Everyone wants the next Silicon Valley but which Australian state has the hottest tech sector?

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“The next Silicon Valley” is a phase that has been attributed to hundreds of different places around the world, from New York to Shenzen.

Envious of the San Francisco Bay Area’s tech ecosystem, Australian startups have began to emerge within the major capital cities. It is encouraging to them that some US-based firms, including in Silicon Valley, have ventured Down Under.

This author, a guest of Pitt Street Research’s Semiconducter Conference last week, heard the boss of one such company (chip-building play Revasum (ASX: RVS)) Jerry Cutini declare to the audience: “We didn’t come [to the ASX] by accident, we came on purpose because we thought it was the right market.”

But where in Australia are the tech firms? Stockhead analysis has found all five mainland Australian states had listed technology companies.

Of course, listing is not to say they’ve “made it”, because many are still living off capital raises.

Australia has its fair share of tech companies and they have had a positive year in 2019 – they’re up 9 per cent. But some states have better performing tech sectors than others.

The winners

The tech sectors of New South Wales and Victoria have led the way, gaining 17.8 per cent and 13.7 per cent respectively. Both these states have vibrant tech sectors that in recent months have seen significant activity, from US firms setting up shop, to state governments become involved.

In August last year, the NSW government announced a new tech precinct in the Central to Eveleigh area. Premier Gladys Berejiklian said it would “cement Sydney as the technology capital of Australia and create more secure jobs.”

Getting involved was one of Australia’s success stories, the US-listed Atlassian, which agreed to set up in the new precinct.

It is anticipated 10,000 new jobs will be created in the precinct by 2036.

Sydney already has a vibrant sector – the largest tech firms, such as Amazon and Google, are in the Harbour City. Additionally, three of the so-called WAAAX stocks – Wisetech, Appen and Xero; are present as well. But there are also hundreds of startups and Sydney has the highest concentration of any city.

But the rivalry between Australia’s two largest cities extends to the tech race as well. In Melbourne, the inner city suburb of Cremorne has been touted as Australia’s – wait for it – “Silicon Valley”.

When direct flights between Melbourne and San Francisco were launched by Qantas last September, both the Victorian government and Qantas made no secret they believed the two were close, and these new flights would make them closer.

At the same time, the state government launched an advertising campaign to run in San Francisco – ‘Melbourne Tech City’.

“This campaign is all about raising our profile as a global tech hub with a culture of innovation and an incredible talent pool,” said trade minister Philip Dalidakis.

In addition to being the home of home-grown MYOB and SEEK, Melbourne hosts the local office of workplace messaging app Slack, expected to go public in the US later this year.

While New South Wales’ small cap tech stocks have performed slightly better than Victoria this year, both states have had solid shares and their fair share of top performers.

Here is a list of all NSW and Victorian-based ASX IT small caps…

Stagnation

Queensland (1.5 per cent) and Western Australia (0.3 per cent) have had slower years, relatively speaking. But their state governments have been keen to diversify the economies beyond mining and invest in the tech-space.

Brisbane’s start up hub is ‘The Precinct’ and the government funded its recent expansion. Deputy Premier Jacqui Trad declared: “It’s investments like these that will create the jobs of the future here in Queensland.”

According to an Techboard report last year, Queensland has the second most startups behind Sydney and is growing faster than the Harbour City.

But tech companies have been slower to list. We only saw 14 listed small cap tech stocks in Queensland and while the sector is only up 1.5 per cent, they have had some solid performers, led by IT services group GBST Holdings (ASX: GBT), which has gained 79 per cent.

Western Australia has just under 40 and like Queensland, a fair share of performers. Cirrus Networks (ASX: CNW) and CV Check (ASX: CV1) have both more than doubled this year. 

The West Australian government has been less involved in trying to grow the tech scene at home compared to other state governments.

But there is a vibrant sector over there and it’s not just autonomous vehicles at mines or non-Western companies believing they need an office that’s still Australian but in sync with most of the Asia-Pacific.

Between 2012 and 2017, YResearch found the tech sector grew by 43 per cent. The one that would spring to everyone’s mind is robotics company FBR (ASX: FBR), based very close to Perth Airport.

It’s trying to build houses with robots and recently signed a critical joint-venture with BrickWorks to provide the bricks in FBR’s ‘Wall-as-a-Service’ offering.

The laggard

Traditional manufacturing state, South Australia, has lagged behind (losing 24 per cent).

This is not to suggest the Festival State is still stuck in the days of car-making. Since being elected last year, Premier Steven Marshall has tried to position his state as a tech magnet, launching a $28 million fund for entrepreneurs and starting a start up hub – FIXE at Lot Fourteen.

Marshall has stated publicly he wants South Australia to have the highest rate of startups in Australia. He even appointed a ‘Chief Entrepreneur’ – Jim Whalley, the co-founder of defence industry company Nova Systems.

But this year South Australia’s three listed startups are all down – Xped (ASX: XPE), Buddy Technologies (ASX: BUD) and Prophecy International (ASX: PRO).

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