London calling for Australian tech firms

The Conversation

When Australian online labour market company Freelancer decided to list publicly on the Australian Stock Exchange last year, they did so in part to spur investment in the local technology industry.

That gesture has failed to convince the Sydney software company Atlassian however, as it prepares to leave Australia and move to the UK in anticipation of a listing there.

A question of tax

On the surface, and according to some speculation in the press, Atlassian’s move could be seen as a response to a more favourable corporate tax regime in the UK.

For a start, the UK corporation tax rate was reduced last year to between 20 and 23 per cent. This compares to a 30 per cent corporate tax rate in Australia.

More importantly for a company about to list for the first time is how employee share options are taxed. The Australian government has still not decided whether it will repeal the current tax rules, which tax shares when they are received, rather than when they vest.

Not that simple

If the move of technology companies offshore was simply about tax however, this would not be so worrying. Tax laws can be changed by concerned governments.

Even the other main impediment to successful Australian technology companies – a risk-averse and largely tech-naive venture capital community – could be turned around with time.

What can never be changed is Australia’s physical distance from the US.

A closer inspection of Atlassian reveals a company that barely qualifies as Australian. Most of its 20,000 customers are overseas, with the largest proportion of them in the US.

Atlassian has offices in Sydney, San Francisco and Amsterdam and even though 60% of its 700 employees are based in Sydney, a significant number of those employed in Australia were employed on 457 visas.

The justification given for employing non-Australians in Sydney is the lack of expertise in the software industry and a lack of software graduates, presumably because most of the good Australian graduates have themselves gone overseas to find work.

Apart from the two founders, Scott Farquhar and Mike Cannon-Brookes, Atlassian’s board of directors and leadership team are mostly from the US.

And when Atlassian sought venture capital funding for its expansion plans, it had to go overseas to the US. Silicon Valley-based venture capital company Accel provided $US60 million in exchange for a minority stake in the company.

Credibility is key

What may also be at play for technology companies wanting to list in the US or in Europe is a credibility factor with investors. Those wanting to invest in these companies are likely to be far less receptive to any company based outside the US.

The possible exceptions to this are companies based in London and Berlin, both cities that have enjoyed a surge in their local technology start-up scenes. Appropriately enough, last year’s TechCrunch Disrupt competition for start-ups was held in Berlin.

The decision for Atlassian to move offshore can’t have been a difficult one. It is unclear whether it will maintain an office in Sydney, but given the expense of doing business in Australia, it would seem unlikely.

For the Australian technology start-up scene, the outlook is of isolated successes despite the challenges. Changing the narrative will require intervention and investment from the Federal Government to create an environment of research and development in technology driven by people with the right skills and education.

At that point, we may see the physical distance from the US being less of an issue and an Australian city joining San Francisco, New York, London and Berlin as the place to be.

David Glance does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations. This article was originally published at The Conversation. Read the original article.