As data driven entrepreneurs we are trained to seek greater insight through actual behaviour.
Past sales behaviour is our best data point for forecasting next financial year's profit. Past conversion behaviour helps us predict a new marketing campaign's ability to capture leads...and so on.
So why don't we apply this same approach to capital raising?
After going through two rounds of funding for Recomazing I found most information focused on generic advice rather than prior behaviour.
With this in mind we asked Australia's leading investors* to answer the same questions on their most recent investment. The result is a collective insight based on past behaviour to help you get investor ready.
NB if you're an investor that would like to contribute please reach out and we'll add you.
First, we'll kick off with a brief summary of the insights...
And now, for all you eager beavers, we'll dig into the detail. Take it away investors...
What was the last business you invested in?
Co-commerce is a set of proven tools to automate sales, increase customer loyalty and decrease the cost of doing business with other hospitality businesses. It has been operating 2+ years
How did they first contact you?
We first met Leigh Sherman and Joshua Chittick in 2014 through a Startup Weekend hackathon which we ran at the York Butter Factory coworking space. It was at this event where they came up with the Co-commerce concept (then known as Pantree). This was also the first time that Leigh and Joshua had met; they spontaneously decided to form a team together to work on Co-commerce, and ended up taking first prize at Startup Weekend.
What impressed you most about the business in their first pitch?
What was most impressive was that they had validated the idea with many hospitality operators within a short timespan of 54 hours through Startup Weekend. They were clearly solving a pain-point for these operators.
More impressive was the ability and tenacity of the founders, who worked incredibly hard over the weekend (and who have since shown to be even more tenacious than we originally thought!).
Approximately how long between first contact and deal?
1 year.
While we liked the concept, the company was still far too early for us to invest in, and they had not yet found real product-market fit. After winning Startup Weekend, Leigh and Josh worked from York Butter Factory for 1 year, building 7 different iterations of the Co-commerce product and pitching us monthly.
After a year, when they had shown sufficient traction and demonstrated their tenacity and dedication, we decided to invest in the company.
What does a typical investment look like for you?
We invest in Seed to Series A rounds (between $100k - $1m). The revenues we target are B2B SaaS, FinTech, IoT, and in the future HealthTech.
This investment differed from the norm as the investment size was smaller than our usual cheque size (as we had almost finished investing our first fund), and because the timing from first contact to deal was far longer than normal due to the early-stage nature of the company.
What is the most common reason you pass on an investment opportunity after an initial pitch?
Wrong product-market-founder fit.
What was the last business you invested in?
HyperAnna is an Artificial Intelligence for Analytics which has been operating for 12 Months.
How did they first contact you?
We were referred by a close friend of the fund.
What impressed you most about the business in their first pitch?
Natalie and Sam are two of the most impressive, product-centric founders I've ever met.
Approximately how long between first contact and deal?
1 Week.
What does a typical investment look like for you?
We love to be the first institutional investor in very young companies. We can write small cheques and will happily work with other helpful co-investors at the early stage. That being said, we can also invest up to $20m+ (we recently led a $25m Series B round for Prospa, for example). These deep pockets are great for our existing companies, but also mean we can partner with companies at Series A and Series B.
What is the most common reason you pass on an investment opportunity after an initial pitch?
A lack of evidence that customers love the product. This need not be monetisation, but engagement and retention are key metrics for us.
What was the last business you invested in? Shippit’s technology seamlessly connects retailers to carriers, selecting the best carrier for every shipment and allows shoppers to track deliveries in real time to result in cost & time savings and a better overall experience for both retailers and end customers.
The SAAS business started booking their first parcels in December 2014 and up to June 2015 were processing around 100 deliveries per month. Shippit are now processing over 250,000 deliveries per month which equates to over c.1.5% of the Australian delivery market.
How did they first contact you?
We have been pretty close to Will and Rob (Shippit founders) for quite a while now and have always stayed in touch. We also looked at the business when it was doing its seed round, which was too early for us, however we really liked the team so we kept close to the opportunity. The timing of this round for us was perfect as we had just made a first close in our new ESVCLP (the Aura Venture Fund) and they had reached a point in their business where they gained a significant amount of traction and were looking for some strategic investors to help them expand more quickly in Australia and into Asia (where we have a strong footprint).
What impressed you most about the business in their first pitch?
