What Atlassian's move says about Australia's startup scene

Atlassian’s decision to register as a UK business has been cast by members of the Australian startup community as a huge loss that underscores weaknesses in the country’s startup ecosystem.

Atlassian will hold a shareholder vote on the move abroad on 29 January after making an application to the federal court. The application said the move would help Atlassian list on a major US securities exchange and increase its attractiveness to foreign investors.

People in the startup community who spoke with Techworld Australia said the announcement by one of Australia's biggest startup successes shows that this country has a way to go if it wants to maintain a thriving startup scene.

“The biggest thing the Atlassian news has done is highlighted to a lot of startups and technology entrepreneurs that when they get to a serious level that Australia isn't the place for them to call their home,” said Jonathan Barouch, CEO of Sydney-based startup LocalMeasure,

Also read: How tech startups rate Australia

While Atlassian is not moving jobs from Australia, registering as a UK company “signals that we have issues with our local legislation,” said Barouch.

“Atlassian want to IPO and the local market doesn't have enough liquidity in tech stocks or ability to price a tech IPO of that size, so it’s natural they would want to list in the US and find the most tax friendly market for their HQ.”

Nick Abrahams, an attorney with Norton Rose Fulbright, said it’s “very sad that Australia loses one of its great technology success stories with Atlassian’s announcement of its move to the UK.”

But the Australian government has only itself to blame, he said.

“The taxing of employee options makes Australia an international joke,” said Abrahams, referring to changes to the share options rules made under Labor three years ago, which discouraged Australian startups from providing the options to employees, a key non-cash incentive.

“Further, the UK has done a great job of getting their incentives and tax regime aligned to attract high quality companies like Atlassian. The Australian government needs to act quickly or see other great companies leave.”

Abrahams, who has pushed for changes to the share options rules, voiced frustration with the federal government's responsiveness on startup issues.

“The Australian government seems oblivious to the plight of fast-growth businesses,” he said. “I have worked hard with a number of government departments to get them to change the employee share option tax structure and they do not seem to care.”

Barouch, who had shown optimism after the Coalition’s election win, also expressed disillusionment with the Australian government on startup issues.

“The Liberal government committed to look at things like employee share options which make it tough for companies like ours to give equity to employees,” he said.

“To date they haven't indicated whether they are going to make the legislation more friendly to startups. It's a real shame as we are seeing a resurgence of technology startups building world class technology in Sydney but we still need to do so much more to be able to help these businesses scale.”

Airtasker CEO Tim Fung said that the move abroad shows that more work is needed to build up Australia’s startup ecosystem.

“Basically, for startups it's super expensive to do business in Australia compared to other big cities—wages, compliance, tax and even software costs are high, and to make it even more tough, there's typically less funding available to meet these costs.”

When big tech startups move overseas, the Australian economy loses and the local job market becomes less appealing for people who work in technology, said Fung. That in turn makes it harder for tech startups like Airtasker to find and attract good talent, he said.

“It's a tough cycle to break and I think the government has taken some good steps via promotion of the [Early Stage Venture Capital Limited Partnerships (ESVCLP)] and RD tax incentive, but if we want to make technology a priority segment of our economy, the government is going to have to invest further for future growth,” he said.

Riley Batchelor, director of startup educator General Assembly, said the move by Atlassian is “bittersweet."

“There’s no doubt that during its tenure in Australia the company has been able to thrive, grow and succeed, and now to take the next phase of growth it has made the decision to move offshore,” Batchelor said.

“Undoubtedly this will have an impact on the local Australian start-up ecosystem, but it is worth considering that Atlassian is still supporting the employment of around 300 people in Australia, which are jobs we wouldn’t have had before if they hadn’t developed their business here.”

Batchelor said he believes education is critical to driving entrepreneurial growth in Australia.

“Building the right skills and education is critically important to ensure we have a pipeline of businesses that can start-up their innovative ideas locally, grow them and stay here to develop them and create jobs in tech industry.”

In a Facebook QA session today, Communications Minister Malcolm Turnbull said he believes the Atlassian move has been "rather exaggerated" since they are not moving their staff.

However, he agreed more work is needed to encourage innovative companies in Australia, including addressing employee share option rules.

Follow Adam Bender on Twitter: @WatchAdam

Follow Techworld Australia on Twitter: @Techworld_AU


Copyright © 2014 IDG Communications, Inc.

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