Govt 'competitiveness agenda' excludes mature startups: Nitro CEO

Nitro CEO Sam Chandler moved his startup from Melbourne to San Francisco in 2008. Credit: Nitro

Australian inaction on startup issues “has potential to turn into a national tragedy,” according to the chief executive of Nitro.

Nitro, the software company behind the top alternative to Adobe Acrobat, launched in Melbourne in 2005 but after three years moved to San Francisco.

“I don’t think the Australian government is doing anywhere near enough,” Nitro CEO Sam Chandler told Computerworld Australia as his company announced new funding of $15 million from US venture capital firm Battery Ventures in a series B round.

He said the “competitiveness agenda” announced last month by the Coalition Agenda will help, but more should be done.

“It’s good, but it’s not great,” he said. “It’s a positive step forward, but it’s far from being what Australia needs.”

Changes to the taxation of employee share options are good news for early-stage companies, but by limiting benefits to companies with less than $50 million that are unlisted and younger than 10 years old, the proposed rules exclude older and bigger Australian-born companies like Nitro and Atlassian, he said.

“These are companies that already employ hundreds or thousands of people. They will employ thousands of people in the future. And these are all companies that have either already passed one of those thresholds or both of them, or will in the next year or so.”

Chandler disagreed with the line of thinking that employee share options are only needed as a hiring incentive for very young startups that have a higher risk of folding.

“It does not reflect an understanding of how equity compensation works in international talent markets,” he said. “Companies will choose to hire people where the tax treatment is fair and equitable and it makes commercial sense, and people will choose to go to those same places.”

Atlassian CEO Scott Farquhar has also complained about Australia’s employee share options policy. He recently revealed that the company has spent $5.4 million covering the cost of taxes on employee share options because he believes the plans are so important to attracting and retaining talent.

Spurring startups is not about the government writing cheques, but rather setting a regulatory environment so that Australian startups are on even footing with companies of other countries, said Chandler.

“For companies like Nitro, and these more scaled startups that have come out of Australia, we do have to raise money eventually in the US. And it would be nice to think there was some other option that was an Australian option. You know, even just one.”

Nitro previously raised $6.6 million from Australian firm Starfish Ventures in 2012. But Chandler said it would have been difficult if not impossible to raise the $15 million announced this week from an Australian VC.

“Australia has a lot going for it as a country and an economy, but what it really does lack is a developed venture capital ecosystem,” he said.

“In Australia, there wouldn’t be a single firm who could support the capital-raising requirements that we have now and might have in the future. There’s a chance you could raise $15 million in Australia, but we wanted to raise from a firm that could potentially invest tens of millions more if we wanted to go really big.”

In contrast, when Nitro began looking for VCs in the US, it immediately compiled a “shortlist” of 10 to 15 potential firms, he said. Nitro chose Battery Ventures because of its experience and track record helping companies go from 100 to 1000 employees, he said.

While Nitro launched in Melbourne, in 2008 the startup decided to move to Silicon Valley.

“When we made the decision to establish our office in San Francisco, it was because we could not get what we needed in Australia,” said Chandler.

“We were looking for particular kinds of talent … and we just could not find people with those skills in Melbourne.”

Chandler noted the talent situation has improved greatly in Australia since 2008.

“There’s a really good early-stage talent ecosystem in Australia which really didn’t exist five or six years ago,” he said. “When I left the country, no one knew what a meetup was … And there certainly weren’t any incubators or accelerators.”

However, for companies moving beyond that early stage, it’s still difficult to avoid moving to the US or another country, he said.

Next page: Nitro’s plan to expand

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Next steps

Nitro will spend the $15 million from its latest funding round on people and infrastructure, Chandler said. “The overwhelming majority of what we’re doing this round is hiring.”

The software company wants to double its staff of 160 people today within the next two years, he said. New roles will be available across the business, including product, engineering, sales, marketing and customer service.

While Nitro plans to hire worldwide, Chandler said most of the jobs will be based in the company’s San Francisco headquarters and a Dublin office opened at the beginning of this year.

The Dublin office, which now has 25 employees and includes former employees of Dell, Citrix and Salesforce, is expected to increase to about 100 staff in the next 12 months, he said.

Melbourne, the city in which Nitro first opened, used to be the company’s second largest office, but “now it’s kind of being dwarfed by [San Francisco] and Dublin,” with about 13 staff in the Australian city working on finance and local sales and customer service, he said.

Nitro has stated it is on track to make $30 million in revenue this year, and has been doubling revenue every two years for the last five years.

While Adobe has been Nitro’s biggest rival since its early days, Chandler said the number of competitors has increased since the launch of Nitro Cloud, which includes document sharing and collaboration tools in the browser and mobile.

“We’re going up now against e-sign vendors.”

From competing with the giant Adobe, “we’ve learned a lot about how to play the game when you don’t have the balance sheet or the [profit and loss] that the big guy’s got.”

Nitro has differentiated by trying to provide a better product and customer experience, he said.

“Our customers love us, and I’ve never heard anyone say, ‘Oh yeah, we love Adobe.’”

Adobe has received much flak in Australia for its prices, with boxed versions of its products costing 40 per cent more in Australia than in the US.

In a March 2013 parliamentary hearing, an Adobe official responded that Australians should fly to the US if they wanted a better price.

Adobe later ditched boxed versions in favour of subscription-based, digitally distributed software with price parity across regions.

“It’s an insult to their customers’ intelligence when they say we’re going to charge you significantly more for something that is downloaded over the Internet,” said the Nitro CEO.

Chandler advised new startups to be persistent about achieving success.

“If you’ve got conviction and you’ve done your homework, those are very powerful things,” he said.

“Don’t be bull headed if you’re wrong, but if you really strongly believe that you’re right ... don’t let anyone dissuade you from completing your mission.”

Adam Bender covers telco and enterprise tech issues for Computerworld and is the author of dystopian sci-fi novels We, The Watched and Divided We Fall. Follow him on Twitter: @WatchAdam

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