The anti-Silicon Valley tech IPO

Source: Atlassian

For investors in U.S. software companies, nothing about Atlassian looks familiar.

In addition to its Australian roots, Atlassian has been private for 13 years without ever raising outside capital. And we now know, from the company's IPO prospectus filed on Monday, that the two co-founders each own a startling 38 percent of the company.

Here's what's really bizarre: Atlassian spends a tiny percentage of revenue — 21 percent — on selling its stuff. In fiscal 2015, which ended in June, Atlassian generated revenue of $319.5 million and spent $68 million on sales and marketing.

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None of the publicly traded subscription software businesses come close to that level of efficiency. Looking at the latest year's financial results, sales and marketing costs range from 40 percent of revenue (Workday) to 96 percent (Box), with coming in at 51 percent.

Atlassian, which sells software that helps developers and technical teams collaborate on projects, attributes its success to a bottoms-up model that gets users to promote and spread the products. The company has 5 million monthly active users and over 48,000 customers.

"Through this word-of-mouth marketing, we have been able to build our brand with relatively low sales and marketing costs," the company said in the prospectus. "This strategy has allowed us to build a substantial customer base and community of users who use our products and act as advocates for our brand and solutions, often within their own corporate organizations."

Model of efficiency

CompanyAnnual salesS&M costsS&M as % of sales
Atlassian$319.5 mln$68 mln21%
Salesforce$5.37 bln$2.76 bln51%
Workday$787.9 mln$315.8 mln40%
ServiceNow$682.6 mln$341.1 mln50%
NetSuite$556.3 mln$291 mln52%
Box$216.4 mln$207.7 mln96%
Zendesk$127 mln$77.9 mln61%
HubSpot$115.9 mln$77.8 mln68%
New Relic$110.4 mln$89.2 mln81%

Source: Source: FactSet

Even with a big and growing San Francisco presence, Atlassian has stayed somewhat under the radar in hype-heavy tech. Surely some of that has to do with its distance from the venture world. Not until 2010 did any venture capitalists get involved, when Accel Partners bought $60 million worth of shares from insiders.

In March 2014, T. Rowe Price and Dragoneer Investments purchased $150 million stock from Atlassian employees, in transactions that valued the company at $3.3 billion. That makes Atlassian one of the most valuable private tech companies, but because it has never raised traditional financing, it's not on The Wall Street Journal's billion-dollar club list.

Atlassian's main products are JIRA for planning and project management and Confluence for content creation and sharing. The company also has a Slack messaging competitor called HipChat, which it acquired in 2012.

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While Atlassian is bigger than most software companies at the IPO stage and has the unusual distinction of being profitable on a bottom-line basis, with net income of $6.8 million in 2015, it may face some resistance from growth-hungry investors that like to see expansion at all costs.

That's especially true given the long list of competitors that Atlassian faces, including Microsoft, IBM, Hewlett-Packard, Google, ServiceNow, and Zendesk, as well as start-ups such as GitHub and Slack.

Still, revenue in the past year climbed 49 percent, accelerating from 45 percent growth in 2014. At Atlassian's size, there aren't many businesses that are still gaining that kind of speed.