For the first time this year I joined the bright eyed and bushy tailed hordes at the annual tech carnival that is SXSW. This post is a summary of my impressions of SXSW as well as how I think the local startup scene measures up to our Silicon Valley big brothers.

Impressions from SXSW

The trend that I saw from the companies presenting at SXSW this year is that they are focused on three main categories: tracking and maximising ROI on social marketing campaigns, location-based apps and crowdfunding. Crowdfunding, understandably, is an active area due to recent legislative change (the Crowdfund Act) in the US which allow unlisted companies to publicly solicit investment. Crowdfunder stood out in that respect as the most promising company. Crowdsourcing in general was a big trend, with companies like Tugg standing out in that field. Interestingly, an Australian startup, GiggedIn, is already applying that idea to other areas of entertainment.

The rumoured “hot tech” for SXSW was “Foursquare 2.0″ or “ambient-awarness” or however you want to describe it. The two companies trying to make splash in this area were Highlight and Glomper. Both these companies failed to make an impact at SXSW though, particularly the Twitter-esque viral take-up both companies were surely hoping for. Many things have been written on the failures of these companies to make an impact, this is just one. For me personally, there are two main reasons, once you get past Highlight’s hideous logo. Firstly, it’s impossible to get a good data connection in downtown Austin with 250,000 geeks vying for valuable data packets. With GPRS speeds on your iPhone, it’s difficult to download the app let alone get an optimal user experience. Secondly, the saturation of tech companies at SXSW means that no message can stand out, and is drowned out in the sea of marketing bombardment.

Whilst some of the startups presenting at SXSW had quite impressive tech and business propositions, for example Crowdfunder and Tugg as mentioned earlier, on the whole the bar didn’t seem very high. This may sound harsh, but there was nothing as SXSW that really made me stand up and take note. This is great news for Australian entrepreneurs as, I think, we can compete with Silicon Valley startups in many respects.

What it means for Australian Startups

Australian startups seem to be on par in terms of technical expertise and market knowledge to Silicon Valley. Silicon Valley startups only benefit from a wider network of contacts and a deeper (much much deeper) pool of capital. Now, capital is a huge advantage, but it also means that early-stage Australian startups can build and test their business models locally, then go to Silicon Valley hat in hand looking for funding. This approach is quite successful having seen just this week the success of Australian startups at Y Combinator’s Demo Day, with 99dresses in particular and to a lesser extent Minefold.

On my flight back from SXSW I sat next to a Sydney-based entrepreneur who is courting Silicon Valley VCs and shall remain unnamed. He has been able to bootstrap a company of over 15 staff and build a prototype and prove his business model locally. However, he is at the stage now where he needs to scale his business and has found difficulty securing the investment locally. Whilst seed and angel rounds are relatively easy to get in Sydney these days, serious VC funding is very difficult to obtain. One reason for this is that Australian VC funds seem to be much more risk-averse when compared to US VC funds. A second reason, and the most notable, is that the size of VC funds in Australia pales in comparison to the US. Michael Overell wrote a great blog article on this issue recently. These factors have caused the unnamed Sydney entrepreneur to go and pitch for funding in the US as his business matures and gets ready to scale to a mainstream user base.

I’ve often heard Australian entrepreneurs say that it’s necessary to move to Silicon Valley in order to give their startup the best chance of success. From my personal experience I think this is not necessary. I think we have locally both the technology and business expertise to identify opportunities and build solutions that are relevant and competitive on a global scale. The point of the development of their business at which business owners should be looking to Silicon Valley is only the growth stage of their business.