued membership with Startup Genome. We are so glad to be able to have the chance to support you and see your astounding success and growing success of the startups and scaleups in Melbourne. Congratulations.
Kate Cornick - We honestly wouldn't have got here without Startup Genome and all the advice and data and insights that you've given us along the way. It goes both ways. It's a huge win for startups here and it's a win for LaunchVic. It's a win for Startup Genome, it's proving your model. Congratulations to you and your team.
JF Gauthier - We learn a lot from you and that's what we try to do, right? We teach some and we learn from you and others great actors in the global startup ecosystem. We've created a knowledge network and you're a valued member of it. We have learned so much from what you're doing, what is succeeding and also what doesn't work. It's been a really great journey. Thank you so much.
Kate Cornick - Thank you.