The recent outburst of rapping at the Canva Create event in Los Angeles has proven to be another dazzling cultural flashpoint between Australian and US tech.
Well, here at least.
We believe it’s not a coincidence that an event like this occurred right after a billion dollar share sale rightfully turned many early Canva employees into millionaires for the risk they took on taking a job at the young company and shareholder value they helped create.
They are literally dancing in the streets.
Behind the scenes, Australian startups, especially early-stage startups, aren’t shying away from emulating Canva’s approach. They’re doubling down on employee equity and the promise it can deliver.
Bad rap, but rep still intact
It seems inconceivable that anyone hasn’t already seen the Canva rap video.
If you haven’t already, go and watch it. It’s hilarious, regardless of what you think of it.
One Australian media article ran with the headline ‘Shouldn’t hire Americans’ to frame the rap video story as evidence of creeping influence from American tech and capitalism in general.
Indeed, many have compared the rap video to the halcyon days of Microsoft, Facebook and Uber where cult-like explosions of corporate culture left outsiders with the impression the sector had completely lost its moorings.
The thing is, the combined market capitalisations of Microsoft, Facebook and Uber is US$4.4 trillion (A$6.7t), the same as the entire GDP of Germany, which is the world’s third largest economy.
Skalata’s Tom Smalley
From an Australian economics point of view, we’d love to have one of those here. And while Canva isn’t quite at those heights yet, it’s nothing short of an epic value creation machine.
From a startup industry point of view, our founders love hiring Americans with their technical experience and connections. It’s also worth noting that while the coverage of Canva’s event in Australia has varied from cringe to viscous, the coverage in the US has been basically non-existent.
The point we’re making is that this kind of breakout of giddy excitement – while amusing and, yes, perhaps ill-considered when you take into account the cost of living crisis – is part of a cultural initiation process.
We want Australian technology companies to break through. It’s something Canva has to go through. It’s something Australia has to go through.
And on a purely practical level, as Startup Daily’s editor wrote: “Canva had a lot to say about their product and a rap song was a clever way to do it. We bag corporates for being boring. This was fun.” Hear hear!
The hidden inspiration
Much of the more considered coverage has made the point that Canva is moving towards a US listing and this kind of cultural expansion is not only inevitable, but necessary. We think there’s a better explanation that’s wholly Canva-owned and increasingly baked into every startup we have.
Just two months ago, Canva finalised the first tranche of a share sale that turned many of its early staff into millionaires overnight, as well as paid back early stage investors. Canva released US$1.6 billion (A$2.4bn) into the industry.
Wouldn’t you be dancing too? You would. We all would.
To put that into perspective, that’s more money than the federal government has committed to Hydrogen Headstart, a future-facing, resource-linked technology industry that we have a potentially massive competitive advantage on.
Canva’s share sale is an enormous technology industry stimulus by Australian standards. These share sales can’t happen without forward-thinking employee share schemes years, sometimes a decade, in advance.
Biztech Lawyers APAC MD Anthony Bekker. Photo: Mark Bond
These are known in the industry under various acronyms such as ESOP (Employee Share Ownership Plan or Employee Share Option Plan). To motivate employees that could get a better salary at a big corporate, you give them a share of the equity in the hope that said equity rises in value to bridge the gap, and some. It also instils an ownership culture among early employees who are incentivised in the same way as founders and investors.
The thing is, our industry doesn’t talk about ESOP outside of the Canva share sale anymore, and we’re puzzled by that. Perhaps it’s because depressed valuations, dragged down by lower funding levels, makes the subject less sexy to talk about, especially in a cost of living crisis.
But behind closed doors, ESOP hasn’t been steady in the last two years. It has accelerated.
During a downturn, the balance of power can shift from the employee to the founder because there are less jobs to go around. But motivating employees once they’re hired is critical, perhaps even more critical, when economic conditions are unfavourable.
Human nature doesn’t change, and employees remain acutely aware of finding their own personal risk and reward balance.
This strategy is hardly without risk. If the options go underwater, your employees have less incentive to stick around. You need to give away more shares, or change the vesting period. There are levers you can pull.
While founders putting ESOP in place now often have to give away more equity to secure the same response from employees, now is the time to act.
If anything, Australia is still lagging the US when it comes to ESOP. Early-stage startups in Australia often target a post-option ESOP pool of 10-15%, whereas in the US it’s closer to 15-20%.
As Canva inches closer to the US, what should we expect?
In a subsequent tranche the total amount raised by Canva is expected to rise to US$2.4 billion ($3.6bn in our money). So expect some more rapping, and dancing, and maybe a helicopter, somehow.
Meanwhile, early-stage Australian founders are putting in place their own ESOP at an accelerated rate in the hope of making their employees rich too, one day.
The process has been critical to the Silicon Valley company and wealth creation complex. This is one part of American technology culture we ought to emulate.
Whether we want to do the singing and dancing too – we’ll leave it for others to judge.
- Anthony Bekker is Managing Director, APAC, of legal advisory firm Biztech Lawyers & Tom Smalley is Investment Director at early-stage VC Skalata Ventures.
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