GLOBAL TECH FIRMS REMAIN ANCHORED WHERE THEY ARE BORN
Startups that go on to be global technology businesses naturally expand outside the borders of their home country. Servicing a large international market often means hiring teams on the ground around the world. Yet the core of the business, the part of the company that designs and produces its tech products, almost invariably stays in the country in which the business was founded. This in turn means that engineering jobs - the most highly qualified, highly paid jobs - stay local.
Our analysis of seven global technology firms showed that the majority of their software engineers and developers were located locally (Figure 19). At the top end, firms like Canva (Australian), Deliveroo (British), and Waze (Israeli) have retained 80-90% of their engineering talent in their home country. Some, like Spotify (Swedish) and Atlassian (Australian), have a strong presence in their largest market (in each case, the US), but for both these companies their engineering presence remains roughly 30% bigger in their home countries than in the US.
This strong trend holds true even when total employment for firms shifts internationally. Only 28% of Spotify’s total employees are based in Sweden, but the Swedish office accounts for more than 50% of Spotify’s developer talent. Canva’s Australia-based workforce is only 47% of the company, but it makes up 89% of the company’s tech talent.
The clear pattern is that the country in which a business is founded and grows has a huge impact on where the core jobs are located. This should be a vitally important realisation for Australia, as it clearly shows that rewards for building and growing local technology businesses will endure, despite our relatively small local market.
WE NEED TO RETAIN THE MOST SUCCESSFUL STARTUPS
For Australia to reap the benefit of a thriving local tech sector it is essential that three conditions are met:
- We must produce large numbers of startups;
- We must ensure that some of these startups are going on to achieve significant global growth; and
- We must ensure that the most successful startups retain a sufficient connection to Australia so that the economy is able to benefit from their success.
If Australia is to grow a world class startup ecosystem, it is essential that we create an environment that is conducive not just to the creation of successful technology companies, but also to the retention of those companies for long enough that we can harness their economic impact.
Companies that achieve scale in the order of a US$1 billion valuation are relatively rare (hence the term ‘unicorn’), but are vital to the creation of a vibrant startup ecosystem. When they achieve a liquidity event (or ‘exit’) via IPO or acquisition, their impact is typically to generate wealth for hundreds (or thousands) of employees, many of whom will go on to form their own startups or invest in others.
This effect can be seen in San Francisco, where companies such as Salesforce, Twitter, and Yelp (and nearby giants Apple, Google, and Facebook) have increased the city’s value as a location from which to launch and grow other tech startups. These companies act as a magnet for other entrepreneurs, and thus for investors and service providers to locate alongside this valuable pipeline of opportunities.
The IPOs of Google, Facebook, and Twitter together created close to 4,000 millionaires, many of whom will go on to start, invest in, and mentor the next wave of companies.
After it was acquired by eBay in 2002, PayPal’s founders and early employees went on to form Tesla and SpaceX (Elon Musk), Palantir (Peter Thiel), LinkedIn (Reid Hoffman), YouTube (Chad Hurley and Jawed Karim), Yammer (David Sacks), and Yelp (Russel Simmons). Each of these companies is now a unicorn in its own right.
This trend has continued, with the 2019 IPOs of Uber, Lyft, Slack and Pinterest estimated to have turned thousands more tech employees into millionaires.
The impact of global-scale startups in helping to grow startup ecosystems can also be seen in Israel where, as a result of acquisitions of successful startups such as NDS (acquired by Cisco for US$5 billion) and Waze (acquired by Google for US$1 billion), there are thousands of serial entrepreneurs who have cycled back into the local startup ecosystem to start new enterprises or become angel investors and advisors to the next generation of entrepreneurs.
Similar examples can be seen elsewhere. In Sweden, Skype was acquired by eBay in 2005 for $2.6 billion, and subsequently sold to Microsoft for $8.5 billion. Skype co-founders Janus Friis and Niklas Zennström respectively went on to found Starship Technologies (which itself has a valuation of as much as $500m) and London-based VC firm Atomico, which manages around US $1.5 billion in capital.