Niki Scevak

New Australian Venture Capital Funds are actively chasing deal flow – The Nuclear Winter is Thawing

I sense the nuclear winter of startup funding in Australia is finally thawing. In the last few months we have had a number of funds and investors actively launching pitching events and promotions and are actively chasing deals and  trying to generate deal flow. Even back in the dot com boom I don’t recall VCs having to be so proactive to bring in new deal flow.

As I have said many times I think we have a big problem with Startups solving non problems and making things that no one really cares about however for those that are fundable I can’t recall a time when the funding environment looked better, certainly it takes me back to the DotCom boom days, not that I think the market is frothy, just there is money to be had if you have a fundable idea.

This hasn’t been the case for many years.

So I had to think hard about who is out there, a few years ago you could count the number of early stage VCs that still had funds to invest on one hand, however there has been numerous fund announcements and raisings in the last year, here are most of the Angel, Seed and VC funds which are actively operating in Australia.

They are in no particular order, possibly the most recently active are listed first.

I know I will have missed some of you, I am sure there are some biotech, medtech and cleantech specialist funds that may have slipped past my apologies in advance, if you want to be added please feel free to comment at the bottom or use the contact us form and I will include them.

Oxygen Ventures

Oxygen Ventures is offering up to $5,000,000 and on-demand Oxygen Ventures resources and running its first “The BIG Pitch” event on June 17, 2014. The Melbourne-based investment fund is putting out the call to all digital SMEs, offering funding, mentoring and operational support.

In addition, mentoring will be provided by entrepreneur Larry Kestelman (Founder of Dodo) and his team, providing insights from his own brand of business know-how in a unique opportunity for founders.

You can apply here thebigpitch.com.au

M.H. Carnegie & Co

Mark Carnegie & Co have recently run Carnegies Den a quarterly pitch event covered by mainstream media looking to generate deal flow.

Whilst Carnegie has been active in the space for some years and has $200 million under management and presumably could raise more if they wanted, the Carnegies Den events are clearly trying to generate new deal flow and have a Shark Tank style to them.

Blackbird Ventures

Blackbird is a $30 million fund with a team from Southern Cross Ventures Bill Bartee, John Scull and Niki Scevak and Rick Baker and backed by 35 investors including Dave Mcclure from 500 Startups and Bill Tao the kite surfing VC.

Notable deals include early stage investments in Canva and Ninjablocks.

One Ventures

When Michelle Deaker told me she was going to raise a venture fund 7 years ago, I wasn’t sure how it would turn out, but she did manage to get a $40 million IIF fund raised when the majority of the proposed funds failed to raise matching funding. Notable investments include Paloma (headed by Jennifer Zanich who has a good track record) and Smart Sparrow.One Ventures 

ASSOB

The Australian Small Scale Offering Board has raised over $133 million for startups, this is essentially an early form of Crowdfunding with a developed platform and many angel and professional investors on board. Generally speaking it tends towards companies that have traction and not as early stage tech focused as many of the investors on this list. ASSOB 

 

GBS Ventures

GBS Ventures serious player in the Life Sciences space, has raised $400 million since 1996 with numerous exits.

Sydney Seed Fund

Garry Visontay, Ari Klinger, Benjamin Chong launched Sydney Seed Fund last year with $2 million to seed fund 20 businesses. They have run a number of pitching events as well as managing the local chapter of Founders Institute.

Square Peg Capital

Square Peg Capital was formed after the merger of two funds Square Peg Ventures and Victoria Capital last year. Paul Basset the founder of Seek and the Lieberman family with the backing of the Packers are planning to invest a few hundred million over the next few years. Squarepegcap.com

Artesian Capital Management

Artesian Capital Management is an alternative investments management company spun out of ANZ Banking Group’s capital markets business in 2004, with backing from ANZ Private Equity. They run a number of the smaller funds including Slingshot, Sydney Angels Sidecar fund, iAccelerate, Bluechilli and Ilab.

