Michael Derin
When you think of tech companies, it is easy to think Silicon Valley and ginormous money-making social media companies run by power-crazy data thieves, or alternatively, of geeky individuals in small groups of like-minded (and dressed) co-workers, sweating away on modified computers, in very small and very messy offices, somewhere outside San Francisco. While there is a small element of reality to both visions, the truth is very different. Technology companies are not exclusively based in the US nor are they focused on realising their value by a NYSE or Nasdaq IPO.
In the last five years, the Australian stock market has become a target for an increasing number of US technology companies looking for an alternative to the Nasdaq. Interesting, Atlassian saw the ASX as too small for their AUD 8 billion listing and headed to the US, but their success ignited interest and a quest for knowledge about the technology sector amongst Australian investors – an interest that has shown no sign of slowing down since Atlassian floated on the Nasdaq in 2015.
The main reason Australia is seen as such an attractive market for public offerings is the relative difficulty technology companies have in securing a float of less than USD 3 or 4 billion when going into the US. Because of the cost involved in listing, it is almost impossible for a company to be able to afford to float until it has reached a significant financial size and maturity. Some of the biggest technology companies in the world would not exist if today’s US stock market conditions had existed when they originally floated.
Many tech companies are now looking to raise capital outside of the US, and Australia and the Asia Pacific market have become increasingly attractive. The amount of Australian investable capital is high and the interest in investing in tech companies is very strong. Coupled with Australian interest in tech companies from the United States, the fact that the ASX offers small to mid-cap US companies better and quicker access to the public capital market means growth for both companies and their investors. Added to that, both countries share the same language and their financial and regulatory frameworks are similar, meaning Australia has become something of a home away from home for US tech companies.
There are several other factors contributing to US tech companies listing on the ASX. The largest of these is the Australian Superannuation system, which, due to the superannuation funds’ structure, results in most of the capital raised from super contributions being invested in Australian listed stocks and companies. Over USD 2 trillion is managed by Australian superfunds (the fourth-largest super fund in the world, from a country with a population of less than 25 million people), of which 25–30 percent is invested in ASX-listed stocks. The superannuation fund is expected to outstrip Australian economic growth, and by 2035 could be worth more than US 9 trillion.
Another factor fuelling US tech listings on the ASX is the opportunity for small and mid- cap tech companies (market cap below AUD 1 billion) to join the ranks of indexed companies on the ASX, which can help these companies raise funds. This is especially attractive compared to the Nasdaq where small and medium- sized companies often struggle to drum up investor and media interest ahead of posting an IPO.
The ASX is also very attractive for US tech companies because Australia is well regulated, and the local market is already global with about 45% of the exchange’s trading volume and capital each day coming from outside Australia. Tech companies are benefiting from global exposure to investors rather than being limited to investors from one market.
Coming to Australia
Now you are convinced that Australia is the country to set up in, it’s time to decide where to locate your tech business. Most companies have headed to either Sydney or Melbourne, obvious choices because of their size, their large recruitment pools, and well-established infrastructure. They are also both internationally recognised as great cities to live in. The major US tech companies that have set up shop in these two cities include: Google (Sydney and Melbourne), Airbnb (Sydney), Square (Melbourne), Dropbox (Sydney), Reddit (Sydney), Eventbrite (Melbourne), Wisetech (Sydney), and Slack (Melbourne). This is just a selection of organisations that have headed down under and have established themselves in two of the biggest urban centres, and state capitals, of the two most populated states in Australia.
Download our guide to setting up in Australia.
Both Sydney and Melbourne are competing to become the centre of Australia’s booming tech market, and, while Melbourne has traditionally been Australia’s tech hub, Sydney has really moved forward over the last couple of years. The inner-city area of Surry Hills has changed from being the centre of the Australian rag trade to the centre of Australian tech, hosting a collection of companies worth more than AUD 120 billion. Surry Hills’ emergence as Australia’s very own Silicon Valley is based on its location adjacent to three universities, all involved in world- class research, a collection of well- funded venture capital firms, and a gang of cashed-up tech founders looking to invest in tech start-ups based in the same location.
These three factors have led to the growth of a healthy and sustainable tech ecosystem in Sydney. The fact that Atlassian, a cornerstone investor in many tech start-ups, is based at the Tech Central Development at Central Station – which boasts around 200,000 square metres of space to house tech start-ups, and is supported by rent subsidies from an eager NSW government – can only help further grow Surry Hills’ reputation as the place to be for tech companies.
Ultimately, it doesn’t matter which city has the bragging rights for being the tech capital of Australia, as more and more tech companies are coming to Australia and Sydney and Melbourne both offer an amazing location for tech companies to set up, locate or expand. There is no reason to believe that US companies won’t keep coming to Australia to settle in one or both cities, or in other capital cities such as Brisbane, Hobart, Perth, and Adelaide.
Australia’s economic stability and wealth of business opportunities, matched by a selection of excellent are key reasons for Australia’s success in attracting tech businesses. In addition to Australia’s economic and geographical benefits, the Australian government has actively welcomed foreign businesses, with a flexible immigration policy offering a wide variety of visas to individuals that can be initiated from abroad. For example, the Business Innovation and Investment Visa allows an individual to own and manage a business in Australia, conduct business and investment activity in Australia, or undertake entrepreneurial activity in Australia.
A flexible immigration policy is part of the strong government support offered at a federal and state level, along with steps taken by the Australian and state governments to encourage entrepreneurship. Australia has a wealth of venture capital opportunities that are available to foreign companies. The tech start-up scene has also attracted the interest of prestigious incubators like 500 Start-ups and Techstars. Australia’s venture capital ecosystem is maturing, and, in 2020, some AUD 1.6 billion was raised for start-ups.
There is a long list of compelling reasons why you should consider establishing your business in Australia, and Azure Group has a well-deserved reputation for being experts in the tech sector working with innovators and entrepreneurs, start-ups, and mid- sized and mature tech companies across multiple disciplines in many sectors, including:
- Cyber Space
- Agtech
- NetZero and Renewable Energy
- Edtech
- Medtech
- Defence
- Infrastructure
- Fintech
Azure Group has successfully assisted many offshore companies to establish and maintain operations in Australia, providing a full range of advice and supports to ensure that the right decisions are made from the beginning. As champions of the technology and emerging growth sectors, we are proud of our success in obtaining R&D incentives for our clients and accompanying them on their growth journeys.
Download our Government Grants Roadmap here.
Have you noticed our Friday Expert Tips? Here's one that relates to International.
“Do you know the differences between setting up a branch or a subsidiary if you are thinking of doing business in Australia? Making the right decision can be difficult but we can help you out!”
Related: Starting a Business in Australia Checklist – before, during and after!
XLNC MAGAZINE | No. 09 | Spring 2022