Picture this: an Australian software company that’s expanded globally with over 100 staff and derives around 50 per cent of its revenue from the US — yet struggled to secure debt funding from the local market.

That was the case for Yellowfin BI, which makes enterprise software products used in data analytics, security and business intelligence services. The company’s client base includes Coca Cola, ANZ and all 12 banks of the US Federal Reserve.

Speaking with Stockhead, co-founder and CEO Glen Rabie discussed how the company executed its growth strategy, along with some of the limitations in the local market that are holding Australia’s tech scene back from what it could be.

Founded in Melbourne in 2004, Yellowfin got traction early on by offering a web-based product when more or less “no one was doing it”, Rabie said.

“So we started to pick up customers globally pretty early, and most of our revenue even in the early days came from outside of Australia.”

A key part of the company’s scale-up strategy was also creating indirect revenue streams by integrating its software with other vendors.

And finding an effective way to distribute the product is important for enterprise software. It differs from, say, Atlassian’s Jira, which is a team tool that can be downloaded fast and paid for with a credit card.

“When you sell enterprise you need to sell it to thousands of users. So it’s the complexity of the deal — infrastructure, how to integrate it. There’s a lot of stuff you’ve gotta deal with.”

‘If my company’s growing and it’s an enterprise value well into the millions, why on earth am I going to let that go? …They don’t get that.’

The company’s staff numbers have grown from two to 110 and it now has offices in the US, UK and Japan. And to fund the next stage of its expansion, Yellowfin is looking at its options on private markets.

“The next stage will need a ton more capital and we know that. So we’re always evaluating our strategic options, what makes sense and what price point you can get capital at,” Rabie says.

And on that front, he says the local market has a way to go when it comes to financing tech startups.

Understanding risk

“Debt funding is an interesting one to me because it highlights what I think is the immaturity of the sector,” he said.

“I think the Australian market is just not geared to technology risk. It doesn’t understand and have an ecosystem to really understand the dynamics.”

He highlighted a lack of flexibility among domestic lenders in appraising a given company’s loan suitability.

“As a lender, you need to understand the business and understand the risk profile before you can make the debt work,” he says.

“I think the Australian market wants the high price — and the yield associated with that return — but it’s not willing to wear the risk.”

Strategic debt investments in Australia (as opposed to short-term funding for working capital) typically involve the applicant putting up collateral in the form of residential real estate assets.

And it’s one of the main reasons negotiations fell through when Yellowfin sought out debt funding from an Australian lender.

“At that stage, it was a situation where we’d already taken on 10-plus years of risk in the business. So you put everything on the line and then somebody says ‘that’s great, you’re growing your business at 30-40 per cent, awesome — but we still want your house’.”

No deal. Instead, the company went with a US-backed lender that’s set up operations in Australia with an alternative approach to valuing debt finance.

Rabie says there needs to be a shift in how lenders think, away from collateral terms and towards the business itself.

“If my company’s growing and it’s an enterprise value well into the millions, why on earth am I going to let that go?

“And they don’t get that. They don’t understand the multiplier and the value that’s really there, and therefore they can’t price the debt accordingly.”

Building an ecosystem

In a broader context, Rabie said the challenges faced by Yellowfin in obtaining finance are representative of a lack of development in Australia’s tech ecosystem.

He reiterated the concerns echoed by a number of key players in the sector after last months federal budget, when the government neglected to provide clarity around the R&D tax incentive for tech startups.

In terms of its development, Australia’s tech sector is often compared the US — a much bigger and mature market. But Rabie says there’s another smaller, nimble market which is consistently churning out successful tech companies on the global stage.

“I think we could learn an awful lot at really having a close look at the Israeli model,” he says.

“Not everything would apply, but the difference there is they recognise that their exit will be global.”

“So they’ve got that structure in place. They’ve got a startup network which is so strong that companies are just coming through the whole time.”

Pointing to the incumbent coalition government’s pivot away from former PM Malcolm Turnbull’s call for innovation, Rabie would still like to see a shift in how Australian business approaches tech.

“It’s all levels — creating an environment where organisations, individuals and governments makes it clear about their willingness to invest in innovation.”