Australia’s a Small-Fry Tech Hub but Growing Fast
(Bloomberg Businessweek) -- When Eden Attias began weighing where to take his drone-safety startup public, Australia may not have seemed the obvious choice. His Israel-based company would have been at home among the vibrant tech plays on the exchanges in Tel Aviv and Toronto, but the promise of proximity to Asian customers—and potential investors—ultimately won out. “We already have clients around the region, in Japan and New Zealand, so we will need a hub over there,” says Attias, the chief executive officer of ParaZero Ltd. and a retired Israeli air force pilot. “Australia is a good place to go.” He expects to raise A$5 million ($3.8 million) when ParaZero lists on the country’s main exchange, the Australian Securities Exchange, by the end of May.
Australia’s pitch may have played well with Attias, but many tech outfits are dubious about joining a market that’s dwarfed by foreign competitors and offers little exposure to Silicon Valley. The exchange is pushing to have 250 tech companies by yearend, says Max Cunningham, who runs the listings business. That’s up from about 230 at the end of April.
While both pension funds and Prime Minister Malcolm Turnbull are hyping Sydney as the place to be, the entire value of tech stocks in its exchange stands at about $68 billion—less than one-tenth what Apple Inc. is worth. Tech accounts for less than 3 percent of the benchmark S&P/ASX 200 index, compared with more than 25 percent for the S&P 500. Still, that’s about twice the amount of two years ago, when Australia began ramping up efforts in the space. “We’ve now got great momentum,” Cunningham says.
One obstacle is that many potential investors lack technological savvy, says Cunningham, who worked at Goldman Sachs Group Inc. as a banker for eight years before joining the exchange in 2013. When WiseTech Global Ltd. listed in 2016, the company’s executives needed to guide money managers on how to value its cloud solutions business. Even so, some investors dismiss a lot of startups as “harder to value and easier to ignore,” Cunningham says.
Recent big-name tech flops also dented confidence. GetSwift Ltd., a maker of delivery software, soared more than 1,300 percent within 12 months of its initial public offering at the end of 2016, only to see its stock price collapse this year after the company disclosed that some of its contracts were only for trial periods. Big Un Ltd. fell more than 50 percent from its November peak amid revelations that some of its customers paid for services with money advanced by one of its investors. The video-marketing company’s stock, which surged almost 1,500 percent last year, remains suspended while the exchange examines its financial disclosures.
Cunningham has since tightened listing requirements. The exchange has said it will crack down on companies that conceal details about contracts or fail to reveal past misconduct by directors. But as the barriers to entry rise, some startups would rather look to private investors in Australia. The country’s venture capital investment climbed 24 percent, to A$429 million, in the year ended June 2017, with almost half of that going to tech companies, according to the Australian Private Equity & Venture Capital Association Ltd.
In March, Australia’s Future Fund said it wants to put more of its A$141 billion into local venture capital. Blackbird Ventures raised A$225 million in April from the Future Fund as well as some large Australian pension funds. Total venture funding amounted to A$1.32 billion in the year ended in June 2017, according to the venture capital association.
While the Sydney exchange is pursuing listings with characteristic Aussie enthusiasm, it’s not enough to keep some unicorns from galloping away at the first opportunity. “It’s the right strategy,” says Ian Warmerdam, a veteran fund manager at Janus Henderson Investors. But as long as China and the U.S. are magnets for talent and capital, many will prefer to list in those countries, he says. “It’s hard to displace the dominance of Silicon Valley.”
Sydney’s Atlassian Corp. went to the Nasdaq exchange in 2015, when it was valued at $5.8 billion; others, such as cloud-based software maker Aconex Ltd., found foreign buyers who were happy to pay a premium for their shares. The 14 technology companies that completed IPOs in Australia last year collectively raised $122.4 million, about $9 million per business, according to data compiled by Bloomberg. That’s less than a tenth of the global tech average.
Some have gone public at a relatively early stage, Cunningham says. “It does pose some risks, but we’re conscious of them and constantly trying to look at ways that we can help those companies.” —With Adam Haigh
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