Why the world wants Australian tech companies

There has rarely been a hotter time in the Australian tech industry. Over the past two years, at least two dozen tech companies – ranging from software developers to loan aggregators – have received funding worth hundreds of millions from venture capitalists.

But this isn’t a home-grown affair. Nearly half of the companies that have received funding over the past 12 months have been courted and pumped with cash by companies based in Silicon Valley and Europe.

Melbourne-based 99Designs, OzForex, Firemint and RetailMeNot have sold either parts of their companies or controlling stakes to American venture capital firms.

And just this week Catch of the Day confirmed an $80 million investment from a consortium of investors including US hedge fund Tiger Global Management.

The Europeans are interested too. Last year, EMI Music in Britain partnered with Posse, an online concert tickets booking site, which had some original investment from local fund Pollenizer.

BrandsExclusive and shoe retailer StyleTread have also both received funding from European investors Klaus Hommels and Oliver Jung – two of the biggest investors in the tech world.

Ryan Sweeney, partner at Accel Partners which invested in local web firms Atlassian, 99Designs and OzForex, says the market has now matured to a point where international investors are prepared to invest – and in major ways.

“I’m not doing my job if I just sit in California. We need to go and find the best opportunities, and we’re finding them at the right time. Entrepreneurs in Australia have a very global view.”

Pollenizer co-founder Phil Moore also says he’s been hearing a lot of talk from Europe about what Australian companies are doing.

“Everyone is anxious to find very strong deals from strong companies, but not just from America. It’s becoming popular to look all over the world now, and we’re seeing interest from Asian VC and European VC firms as well.”

Australian tech companies, traditionally seen as playing at the kids’ table, have now been given the validation for which they’ve been waiting nearly a decade.

“I think we’re at a convergence point,” says Damien Waller, chief executive of iSelect, which sold a 10% stake for $30 million to US private equity fund Spectrum Equity Investors in March.

Just under a year ago, Accel Partners invested $US60 million in Sydney-based software group Atlassian.

Since then about 10 other firms have received funding, including 99Designs and OzForex, with rounds also led by Accel, along with iOS developer Firemint, purchased for less than $US25 million by Electronic Arts, and RetailMeNot, sold to WhaleShark Media for a reported $US90 million.

And major investors from Silicon Valley aren’t done yet.

Michael Fox, chief executive of the increasingly successful website Shoes of Prey, has also been speaking with venture capitalists in the United States.

“There is definitely interest there right now,” he says.

Starting up overseas

The flow of capital from across the world confirms a trend tech-savvy entrepreneurs have been noticing for years.

“You don’t need to be in Australia to start a company anymore,” Accel’s Ryan Sweeney says.

He sits on the board of all three of the firm’s Australian investments – which join a portfolio of industry giants including Facebook and Groupon.

“With cloud computing and different technologies, you can get off the ground anywhere you want. The days where you needed to raise money and buy Cisco servers just to get off the ground are over.”

Atlassian co-founder Mike Cannon-Brookes, who told SmartCompany last year he thought capital for tech companies in Australia was fairly dry, says he has taken a different view after watching the market explode.

“You’ve seen Accel make three large investments here, and you compare that with everything that was put in the year before, and it’s awesome. There are a lot more venture capitalists looking this way now. It’s raised a lot of attention.”

Mark Rowland, who runs the online shoe retailer StyleTread – which has some investment from European-based Twitter investors Klaus Hommels and Olive Jung – agrees.

“I’ve met with venture capitalists from the United States, and they believe the market has matured.”

“Unlike any other time before, you can launch a very valuable business cheaply and quickly. And they want to move fast.”

So what’s drawing overseas investors?

Australia has never been much of a capital for tech interests. So what’s causing the newfound interest in our online sector?

Arguably the performance of the Australian economy has played no small part.

“They want to get a foothold in this economy,” Wall says. “They want to ride the growth here. Compared to their own economy we have good Asian exposure.”

This is the same mentality that caused a flood of overseas businesses to open or at least consider Australian operations in 2009-10, including Gap, Ben & Jerry’s and Zara.