Oct 102016

This is the third of four stories I did for The Australian on why local entrepreneurs are making their way to the United States’ Bay Area. 

For all the benefits of moving to the US, many startup founders want to remain down under. According to last year’s Startup Muster survey of Australia’s tech community, only 18% of local entrepreneurs intend to move overseas, and even those going offshore keep the bulk of their operations Down Under.

The reasoning for keeping operations in Australia vary, but for those focusing on Silicon Valley costs are a key concern. Didier Elzinga of Melbourne’s Cultureamp decided to keep management and the bulk of operations in the company’s home town due to several aspects. “For us there are many great benefits, including lifestyle, but commercial decisions play into it too,” he says.

“Our engineering team is based in Melbourne, and we are happy not to be competing for talent in the bloodbath that is Silicon Valley. In the longer term we also believe the world is moving to the East – and Australia has the opportunity to be the eastern most tip of the West, or the western most tip of the East.”

Needing a US presence

Having a North American presence proved essential for the sentiment measurement company, “for us a US office was an easy decision as most of our clients were tech companies based in the Bay Area” says Elzinger.

“We had someone working in customer success there from fairly early on, and then we officially beefed up our presence when one of our co-founders Jon Williams moved to San Francisco in 2014.” Since establishing a San Francisco base, Cultureamp has raised six million dollars in capital raisings and opened offices in New York and London.

Running a global business from Melbourne can be demanding but Elzinger believes it is worthwhile, “other than timezones we’ve yet to run into any major obstacles,” he says. “For me as CEO, it can mean a lot of travel, I try and get to the States at least once a quarter, most times more. But overall, we feel we’ve made the right decision, and are proud to grow a global company from Melbourne.”

The travel can be demanding for an Australian based business and Temando’s CEO Karl Hartman found the demands of regularly flying across the Pacific left the company at a disadvantage. “Previously when I was flying here once a quarter, things moved gradually,” he recalls. “Being here means we can move much more quickly, some things need to be face-to-face.”

The expense of Silicon Valley

A San Francisco base comes at a cost though, “it’s very expensive here.” Hartman warns, “we have a focused team here in the US that is largely focused around partnerships, project management and go-to-market. But we keep our developers largely in Australia.”

“I’d caution any Australian company looking at coming here to fill engineering jobs that coming here is very expensive, I’d argue you can find very good talent in Australia,” he says. “I’d also argue it’s easier for Aussie companies to raise seed investments in Australia.”

Holding costs down is particularly critical for earlier stage companies points out Affinity Live’s Geoff McQueen. “It’s about a third less to employ a developer in the Illawarra than the Bay Area,” says McQueen who has kept his development team in the company’s home town of Wollongong. “Saving those costs gives a startup with limited funding a lot more time.”

Keeping the skills base

Data analytics startup Instaclustr is another keeping most of its operations in Australia while opening offices in the United States, Europe and Japan. “We established a leadership team and sales office in the US, but all of our engineering and support services are located in Australia, at the University of Canberra,” CEO Peter Nichol explained to The Australian.

Instaclustr, which recently raised $2 million in seed funding for its data analytics service running on the open source Apache Cassandra system, chose to maintain operations in Australia to avoid having to compete with the salaries and expectations for high-tech staff in the US.

A favourable Australian dollar and a relationship with local education institutions were also key factors says Nichol, “the skill sets that we are chasing are rare, so we have decided to built a knowledge base and big data experts through a partnership with the University of Canberra.”

Keeping close to customers

Like most tech companies having a US presence, if only for management and sales, has proved essential for Instaclustr. “The main reason,” Nichol says, “was to be to near our customers and partners from a physical and time zone perspective. Over 60% of our customer base is located in North America and 100% of ecosystem partners.”

Despite the benefits of remaining in Australia, the movement of Australian entrepreneurs overseas is increasing. While only eighteen percent of the 602 startups surveyed for the 2015 Startup Muster report intended to move overseas, it was an increase of fifty percent over the previous year.

That many heading overseas want to keep operations and employment local should be encouraging for those trying to Australia into a global startup centre and has to be a factor in developing a local ecosystem and government policies that support it.

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