Tank Stream Ventures

$20 million fund founded by Markus Kahlbetzer son of Rich Lister John Kahlbetzer, notable deals include early stakes in Gocatch and Pocketbook. TankstreamVentures

Telstra Applications Venture Group

I couldn’t find any corporate announcements about the size of the Telstra Ventures fund, however it’s been rumoured that AVG has multiple hundreds of millions $ of funding to invest, given its first few investments add up to over $60 million (see Crunchbase) it is probably true although they have stated that much of this will be spent offshore. Telstra Ventures

Bluesky Funds

Bluesky is an ASX listed entity and applied for an IIF fund, Venture Capital appears to be one of their capability along with Private Equity, Real Estate and general equities investments. Despite the IIF application its not clear from their website if they are actively currently investing in early stage.

Talu Ventures

Talu Ventures is the successor to CM Capital not a lot of detail on their site about the size of their fund however they have a few notable successes including ThreatMetrix Talu Ventures

Reinventure & Westpac

With $50M in committed funds, Westpac is the largest investor in the Reinventure Fund.  The fund is operated independently by the managers, Danny Gilligan and Simon Cant, who are also co-investors in the fund. ReInventure

Singtel-Optus-Innov8

$200 million fund across Asia Pacific with a local Australian office, notable recent success includes a series C stake in Maker Studios which sold to Disney for $500 million + up to $450 million in performance payments. Innov8

Starfish Ventures

One of the older and larger funds on the list, Starfish Ventures was established in 2001 and has raised three funds: the PreSeed Fund and Technology Funds I and II, totalling over AU$400M in funds raised.

The team has invested in over 60 companies to date with 14 trade sales and IPOs, including listings on the NASDAQ, AIM and ASX and if you look through their portfolio you will find substantial business or tech/science plays that are generally solving very hard problems.

It appears they are still funding companies, although given they raised their last reported fund in 2008, its not clear how much longer they will be making new investments for the existing fund or if they are keeping their powder dry for the inevitable follow on rounds. 

Sydney Angels – Sidecar Fund

The Sydney Angels Sidecar Fund is a $10 million investment fund that invests solely in early stage business ventures as a co-investor alongside Sydney Angel member investors and as a follow on fund for Angel investments.

Notable investments include Buzznumbers which was sold for an undisclosed amount and NinjaBlocks arguably our most successful Internet of Things hardware play.  Sydneyangels.net.au

SydVentures

Not really a Venture fund but given the founder Andrey Shirben has made 40 + startup investments in the last ~5 years he is worth talking to. SydVentures

Incubators & Accelerators

Whilst not Venture funds, many of these are backed by venture or corporate funds and are providing small seed funding to get a business started.

Muru-D which is backed by Telstra offers $40,000 seed funding + office space and mentoring for very early stage pre revenue, possibly pre product startups.

Innov8 which is backed by Optus/Singtel is aimed at startups which have some evidence of customer traction offers co-working, mentoring plus upto $250,000 seed funding.

ATP Innovations one of the older incubators and has runs on the board $113 million in capital raisings for its companies, $45m pa in revenue from member companies last year, $28 million in Government Grants and 8 exits. Strong focus on life sciences and biotech with very sophisticated facilities.

ANZ InnovyzSTART SA based

Startmate $50,000 related to Blackbird Ventures so probably a good follow on funding available if successful

Founder Institute

Pollenizer has had some good wins including Spreets sale for $40m

Blue Chilli 

iAccelerate based at University of Wollongong

River City Labs

Startup Tasmania

iLab

Incubate.org.au Originally launching at The University of Sydney Incubate is now national with backing from Google Ventures

Singapore

The Singaporean Government just announced they are pumping $50 million + into local Venture Capital Funds  

Its 0nly 8 hours away and they are doing everything they can to attract new tech businesses to establish there, there is no Capital Gains Tax, you can get a visa on the strength of a business plan and they will do everything to help you get going, my prediction is this will be a popular alternative to Silicon Valley for Australian startups.

Photo by tobyct

Photo by jenny downing

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The Physics of Startup financings, or why you can’t raise a Series A

Photo by EWFTT

There is a fundamental paradox in the startup world: A lot more founders try to raise money than successfully do. But for those that do, they raise on incredibly friendly valuation terms relative to other areas of the business world. The reason is growth and it’s useful to apply the metaphors of physics to understand why.
For those tl;dr read Paul Graham’s essay on growth.

