Atlassian’s float on the Nasdaq went without a hitch. The Aussie software tech company raised US$634 million, making it the most successful Australian listing ever on a US market.
Atlassian’s share price climbed to AU$28, up 33%. The float valued the company at US$4.4 billion. It was exciting, and stirring. At least it should’ve been a cause for celebration. This was supposed to be a rousing success for Australia’s start up tech sector. But it’s left many feeling empty. Why?
Make no mistake, it’s a great outcome for Atlassian, its owners, and its new investors. But it leaves a bittersweet taste for those of us back home looking at what might’ve been. What should have been the start of something great on the ASX turned into another win for US markets.
So why did Atalassian file an IPO in the US, and not in Australia?
Here we have a Sydney based company that started up back in 2002. It went on to launch several successful software applications, including HipCat and Bitbucket. It became a darling of the fledgling start-up culture in Australia. An example for others to follow even. And perhaps the first step towards a tech sector in Australia.
But it came to nought.
Our best and brightest see Australia as a stepping stone for better things. Instead of igniting an exciting new sector on the ASX, Atalassian went abroad to a mature market. It saw the Nasdaq as a platform that could propel it to bigger and better things.
And that’s just the problem.
There’s very little maturity on the ASX in the sector that Atlassian operates in. Had it listed here, it’d be the only software dedicated company on the market.
Instead, Atlassian launched to an investor base in the US that understands the sector better than we do. The tech sector on the Nasdaq is very developed, and very mature. Why is that so important? Sam Chandler, CEO of another tech start-up, Nitro, explains in the Business Insider:
‘If Atlassian listed on the ASX, it would be the only pure software company listed on the market, while in the US it would be one of many such companies.
‘There’s a level of maturity there that’s very important. One of the problems with the ASX is that all technology businesses get bundled into one. We have had some successes but they are either online marketplaces or IT-managed services.’
In contrast, the Nasdaq provides Atlassian with market guidance that it needed to launch successfully. Chandler’s comments came prior to Atlassian’s IPO listing. So he was right in the end. US investors did just as he predicted. They made Atlassian the most successful Australian IPO listing on US markets ever.
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How does the ASX lure the next Atlassian?
What’s the solution? What can we do to change the perception among future Aussie start-ups? How can we convince companies to list on the ASX, instead of the Nasdaq?
Sadly, there are no black and white answers to this question.
Australian politicians have discussed the prospect of nurturing an Aussie start-up culture. But so far it’s been only that: discussion. There’s been little action in pushing through the kind of reforms that could lure tech start-ups to the ASX.
But there’s a lot of upside should the government ever decide to do anything about it. It would breathe some life into a stodgy, banking dominated ASX. How so?
I want to bring up an older report from the Sydney Morning Herald to illustrate a point here. In it, reporter John McDuling asks why the S&P500 outperforms the ASX as much as it does. Here’s what he concluded:
‘[It’s down to] a lack of truly disruptive global businesses. [Australia has a] glaring absence of a technology sector.
‘The three biggest contributors to the S&P500 rise are Apple, Google and Microsoft. Giant tech stocks have been a major part of the US market recovery. These companies are truly global. As a result [they] are having a significant effect on economies like Australia’s. [They disrupt] established industries, often paying very little in tax.
‘This invariably feeds through back to both stockmarkets. There is a huge global appetite among investors for exposure to tech. [That] can’t really be found in Australia.’
This US tech culture didn’t flourish overnight. It established itself as a global leader of tech innovation over several decades. It had funding behind it to make it a heavyweight. It gave start-ups a platform to experiment, and succeed.
Every success was a building block for what came after it. Silicon Valley became a petri dish for start-up innovation. And it’s what allowed it to attract the brightest minds from all over the world. These companies formed the bedrock of a tech sector that helped grow Nasdaq and educate investors. Atlassian is only the latest example of how Silicon Valley helps attract global start-ups to US markets.
But how can we compete with it?
A successful tech sector in Australia can only grow given the right conditions. It needs specific parameters enabling it to succeed. And it means it’d need government backing to lay the groundwork for any future success.
But it’s probably already too late for that. Even if they started today, the government would have its work cut out.
Creating a start-up tech culture from the ground up is time and capital intensive. And there’s no guarantee that creating a start-up culture wouldn’t go the way of Atlassian. We’d still need to find a way to ensure these companies opted for listing on the ASX.
Creating a start-up culture
There have been instances where countries have attempted to recreate Silicon Valley.
Israel has built up a successful start-up culture. It has one of the most developed technology sectors in the world.
Russia, too, has been creating an innovation hub from the ground these past five years. The so called Skolkovo is an ambitious centre sitting just outside Moscow.
The Russians mean business with Skolkovo. In 2012 alone they spent over $500 million on the project. They repeated this in 2013, pumping another half a billion into it.
These aren’t small sums. And for the Aussie government, consumed by budget deficits, it could prove a step too far. Nurturing a start-up culture just doesn’t register at the moment.
Yet even money doesn’t guarantee long term success. You still need the brightest minds to make use any infrastructure you set up.
And it’s not just the infrastructure, or expertise, that we’d need to consider. Australia would need to train a new generation of innovative minds. That’s the kind of shift is generational you don’t create overnight And there’s no guarantee US markets wouldn’t lure them from us, as they did with Atlassian.
Ultimately, a successful start-up tech culture would be a boon to the economy and the ASX. It takes a lot of money to breed that kind of culture. Money the government isn’t likely to provide anytime soon. But the more successful start-ups we cultivate, the more maturity we can breed into the tech sector on the ASX. Even Silicon Valley started from nothing.
I’ll leave the last word on this to Atlassian founder Mike Cannon-Brookes:
‘I think the [Australian] federal government has its head so deep in the sand that it couldn’t see the opportunity.
‘I don’t think they’re missing [it], I think they’ve completely missed it and they’re determined to avoid it.
‘I don’t pretend to understand why. But they are determined to avoid it in any shape or form for, I think, to the huge detriment of the country in 10 or 20 years’ time.’
Quite. Just don’t expect the government to see it that way.
Junior Analyst, Markets and Money
PS: Atlassian’s listing in the US is a missed opportunity for local investors. And, for a local market crying out for more diversity, it won’t help lift the ASX’s sagging fortunes.
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