Monday, March 25

Where Do Aussie VC’s Look To Invest

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The world of Venture Capital is an intriguing one. Constantly on the lookout for the “next big thing” VC’s have to have an open mind about what the future could bring. Despite this (or perhaps because of this) picking what could be the next Atlassian, Canva or Afterpay isn’t easy.

With thousands of companies and hundreds of different industries on which to focus the relatively small teams of VC funds can’t cover it all, at least not in too great a deal of depth. And so they often choose to filter their view point. First of all broadly, i.e. only looking for companies/ideas with billion dollar potential, and then more finely. Often by geography, industry or a mixture of both.

From there they look to both find and appeal to the next crop of founders and startups. They want to have you on their radar, or at least show up on yours, if you are building something great and have the potential to turn their thousands (or millions) of dollars or investment into 10, 20 or 100x return..

To appeal to these startups VC funds and their partners look to build a profile that speaks to their success and focus on being founder friendly. At the same time however they do want that filter. Having an inbox swamped with hundreds of pitches for a new cafe or hairdressing salon is not what they want and could crowd out the real opportunities slipping into their inbox. And so to standout it is usually recommended that you seek a warm introduction.

If that isn’t possible, or if you lack the contacts to make it happen, sometimes you need to default to the “cold” approach and reach out direct. If that is you, then the best way to ensure your email at least gets a moments thoughts then its important to make sure you are pitching the right fund, at the right time and with the right idea.

In this guide we will therefore look at some of Australia’s most recognised funds and highlight where they look to invest. The VC funds below are listed in alphabetical order.

AirTree Ventures

AirTree Ventures is one of Australia’s most recognised VC Funds. Founded by Craig Blair and Daniel Petre AirTree has backed a host of well known and respected startups including Canva, Prospa, Expert360 and more.

When it comes to backing startups AirTree is also more of Australia’s more active. According to their website, AirTree has invested in 17 startups in the last 12 months and is also lately stage agnostic. In fact 20% of their deals are done at the Seed Stage, 35% at Series A, 25% at Series B and 20% at Series C.

In turns of the sectors where AirTree looks to be active there is no publicly stated hard and fast rule. Rather they look to guide by highlighting where they have had success before. This includes a mix of industries and business models such as “marketplaces, global SaaS businesses, next generation finance, digital commerce, and media and marketing platforms.” Their overarching goal is however to “invest in disruptive businesses” regardless of sector.

Artesian Ventures

Artesian Ventures is an alternate fund manager with a Venture Capital fund. Their VC fund is active at the seed/early stage and has been investing in startups across Australia and China since 2008.

Like most VC funds their focus is on scalable high growth potential startups. They do however add the qualified that they are looking for startups “that can build and exit their business on relatively low lifetime capital”.

Perhaps because of this desire they also bring a different approach to funding startups. Instead of directly identifying and backing startups Artesian Ventures looks to employ a co-investment strategy where they partner with accelerators, incubators, angel groups and universities. By taking this approach they aim to reach a total of 500 startup investments by 2019.

So far this strategy has allowed them to invest in startups such as Simply Wall St, neighbourlytics and Gamurs.

Blackbird Ventures

Blackbird Ventures is another of Australia’s well know and well funded VC firms. They have successfully backed companies including Canva, Culture Amp and Zoox and are also the team behind the well respected StartMate accelerator.

Blackbird have a very clear mandate on who they are looking to invest in. In fact it stands out the moment you land on their website with their opening paragraph stating

“We invest in Australians with big ideas who want to be the best in the world. We provide equity capital for Seed, Series A and later stage. No cheque is too early.”

So how does that translate to investments on the ground and money in the bank. Blackbird have taken the time to expand on their investment thesis in a detailed blog post. There are over 20 points that they articulate but it essentially boils down to the following:

  • No cheque is too small or stage too early. Even a $25,000 investment is something they will consider.
  • Blackbird backs people. They want to meet you, the founder(s), they want your tech to be owned in house (no software agencies) and happily back raw talent without a track record.
  • Going global from day one is key and ensuring your sales cycle is short matters a lot. That said they don’t want to US “copycat” ideas.
  • Focus on the long term, not the exit. And never, ever mention a backdoor listing on the ASX via some down and out mining company.
  • They don’t search for themes to invest in, rather they look to the back the fundamentals. Plus they also believe that high valuation founders correlates with founders that go onto succeed.
  • The market must be big with the potential to return the entire fund.

Beyond that Blackbird want to invest in people who give back and have a no “a hole policy”. This is after all going to be a 10+ year relationship.

H2 Ventures

H2 Ventures was founded by Ben and Toby Heap in 2013 and positions itself as Australia’s leading early stage investors in Fintech, Data and Artificial Intelligence. This has translated into investments in more than 55 startups which have a combined portfolio value of more than $200 million.