One of the most unanswerable questions I get as investor is “what do my metrics need to be to raise a series A”. I can give a guide on numbers but the reality is that the static one dimensional numbers ($100k MRR, 1m MAU or whatever the most important metric for the business is) are only half the story.

I’ll use the three simple concepts of physics – distance, velocity and acceleration – and use a SaaS business and monthly recurring revenue (MRR) to explain why.

A common piece of advice, like I said earlier, is that you need $100k MRR to raise a Series A ($5-10m) in today’s market. But the problem with that simple answer is that it’s not about the $100k figure (the distance in this analogy) nor even about how quickly MRR is growing (velocity), it’s about how quickly the change in MRR is growing (acceleration).

Stay with me. If you have a startup who grows to $100k MRR by adding $2k MRR each month for 50 months (4+ years), you are unlikely to be able to raise a Series A. If the $2k MRR you are adding doesn’t itself growing ever bigger (acceleration), the business is not a great candidate for venture financing.

On the other end of the scale, backing out a few numbers, we can see ZenPayroll skipped right past the series A and raised $20m from Andreessen Horowitz and General Catalyst at the time they had roughly $60k MRR (take the $400m payroll vanity metric, which would translate into roughly 8,000 employees or 1,000 businesses, who would pay roughly $60,000 a month according to their pricing page). You can bet that the revenue would have grown incredibly quickly, the change in MRR (acceleration) was off the charts and they had really happy customers with incredibly small churn rates.

That last part is incredibly important. There have been plenty of mobile games companies with short engagement curves, ad networks that were artificially inflating their growth by doing uneconomic partnership deals and local deals companies growing revenue at the expense of their customers viability.

So the first step investors tackle is evaluating the foundation of the building (how engaged and happy are the customers, how often do they use the product, how rarely do they unsubscribe from it etc.) and then they bet on the law of compounding growth (Warren Buffett attributes the lack of appreciation of compound growth as one of three reasons for his wealth) and hang on for a long period of time.

The rate of growth really matters a lot. 40% compounded over 10 time periods is 29X from where you started, compared to the 6x that 20% compounded over the same period is. Acceleration let’s you keep that rate of growth.

And it’s all about the acceleration not the distance.

 

 

Niki Scevak - Blackbird & Startmate

Niki Scevak – Blackbird & Startmate

Niki Scevak is a Managing Director of Blackbird Ventures. Before Blackbird Ventures, he founded Startmate, one of Australia’s pre-eminent incubators. Startmate is a mentor-driven seed fund based in Sydney that has invested in 21 startups, including Grabble which sold to Walmart Labs.

Prior to that, Niki founded Homethinking, a US-based online real estate site which helps home owners choose a selling real estate agent by ranking agents on their sales history and customer reviews.

He was awarded a cooperative scholarship to study Business Information Technology at the University of New South Wales, graduating with distinction.

 

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Blackbird Ventures – Dealflow observations in the 8 months since launch – Rick Baker @blackbirdvc

Rick Baker is the Managing Director of Blackbird Ventures, a Sydney based Venture Capital fund raised early this year by Rick Baker, Niki Scevak, and VC Veterans Bill Bartee and John Scull and backed by numerous names in the Australian and US tech scene including Mike Cannon-Brooks from Atlassian, Dave McClure from 500 Startups, Bill Tai the Kite Surfing VC and Southern Cross Ventures. 

Rick-Baker-Blackbird-VC

Rick Baker Blackbird Ventures

 

 

I wrote this piece as a newsletter to our investors a few weeks ago.  We thought we’d share it to give you some more insights on what’s out there and what we’re looking for.

After 8 months since the fund opened, we’ve logged 226 companies in our database and seen another 100 or so that weren’t worth logging. Add to this 260 Startmate applications, and we’ve seen a lot of business ideas.

From this deal flow we’ve made 9 investments and have one more in progress.  So we’re getting good at saying no!  Nevertheless we’re very happy with the deal flow coming out of the Aussie tech ecosystem at the moment.