It is an incredibly scalable business model – that is the first thing we loved about the business. Secondly, they have identified a real problem in sector that has significant tail-winds and addressed it using an extremely sticky piece of software that once companies start using, cannot live without. There is a true network effect with the aggregated volumes and pricing. Their churn rate is to date virtually zero. The technology they have built is clean, user friendly and seamless despite its complexity and requirement to integrate with a large number of carriers and online retailers. Finally, the management team are first-class. Both really great operators who we get on really well with.
Approximately how long between first contact and deal?
2 months.
As I mentioned before, we had been pretty close to Shippit for quite some time so had a pretty good understanding of the business model and the guys behind it. However, once we formally engaged Shippit, it took about two months to complete due diligence and finalise terms etc.
What does a typical investment look like for you?
We typically like to come in at the growth/expansion stage once a company has validated its product or service through real traction in the form of revenue. $1m for us is a pretty good litmus test. In terms of industry we are comfortable looking at a range of verticals however because a central pillar to our thesis is adding strategic value and extracting portfolio synergies – we are tending to build out in data & analytics, fintech, e-commerce, as-a-service models. Finding a solid, sticky business model is more important to us than sector. In terms of investment size, we have the ability to deploy cheques from $500k to $5m which on $5m-$20m EV companies usually gives us enough equity to be able to influence the business.
What is the most common reason you pass on an investment opportunity after an initial pitch?
I would say that either a company is too early for us or we are unable to identify how we can add real strategic value to the business.
What was the last business you invested in?
Instaclustr is an open source-as-a-service company providing managed solutions for database, analytics, search and messaging applications. It was founded in 2013.
How did they first contact you?
Referral.
What impressed you most about the business in their first pitch?
An incredibly genuine, customer-centric, founding team.
Approximately how long between first contact and deal?
4.5 months
What does a typical investment look like for you?
We typically target companies at the expansion stage (which means proven core metrics that demonstrate scalability), generating anywhere from $5m - $20m in revenue. These companies are typically addressing global markets and can demonstrate successfully winning against incumbents in international markets, with minimum ~25% of revenue generated outside of Australia at the time we first meet. We typically write initial cheques of $4-6m, and will follow-on in subsequent rounds. We are sector agnostic, though have a soft spot for B2B software and marketplaces, which reflects the prior experience of our investment team.
What is the most common reason you pass on an investment opportunity after an initial pitch?
The company is too early in its lifecycle and has yet to prove out the economics of a robust business model.
What was the last business you invested in?
Uniti Wireless is a fixed wireless internet service provider delivering NBN like speeds at ADSL like prices. They have been operating 3 years.
How did they first contact you?
Through an advisor that we have known for years and has brought us good deals in which we have invested in the past.
What impressed you most about the business in their first pitch?
The business had initial market traction, the founders knew their numbers and business inside out, had figured out a compelling, high gross margin business model that could be cash flow generative even without external investment (albeit at slower pace.). The business had already attracted backing and advice from industry heavyweights - further validation of their business model. Founders pitched with confidence and clearly complemented each others' skill sets. The founders had operated and exited successful businesses in the past. However hopefully this is their most successful yet...
Approximately how long between first contact and deal? 3 months. The time taken from being initially contacted by an advisor to set up an initial pitch, progress through initial screening, more detailed due diligence and finally for the company to close the deal with other investors.
What does a typical investment look like for you?
Our sweet spot for earlier stage investing is to invest in companies that have initial traction (and corresponding revenue) that validates their product in market. Ideally the parts of the business model that remain to be proven out are more to do with roll-out / expansion and further market penetration. We are industry agnostic and investments have more to do with the calibre of the management team and our ability to gain confidence in their ability to execute on the plan presented. We also typicaly seek deals where there is a clear pathway to an exit. In this case Uniti was upfront that they were seeking a listing within 24 months and were very clear about the metics required to achieve this outcome.
What is the most common reason you pass on an investment opportunity after an initial pitch?
Too early / product has not been proven / Not easily scaleable / Crowded space
What was the last business you invested in? Practice Ignition is a Software as a Service business providing practice management software to professional services firms, with a focus on the accounting sector. Professional firms use the platform to generate online proposals and secure digital signatures, to onboard clients, manage the scope of engagements, automate invoicing and process payments. The platform helps to streamline activities, ensure compliance and manage cash flows. The platform also provides a range of analytical tools to provide real-time reporting and insight into the firm’s financial performance. They had been operating for approximately 4 years.
How did they first contact you?
Guy Pearson (founder) was referred to us by one of our investors. We always prefer referrals from trusted sources. We had an informal coffee in the first instance - which proved to be $3.50 well spent! After we decided to lead the round, we approached other investors together with the PI. If you have existing investors, often asking them to make the intro on your behalf or talk to new investors directly can be the best type of introduction as showing you have existing support or going through existing relationships is almost always an easier channel than going in cold.
