Atlassian founder Scott Farquhar said he would not stay in Australia if he was starting a tech company today.
In a JJC Bradfield Institute lecture last night in Sydney, Farquhar urged Australian policymakers to encourage startups to stay by revamping tax and immigration laws, increasing access to capital, and requiring ICT education in primary schools.
“If we were starting Atlassian today, I think that [co-founder Mike Cannon-Brookes] and I wouldn’t have stayed here,” Farquhar said. “We would have gone straight to the US.”
“In other words, I think the problem’s gotten worse, not better.”
Australia should stop blaming its small population for a tech startup scene that lags other nations, he said. He pointed out that the country with the second largest number of NASDAQ-listed companies is Israel.
“We don’t let size stop us when it comes to athletic competitions around the world. We should take a page out of Israel’s book and lead in business, too.”
Software is the future, he said. “Every company is becoming a software company.”
The companies who are not headed in that direction will be disrupted by a software company, he said.
Software is a major opportunity for Australia because it has no weight and can be distributed anywhere in the world by the Internet. “Software finally liberates us from the tyranny of distance,” the Atlassian co-founder said.
To embrace the opportunity, Farquhar urged that Australia build in Sydney a technology hub like San Francisco or Tel Aviv.
“As we get more examples of worldly, successful businesses based here in Australia, they’ll become better known and that will build confidence,” he said. “And young Australians will think correctly that they too can build a global software company from Australia.”
Atlassian recently caused ripples through the Australian startup scene when it announced its intention to register as a UK business. However, Farquhar told Computerworld Australia after the lecture that this was a long-term business decision that had nothing to do with Australian conditions and should not be taken as a hint the company will move its headquarters abroad.
The existing Australian policy on taxing employee share options is “brain dead,” said Farquhar.
Tax rule changes made under Labor in July 2009 have discouraged Australian startups from providing share options to employees. They required that the employee is taxed on the value of the share option when it is issued, before any payments are made.
In other countries, the employee is not taxed until they execute the option. This is better for cash-poor early stage startups, which can use share options as an alternative to a larger salary.
Changes to the ESOP rules are expected to be included in the government's competitiveness agenda.
Atlassian believes that share options are so important to attracting and retaining talent that it has covered the cost of the tax for its employees, said Farquhar. He estimated that this has so far cost the company a total of $5.4 million.
Farquhar said Australia should also review its superannuation policies to encourage super funds to invest in venture capital.
Today in Australia, only 0.0006 per cent of superannuation funds is invested in local venture capital, while the US has about 350 times as much relative investment, he said.
Recent superannuation disclosure orders have actually discouraged such investment, he said. The rules require every asset to be reported.
“This means if a $1 billion superannuation fund invests $10 million in local capital venture fund, which invests $100,000 in a small Australian startup, that $100,000 needs to be disclosed to every single member of the superannuation fund,” said the Atlassian CEO.
Disclosure is normally a good thing, “but this is complete madness,” he said.
“It would turn every venture capital-backed startup into a quasi-public company, having to report their valuation through to everyone in Australia.”
That information is competitively sensitive and can upset a startup’s chances at success, he said.
Farquhar called for changes to 457 work visas that foreign citizens can obtain to work in Australia, including the reinstatement of the Living Away From Home Allowance (LAFHA).
He said there are too few trained engineers in Australia to rely completely on Australian employees and it is important to make immigrating easy.
However, he said the 457 visa process is so bureaucratic that it can be easier for a startup to move to the US. And it is too expensive for people to live on a 457 visa in Australia because it forces them to buy private health insurance and pay for their children’s education, he said. Atlassian has lost both foreign candidates and employees due to cost of living, he said.
The recent decision to kill LAFHA, a tax allowance meant to offset some of these costs, has exacerbated the problem, he said. “With it, many of our staff have returned overseas.”
Finally, Farquhar urged that ICT education occur at a younger age to encourage more students to pursue software careers. “We absolutely must give our kids the chance to learn programming for primary and secondary education,” he said.
“Some may say not everyone will be a programmer. That’s true. Not everyone who learns English goes on to be a poet. But we teach English because communication is a fundamental skill in society. Similarly, software is a fundamental skill to anyone surviving in a software world.”