Michael Sainsbury
October 13, 2015

Miners tell a sad Atlassian story

Miners tell a sad Atlassian story

Big Fish: Atlassian's Mike Cannon-Brookes remains mum about its reported NYSE-listing*

When news emerged late last month that Australia’s greatest software success story, Atlassian, planned to list on the New York Stock Exchange there was some gnashing of the teeth among local technology leaders.

One suspects that our new tech savvy PM Malcolm Turnbull would have been disappointed. Atlassian had helped to drive interest in the startup and innovation sectors among Australian politicians, and had held a series of policy roundtables with Government ministers and their Opposition shadows.

The company had forged close links with former Communications Parliamentary Secretary Paul Fletcher and newly-installed Innovation Minister Wyatt Roy.

But Mr Turnbull himself recently expressed hope that there would be more Australian tech companies listing locally.

"One thing we don't do a good enough job at, and I think the ASX can do better here, is promoting the stock exchange as a means of financing start-ups, or second-, third-round money for startups," Mr Turnbull said,

The Australian tech sector, as well as the Australian Securities Exchange, would certainly get a boost from what is expected to be the biggest public float ever by an Australian technology firm besting last April’s $2 billion listing of small business accounting software group MYOB.

So what are the benefits for Australia of having Atlassian listed on ASX? The logic goes that as more significant companies are listed on any bourse, more of the same will be lured.

In Australia the mining sector is the great example of how this has worked, and this sector been Australia's singular stand out market success

It all starts with local companies that have made good. The ASX boasts traded shares in the world’s Number One mining group, BHP Billiton, which is domiciled in Melbourne and is Australia’s great international corporate success story of any sector.

Rio Tinto, at Number Three, was once a purely Australian company. Now its primary listing and headquarters is in London, despite earning the majority of its revenue and profits in Australia.

The ASX has for decades been one of the best places in the world for small miners to list as they move from concept to exploration, testing their resources and either building their first mine or being snapped up by a larger company somewhere along the journey for either growth or competitive reasons.

And then there are the broking firms, some with generations’ worth of insight and knowledge in the sector. They know which executives, geologies and geographies to follow as they build up small companies, extract their slice in shares, or cash in.

Australian investors and funds have, collectively, centuries of experience with educated punting on junior miners in the exploration or first mine phase.

The sector works like a well-oiled clock (let’s ignore for the moment the cyclical mining downturn) and there are now dozens of mining companies which trade shares on the ASX that are based in Australia, but which operate and explore offshore

In the same way that Australia has captured much of the world's early stage mining investment, the US NASDAQ index transformed itself into a technology-heavy board during the go-go doctom boom of the1990s.

It remains the world’s deepest technology securities market, although its old rival, the New York Stock Exchange, is always providing competition. The US understands technology like no other market, and has a deep pool of funds looking for the next big things.

Having a bigger and more diversified group of larger technology companies is terrific marketing for the local sector.

It is like having a bunch of restaurants on the same street. It becomes a destination for spending, and every company with a decent business wins.

As well, the biggest talent pools are developed as more companies arrive on the bourse – and perhaps most crucially – global venture capital groups and technology investment funds start to prioritise browsing, and possibly buy stakes, in companies at all stages of development.

This virtuous investment circle been long evident in practice in Silicon Valley, Bangalore and Israel – to name three of the major examples.

The Chinese are trying it in cities across the country, but Shenzhen, close to Hong Kong, and home to China’ standout global success story Huawei Technologies is leading the pack.

So there are the very good reasons why, from Australia’s point of view, it would be beneficial to have Atlassian list on the ASX.

The other thing about locally listed successful companies is that they are better positioned than those not domiciled in Australia to influence government policy.

They employ more local staff, pay more taxes and – in the case of technology companies – may have left some cash on the table in favour of less tangible benefits that nonetheless give them a great say over future policy for the industry.

But here are two other things to consider. Firstly, all companies owe their very existence to their shareholders, as well as their legal obligations to make decisions that be in the best interests of shareholders via the company’s bottom line, as well as continue to pursue good future growth prospects.

Right now, listing a technology company in the United States is going to create bigger payday than listing it in Australia for the reasons outlined.

Atlassian’s decision has almost certainly has been made as part of the condition of investment of Atlassian’s white knight, US venture form Accel Partners which invested $60 million in the company in early 2010. But that’s not to say the company’s founders would have not made a similar decision in different circumstances.

For Atlassian, too, the US is a key market and in recent years as the cyber threat has ballooned trends in software purchasing by companies has become refocused on safe and trustworthy products. This is especially in the business to business market, where Atlassian sells its products.

And again in global marketing terms, a listing on the NYSE would, at the very least get the attention of CTOs who sign off on software purchases. And Australian float (is that next to Germany?) might not.

The upside is that Atlassian was Silicon Valley venture group Accel Partners’ first investment in Australia – and the biggest from the fund – but not the last. Since 2010 it has put money into half a dozen or so local startups.

Accel a is blue chip tech investor and counts Facebook, Dropbox, Kayak and Spotify amongst a long list of savvy investments

And when a big name firm like Accel makes the kind of landmark investment it did in the Australian outfit, word gets around the Valley pretty quickly that others might be missing out. So they followed; Atlassian has already drawn investment capital into Australia, well ahead of its listing regardless of where that happens.

So there are swings and roundabouts. In Atlassian's case, the same people that managed the business into a position where it could float are the ones who chose where to list. Therefore, on their track record, one would have to back them.

If it wished to change this trend, the Turnbull Government needs to have a long hard think about what policy blandishments it can offer to keep Australian tech successes onshore.

*Photo Credit: Atlassion

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