What impressed you most about the business in their first pitch?
In truth the initial pitch was less polished than many others we see. Our challenge as investors is to look past the polish as best we can, and to take a view on the underlying market opportunity, the product and the team. Practice Ignition addresses a global market undergoing significant change. Its product is best in class, it has widespread adoption across some 20 countries with almost no offshore marketing and the team are industry insiders with a deep understanding of their market and a track record of driving innovation in the space. The pitch was less about blue sky and more about current traction and customer engagement. In our experience, this type of well-grounded, frank and honest approach to a pitch is often the most convincing.
Approximately how long between first contact and deal?
6 months. Unfortunately it often takes much longer than you expect to finalise an investment. This investment involved multiple VCs with the Microequities VC Fund leading the round which meant there was added complexity in the deal. It took about 6 months from first contact to closing the round.
What does a typical investment look like for you?
We have a broad investment mandate to invest in packets of $500,000 - $5million and our ‘typical investment’ is a Series A investment at around a $1-1.5million cheque size. We look to back exceptional founders solving real problems that can show a track record of execution and momentum. We only invest post revenues and are looking for businesses that can show a proven product market fit and are seeking capital to rapidly expand on the back of a product and strategy that has shown an early propensity to scale.
We do not have any mandated sector bias but we look for high conviction opportunities where we feel we can really add value and help the business succeed. Our fund is a $25million fund and we are looking for a relatively small number opportunities (around 10 in this fund and more again in the next) that we can support in the long term through follow on rounds and all stages of growth if possible. This means that we do have an internal bias towards business models that we understand and have been involved in before. We have a lot of experience in helping SaaS companies and marketplace business scale and so we do have a limited preference in favour of these models and others we have worked with.
In terms of stage of growth and revenues, a typical investment might have GP of $30K - $300K but this is not a fixed rule and beyond revenues, we look for traction (which might be shown in a way other than revenues alone) and a compelling ability to scale. Practice Ignition was near the centre of our mandate spectrum in terms of profile but was unique as it involved several VCs, more than normal, which means added complexity. Our hope is that having smart people around the table will pay off in the long term given the effort taken to finalise the round.
What is the most common reason you pass on an investment opportunity after an initial pitch?
Analysing the investment involves many considerations and there is no one common reason that an investment would not be a fit for our fund. We see a lot of great opportunities that we have to pass on as we can only invest in the very small number of businesses that are the right combination of stage, sector, market opportunity, risk, investment quantum, personalities, historical growth, exit potential and many other considerations. Broadly speaking, we are looking for opportunities that align with our internal skills sets and fund focus to create the VC/founder team that is most likely to succeed.
What was the last business you invested in?
INAMO are a Wearable payment lifestyle platform that have been operating for 12 Months.
How did they first contact you?
Referral.
What impressed you most about the business in their first pitch?
Founder background, coachabiity and quality.
Approximately how long between first contact and deal?
3 months.
What does a typical investment look like for you?
Seed, $250k-$2mill, Scalable, strong founder, good research and validation on product / market fit, good understanding of customer acquisition and journey.
What is the most common reason you pass on an investment opportunity after an initial pitch?
Founder quality, not scalable, no validation.
What was the last business you invested in?
Our eighth and most recent investment was in a company called Assignar where we led their $3m funding round. It is led by a team with significant industry expertise and is a cloud based SaaS platform built to help construction contractors improve efficiency and safety by providing for end-to-end real-time management of workforce, assets and compliance. Whilst sub-contractors today rely on paper and excel spreadsheets to track people, assets, certifications, inductions and forms, Assignar allows contractors to use digital and mobile forms enabling scheduling, compliance, communication and real-time tracking. Assignar now counts companies like UGL, Lendlease, Sydney Trains and Liebherr among their significant active client base in both Australia and the United States.
How did they first contact you?
Assignar came to us through a mutual contact and prior relationship. Our business is relationship driven and we pride ourselves on our reputation as being founder-friendly and adding real value to the businesses and founders we back. Of the 20+ businesses we see weekly, the majority of the opportunities that we see come from our investment team, strategic investors, previous founders that we’ve backed and worked with and other relationships that we’ve formed. We also search for businesses and review inbound opportunities daily.
What impressed you most about the business in their first pitch?