Blackbird-VC-Logo

Here are some observations from the deal flow so far, our filters and what we’re looking for:

Blackbird Investment Map - Credit Blackbird.vc

Blackbird Investment Map – Credit Blackbird.vc

1. Sources:

As would be expected, by far the majority of deal flow by quantity comes from our contact@blackbird.vc email address. This is despite us and our website imploring founders to find a warm introduction to us through their networks.

By far the majority of quality deal flow comes from the Blackbird community of investors, founders and Startmate. We’ve been very pleased with the way this is developing and all of our investments to date have originated from these sources. It’s given us a number of opportunities that are outside the general flow of usual sources: accelerators, incubators, angel groups and well-known founders in capital cities.

There is a third category, which is investment advisors – i.e. people who promise to raise money for young companies for a cut of the raising or equity. While there are some good advisors with interesting companies, we’re a little cynical of deal flow that comes from this source as it tends to indicate a founder who is not able to get to us directly, or does not know or care about fund raising.  Fund raising is such an important part of the early years of many tech startups, that this is a factor we have to take into account. They also tend to come with 60 page business plans and detailed forecast spreadsheets to justify high valuations!  We haven’t yet found a company introduced by an advisor that we’ve really fallen in love with, but this may change of course. [By the way, this is not a dig at the advisor community and we we certainly take all companies introduced to us seriously.  I’ll try to write some more detail on this soon, but please do feel free to comment below if you think differently.]

2. Stage:

As you know we have a strong focus on companies that have a product in the hands of a “core group of happy customers”. While revenues are not essential, it’s often the best measure of this.  So we’ve quickly filtered out a lot of pre-product, pre-revenue businesses, pointing these founders to the angel communities.  We have only made one exception to this rule: Canva, where the founders had built a previous business in a similar area and I (Rick) had been mentoring the founders for some time.

It’s encouraging that we’re seeing more and more series A stage companies, where the business is around 2 years old and starting to generate decent and growing revenues. We love companies with $30-100k in monthly recurring revenue and seem to be finding a steady stream of these! We still see very little Australian capital targeting this space. Our key collaborator is Square Peg Ventures, and we hope to continue investing alongside them.

3. Global vs local:

The second quick filter is businesses that do not meet our passion for global markets. The majority of Australian deal flow is either Aussie focussed, or Aussie first. We are constantly challenging founders to think bigger and smash local boundaries from day one. Each of the businesses we have backed so far is truly global, with founders who have a real passion to be the best in the world, rather than the best in Australia.

4. Scalable business models:

One of the key attributes we’ve become more and more focussed on is finding scalable marketing and sales models. This usually comes in the form of digital and content marketing, with only light touch human sales efforts. We are particularly avoiding business models which require scaling up sales teams in Australia and around the world. We think this is a difficult model to execute from Australia.

5. Founders with an authentic connection to the problem they’re solving:

Finally and most importantly, we’re looking for founders who we think have a real passion and expertise in the area they are tackling. We have to believe that this person has a better chance than 99.999999% of the global population of being able to have insights to crack apart a market. We’re not interested in people who want to be entrepreneurs for it’s own sake, or have chosen random problems while gazing at their navel. We want founders who have become immersed in their niche and have a driving passion to make it better. They are rare, but we love it when we find these founders, and have found them in all the companies we’ve backed so far.

That’s all for this month. Please do keep your antennae tuned to find great businesses to send us!

Blackbird.vc or fill out the form to contact via staging.startup88.flywheelsites.com

 

 

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AngelEd Sydney 2013 – Teaching Angel Investors to make better technology investments

AngelEd-2013

In Australia too often Angel Investors have to play the role of a Venture Capitalist for technology startups, given we have only a handful VC funds in Australia with capital for very early stage ventures. (drive around the car park at the end of Sandhill Rd in Silicon Valley and you will find more VC firms than we have in Australia).

We simply don’t have the depth of institution money for this asset class to justify a big field of venture capitalist’s and I believe that between the growth of Angel Investors and Crowdfunding,  the Australian Venture Capitalist will become less relevant as time goes on.

Over the years I have been both impressed and dismayed by Angels Investors in Australia. To be clear I am not talking about high tech founders that are putting their exit funds back into new investments, these guys can look after themselves.

I am primarily talking about the Angel with good net wealth probably from the sale of a traditional business or family money or a successful corporate career looking for something interesting and exciting.