Compared to other venture funds H2 does bring a different approach to the market and for the past five years have invested on a cohort basis. What this means in practice is that all of their portfolio companies participate in an in house 6 month pre-seed program.

This allows H2 to “take the riskiest leaps with founders at the earliest stages”. In fact, H2 will invest so early that they don’t need to see anything built, developed or launched. Essentially they look to back smart, passionate and daring people.

M8 Ventures

M8 Ventures is a new Australian VC fund co-founded by Emily Rich and Alan Jones. They position themselves as a “small, fast, pre-seed specialist venture fund focusing on the earliest stages of investment in the next generation of successful global tech companies from Australia and New Zealand”.

To achieve this mission M8 Ventures have a “lifetime approach” for their investment philosophy which is articulated clearly in their M8 Ventures Model diagram below.

As detailed in this diagram and from their opening statement, M8 Ventures, doesn’t mind investing early and sees an early cheque of $50 – $100,000 combined with coaching to get you and you company into the right accelerator program as key.

It is during the accelerator phase that your startup should find traction and begin to identify ways to speed up the customer acquisition process. Emerging from the accelerator phase and in-line with the (hopeful) growth of your startup M8 Ventures sees the seed stage as their next area of investment with cheques averaging between $100 – $250k. Finally, with your ongoing success M8 Ventures want to remain involved at the Series A with an investment between $500k and $1 million.

The reason M8 Ventures take this approach is because as their website states:

“Most of Australia and New Zealand’s venture capital is managed by people (mostly men) who are ex-funds management, ex-banking, ex-law, ex-anything-but-building-tech-products. Which means they evaluate a startup on its operating data, looking for fast growth in customers, revenue and customer lifetime value.But what if the historical data isn’t there yet because the company is a new tech startup? What if the company’s founders are first-timers? What if the product is still a prototype? What if there’s only a handful of early customers and metrics like customer retention and monthly recurring revenue aren’t yet stable?”

Because of this M8 Ventures look to use their domain knowledge, network and speed to invest before the rest.

Finally, M8 Ventures don’t have a specific industry focus. Instead they recognise that great startups have customers who loving pay for an awesome product. And in order to get there you need a great team with a mix of talent, a passion for the problem and ability to sustain a rapid rate of progress.

Right Click Capital

Right Click Capital back and invest in courageous founders who are looking to change the world. The fund is part of the Draper Venture Network which is a one-of-a-kind alliance of independent venture funds that cooperate on investment diligence, marketing intelligence, corporate relationships, and co-investments. The network includes 600+ portfolio companies between 20+ venture funds across 60+ cities, extending the network and expertise globally.

Locally Right Click Capital has funded companies including 90 Seconds, GoFar and Black.ai. They list their focus as being a pre-seed to series A fund, although they do occasionally invest at the Series B stage.

To understand more about their investment at the pre-seed or seed stage Right Click Capital want to see something that is more than an “idea on a page”. This means having a team in place and some kind of Minimum Viable Product. At the Series A stage Right Click want to see traction and an understanding on unit economics within your business.

Expanding on this further Right Click Capital, like many VC funds, look to back companies with in-house technical talent, while they do also call out the need and benefit in having someone with a commercial mind on the founding team as well.

At the industry level Right Click also provide a fairly broad mandate. They back technology businesses in any industry, except for certain fields of biotechnology. They further translate this to historically being software-enabled businesses (both B2B and B2C), deep tech and the Internet of Things (IoT).

Square Peg Capital

Square Peg Capital was co-founded by Paul Bassat, Barry Brott and Tony Holt and invest across Australia, Israel and South-East Asia. They typically invest from the Series A stage onwards and by adopting this approach have backed companies including Canva, Airwallex and Stripe.

To understand where Square Peg look to invest they publish five broad criteria. This includes:

  • Outstanding Teams – Square Peg is inspired by teams that are smart and fiercely inquisitive, self-aware and trust-worthy, ambitious and resilient.”
  • Solving Problems – They look for companies solving big problems in different ways.
  • Competitive Advantage – Having a competitive advantage is key. This often comes from having a deep domain knowledge.
  • Positive Vital Signs – Given their later stage focus having Product Market Fit and an strong signs of customer acceptance is important.
  • Scale – You have to have both the ability to scale and what it will take to achieve that scale.
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About Author

Paul Towers is a passionate supporter of the Australian startup ecosystem and the Founder of Startup Soda. Originally, Startup Soda was solely a newsletter that helped curate the best content from the Australian startup community, more recently however it has turned into a media platform with the aim of improving coverage of Australian Startups, Founders and VC's.

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