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Digital Dreamers 5: Millionaires in thongs

They're the name on everybody's lips : meet the founders of Atlassian, one of Australia's biggest home grown tech successes.

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Their company sells $100m worth of software a year in 130 countries around the world, but has no sales staff.

Now Atlassian - a billion-dollar business built by two Sydney friends in an apartment and then an office above a sex shop 10 years ago - is widely tipped to be the first Australian tech startup to go public during the current boom.

Atlassian co-founder Scott Farquhar when he had a mohawk.

Atlassian co-founder Scott Farquhar when he had a mohawk. Photo: Seb Ruiz

Mike Cannon-Brookes and Scott Farquhar, both 32, have seen their business grow at a rate of 47 per cent a year since 2007. Atlassian products are used by millions of people in over 20,000 corporations around the world, including the majority of the Fortune 500.

The world, they say, is becoming software, and Atlassian's tools are helping companies adapt.

"There's more lines of code in a Ford [car] than Facebook and Twitter combined," Cannon-Brookes said.

Scott Farquhar, left, and Mike Cannon Brookes, co-founders of Atlassian.

Scott Farquhar, left, and Mike Cannon Brookes, co-founders of Atlassian. Photo: Michel OSullivan

Atlassian - featured in Digital Dreamers Episode 5 - makes several software development and collaboration tools.

Their headquarters - and half of their 500 staff - is in Sydney, but they also have offices in San Francisco, Amsterdam, Gdansk in Poland, Porto Alegre in Brazil and Kuala Lumpur in Malaysia.

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See Atlassian and others in Digital Dreamers Episode 5
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In 2010 Atlassian received a $60 million investment from US venture capital firm Accel, kicking off a wave of investments by Americans in Australian technology start-ups.

Their major innovation was hosting and delivering software via the web or "cloud", allowing them to offer more elegant and powerful solutions at a fraction of the price of competitors.

"They recognised very early on that on the web you could sell and you could target large corporations by pricing your product at a level where an engineer could just put it on their credit card and not have to get approval to buy it," said Larry Marshall, the Australian managing director of US venture capital firm Southern Cross Venture Partners.

"I think they started at less than $3000 was the price back then, and very quickly engineers started to use the product, loved it, they could make the buying decision themselves and buy it all through the web so you had this ... very rapid acceptance and growth of revenue.

"Without the web you couldn't have done that, you'd have to be knocking on doors and selling product."

Unlike many tech startups, Atlassian was able to generate revenue right away and only raised capital much later. This made it easy to keep the company headquartered in Australia.

"A lot of the new startups you see nowadays, they're looking to raise cash a lot quicker and most of the capital and cash is in the United States," said Cannon-Brookes.

"What we lack is that gap between $100,000 and $10 million; we don't have any really good strong funds or investment pools going into that gap at the moment. If we can solve that it gives us a good curve to grow businesses the whole way up."

Atlassian sees being an Australian company as a competitive advantage because there is less competition for talented engineers here. But they still cast a wide net for employees, recently driving a bus around Europe looking to hire 15 engineers in 15 days (over 1000 people applied).

And there are a number of things about the environment for start-ups in Australia that they would change - principally the tax regime for stock options which makes it extremely difficult to attract early employees with shares. Numerous Australian entrepreneurs interviewed by Fairfax Media complained about this.

"It's very difficult just the legal and the tax structures that you have to set up in Australia took us hundreds  of thousands of dollars in legal fees and tax advice and so forth ... whereas if you go to the states it's a relatively simple document that's pretty standard that everyone signs and it might cost you two or three grand in legal fees," said Farquhar.

The pair also believe education is about 10 years behind industry and instead of churning out computer science savvy workers we are producing too many accountants and business grads.

"Software is powering banks, financial companies, manufacturing companies, big corporations, fast food, cars, they're all being driven by software nowadays so having that base level of computer science understanding means you can understand that technology at such a good level as you grow up to be a manager and executive," said Cannon-Brookes.

"I don't think we're graduating anywhere near enough computer science grads in australia. We should be doing 10x what we're doing today in terms of proportion."

They don't believe in government handouts for entrepreneurs, but criticised the government for investing hundreds of millions of dollars propping up traditional manufacturing industries rather than paying attention to the information economy.

"The politicians talk a lot about digging stuff out of the ground and mining tax and the mining boom but then where's the money being reinvested and where's it being reinvested in a renewable resource?," said Farquhar.

"Intellectual property and building the education of our citizens is a renewable resource and I think that's where we should be investing."

Atlassian says when it does go public it will list on a US stock exchange but the founders expect significant benefit to flow to Australia as cashed up staff go off and create new companies.

Already Cannon-Brookes has invested money in Australian tech companies such as Shoes of Prey.

He would not be drawn on a date for Atlassian's IPO, but said the recent poor share market performance of other public tech companies like Zynga, Facebook and Groupon was not discouraging.

Cannon-Brookes said enterprise software companies were performing well and the poor performance of some sectors was a good sign that we're avoiding a "bubble" in valuations.

Watch the complete Digital Dreamers series