Financially astute? Mostly. Experienced in technology startup investments, much less so.

To the Angels credit they are very active and constantly running conferences and pitchfests, on the other from deals that I see they often seem unaware of the risks of very early stage technology companies and the life cycle of a funded tech company.

From my perspective having started my first startup in 1999, I have a good historical perspective and it seems to me that the startup scene and the number of investable startups has grown significantly in the last 5 years.

Due to the efforts of people like Pollenizer, Startmate, Pushstart, Incubate, Innovation Bay, ATP, Sydstart Australia now has a thriving startup scene.

The challenge is that without cash to fund these businesses and only a small venture capital base many of the investable companies will struggle to grow or have to move to the USA to get funding.

So it seems to me that any attempt to educate Angels and expand the base of Angel investors has to be a good thing for both the Angels and for the Australian Startup scene.

AngelEd 2013

Innovation Bay (Ian Gardiner) and Pushstart (Kim Heras, Roger Kermode & John Hains) have joined forces to help educate and grow the base of Angel Investors in Australia by launching the inaugural AngelEd 2013 on Thursday 7th November.

Both these teams have played a significant role in growing the startup scene locally and are now aiming to help grow the investor base in the same way.

If you’ve thought about investing in tech startups but you’re not sure how to, you are not alone.  Some of the questions AngelEd aims to answer

  • Where do you start?
  • Where do you go to find the startups to invest in?  
  • What do you need to be aware of?  
  • Is there a science to it?
  • How successful are tech angels in Australia and what’s their approach?  
  • Is angel investing a legitimate asset class worthy of consideration?

If you are not involved in the startup scene on a daily basis, you may find it difficult to get good deal flow.

AngelEd 2013 aims to introduce new Angel investors to the process of investing in high tech startups, getting access to good quality investable deals and minimising the risks of investing while increasing the chances of picking a winning startup.

Why are they doing it?

There are many indicators that point to the fact that there are loads more startups but not enough angels who actively invest, and therefore not enough money to support tech startup innovation.

Put simply, “we are making more, better companies at a rate that exceeds the country’s ability to support and fund their growth”, as identified by Pollenizer based on the Startup Genome Report and Angel Investing Survey finding.

AngelEd aims to build a greater pool of knowledgeable angels to better support our high-tech entrepreneurial community and create more international success stories.

You can register here

Great list of speakers.

Agenda

Thursday, 7 November

2.30 – 3.00pm
Registration

3.00 – 3.15pm
Welcome and Introduction
Ian Gardiner, Innovation Bay & Kim Heras, PushStart

3.15 – 3.45pm
Angel Investment:  Market Update and World Trends
Bill Bartee, Blackbird Ventures

3.45 – 4.45pm
Angel Know How – The Secrets to Success:  Learn from seasoned tech investors

3.45pm  Andrey Shirben
4.05pm  Alison Deans, Netus
4.25pm  Luke Carruthers

4.45 – 5.30pm
How to invest it?  Funds, syndicates, direct….
(Panel discussion)

  • Kate Carruthers (moderator)
  • Niki Scevak, StartMate & Blackbird Ventures
  • Tony Faure, Chairman – Pollenizer, The Sound Alliance, Torque, Soda Card/Dealised
  • Melissa Widner, General Partner & Co-Founder, Seapoint Ventures
  • Anthony Pascoe, Angel Investor & Chair, ImageBrief

5.30 – 5.45pm
Short break – tea, coffee, snacks

5.45 – 6.05pm
“A Date with an Angel”:  The entrepreneur’s perspective
Dean McEvoy, Co-Founder & ex-CEO, Spreets

6.05 – 6.35pm
Tech Start-up Pitch: Innovation Bay Style
Two tech startups – 5 min pitch followed by panel Q&A

  • Ian Gardiner (moderator)
  • Brett Kelly, Kelly & Partners

6.35 – 7.00pm
The Dry but Essential: Legal, Tax & Due Diligence Considerations for angel investors

  • Legal: Paul Miller, Deutsch Miller
  • Tax:  Paul Masters, Tax Leader, Deloitte Private
  • Due Diligence:  Macquarie Private Wealth

7.00pm
Session concludes

 

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