We first and foremost back founders. Sean, the founder of Assignar, gave the first pitch and we were very impressed with him. Sean is a serial entrepreneur and built a large sub-contracting business so we were impressed with his track record of execution and domain industry knowledge. He is also a really genuine, honest, humble and down-to-earth guy and his passion for the business and the opportunity ahead really came through. We also felt that we’d have a lot of fun working with Sean and partnering with Assignar. In addition to ticking the “founder” and “fun” boxes, Assignar is a fantastic business that we are confident will deliver great returns for our fund. It is capturing a market with very loyal customers and the feedback, usage and revenue metrics are all impressive. It’s sticky recurring revenue with an opportunity to grow significantly, both in Australia and offshore and a team that can execute. We also have some great value to add so we are very excited about it.
Approximately how long between first contact and deal?
2 months. A couple weeks of meetings and getting to know each other’s teams, a few weeks of due diligence and documentation and a few weeks closing the deal. We can move very quickly and we don’t like to distract the business from their mission unnecessarily.
What does a typical investment look like for you?
We have a relatively flexible mandate and are industry and sector agnostic. Having said that, our ‘sweet spot’ is a business that is post-product, post-revenue and that has found a product market fit and is generating revenue from that market. It also obviously needs to be run by an exceptional team with ‘skin in the game’. Ideally the business has growing traction and is looking for a partner to help it grow and capture the opportunity. Assignar was right in the sweet spot being a SaaS B2B business with substantial revenues, an impressive initial customer list and the desire to grow and capture the market.
What is the most common reason you pass on an investment opportunity after an initial pitch?
There are a range of reasons why we pass on an investment opportunity. Sometimes the business is either too early or too late for where we’re looking to deploy funds at that time and sometimes we don’t feel that the opportunity is the right one for us. In all circumstances though, where appropriate, we try to connect those opportunities that aren’t for us with people in our network who might be able to assist.
What was the last business you invested in?
InDebted is changing the way businesses collect outstanding debts. Their platform helps businesses of all sizes collect more debts, in less time, by leveraging modern communications, automation and machine learning. They are committed to bringing positive change to this industry, ensuring that all parties are treated fairly and with respect. This SAAS company has been in operation for 1.5 years.
How did they first contact you?
Through a mutual connection.
What impressed you most about the business in their first pitch?
It was the first instance where we had seen a business applying a software and AI solution to a fairly antiquated and manual industry with no other local technology competitors.
Approximately how long between first contact and deal?
2 months.
What does a typical investment look like for you?
We come in at Seed to Series A and like to follow on after that. Our industry is Fintech and adjacencies, with a deal size of up to 6 million investment. This deal did not differ from that mandate.
What is the most common reason you pass on an investment opportunity after an initial pitch?
It is either too early, the founders aren’t strong enough or the business model has not been fully thought out.
What was the last business you invested in?
Practice Ignition’s software as a service (SaaS) accounting online platform helps automate elements of the accounting process, offering accountants an easy way to manage their work in the cloud. It was founded in 2011.
How did they first contact you?
Referral.
What impressed you most about the business in their first pitch?
Co-founders Guy and Dane are a strong team with a deep connection to the set of customer pain points that Practice Ignition seeks to solve.
Approximately how long between first contact and deal?
6 weeks. It took a bit under two weeks to a term sheet and we closed a few weeks after that.
What does a typical investment look like for you?
There's no fixed investment horizon for our fund although our centre of gravity is Seed and Series A+ investments, plus follow-ons. We invest in technology companies based in Australia, New Zealand, and South East Asia. Practice Ignition was a Series A investment.
What is the most common reason you pass on an investment opportunity after an initial pitch?
We love working with founders who are experts in their own fields and who have a strong connection to problem they're tackling.
What was the last business you invested in?
Founded in 2012, Vero’s vision is to be an automated, event-based CRM for businesses with massive customer scale by turning raw customer data into tailored comms.
How did they first contact you?
We were introduced to Chris by other founders in our network.
What impressed you most about the business in their first pitch?
Chris – he’s bootstrapped the business until now; he is smart and driven.
Approximately how long between first contact and deal?
Approx. 6 months.
What does a typical investment look like for you?
This fits our desire to invest in great Australian founders and take a material stake with a board position. Series A is in our sweetspot, noting that we are pretty flexible as to stage.
What is the most common reason you pass on an investment opportunity after an initial pitch?
We are judging the founder(s)' ability to scale the opportunity.
I hope this insight into prior behaviour has given you a clearer understanding of where your business needs to be in order to be investor ready!
As always, feel free to reach out and let me know what other topics you'd like help on.
