Financing your start-up

A FOUNDERS GUIDE TO AUSTRALIAN VENTURE CAPITAL

Craig Blair and Dominic Reardon

@craigRblair

@dominicreardon

I have been a founder of several successfulstartups and a VC investor for almost 20 years

• Cofounder & partner of two VC funds:• Netus (2005 - 2012)• AirTree (2014 – present)

• Founder of:• Pet Circle• Beamly (zeebox)• Travelselect/Lastminute.com

I was originally an engineer ‘building things’. I have also been a management consultant.

A reformed investment banker and chartered accountant, I studied economics at university before starting my career at PwC, then on to Macquarie Capital.

About us..

AirTree Ventures ● November 2016

4.1Xcash on cash returns

in 2 funds

20+years experience

(AU)

Our Track Record


https://

JOHN HENDERSON

General Partner Investment Manager

CRAIG BLAIR

Managing Partner/Co-‐Founder

DANIEL PETRE

General Partner/Co-‐Founder

CATH ROGERS

We all have deep operational experience

Investment AssociateELICIA MCDONALD

Investment AssociateDOMINIC REARDON


TOTALINVESTED

COMPANIES BACKED

TOTALEXIT VALUE

EXITS

36 17 $203m $525m

AirTreeby Numbers


Stage of investment

Average size of investment

Investments made in the past 12 months

1235% 45% 20% $2.0m

$15m$200kSmallest

Largest

How we invest


The AirTree Family

AUSTRALIAN VENTURE CAPITAL ECOSYSTEM


The history of Australian venture capital isn’t pretty


But some green shoots are appearing..


£5m

$1.5m

$20K

1998My first start-up

2005-2011Businesses built in the Netus vintage

2016 START OWN COMPANY

Then Now

$685m Value of Atlassian ESOP and RSUs at IPO

World-class product expertise either built here or coming home from leading o/s businesses

A new generation of Angels from tech successes

Inspired by role models, a shifting paradigm in young talent employer preferences

1

2

3

Low barriers to entry and cultural shift


$250m+

$100m -‐ $250m

$20 – $100m

<$20m

$FUM

• A number of announced funds are likely to close short of their targets

Australian VC Ecosystem

US MARKET

AirTree Ventures ● November 2016Source: CB Insights, 2015

The Unicorn fetish


These companies will come back to market in a subdued funding environment

Source: CB Insights, 2015

When will unicorns likely raise next?


Companies are taking longer to raise and valuations have come back

The market has seen a number of flat rounds in 2016 (with more yet to come) after frothy rounds in 2015


Product market fit

Sound unit economics

Delivery of growth exp

Control of cash burn

✓ ✓ ✓ ✓ = Will Thrive

✓ ✓ ✗ ? =Need to create cash runway. Ideally 18months

✓ ✗ ✗ ? =Existential Crisis Down rounds don’t happen.

Australian Founder Checklist

Investors are focused on unit economics and valuation/growth metrics


Product Market Fit

What do we look for?

A few customers in love with the product

Low churn and MMR expansion (for SaaS)

2

High repeat (for Marketplace place)

3

High engagement4

Viral coffiecient –the k factor

5

1


Key focus points for seed to series A

Unit Economics are critical...

Revenue/unit Fully loaded cost/unit Contribution/unit


Customer Acquisition Cost (CAC)

Life Time Value(LTV)

Unit economics


What does growth mean?

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Monthly revenue (re

-‐based to

100)

Monthly revenue (re

-‐based to

100)


Outstanding teamWe invest in quality teams with product expertise.

1

Path to sustainable revenueWe invest in businesses with a clear revenue strategy.

3

Controlled cash burnWe invest where cash burn is under control.

5

Evidence of product-market fitWe look for metrics that demonstrate market traction.

2

Clear differentiationWe invest in companies that have an unfair advantage in their chosen market.

4

Likely exit optionsWe invest where we see a prospect of a quality exit.

6

Our investment criteria


Criteria Portfolio example

Solving a real problem in a materially better/faster/cheaper way

Prospa – banks cannot service $20k loans economically

Founding team Paxata – excellent enterprise software track record

Product market fit Canva – High engagement: high designs per designer, high repeat rates

Unit economics GlamCorner – first-purchase CAC payback, repeat customers, accelerating growth

Market timing 90 Seconds – democratization of video

Cash burn Brosa – great cost discipline

Great businesses attacking large markets: these can be either global or local

Our investment criteria


95% of VCs rate themselves as top Quartile founder friendly

• When surveyed about their ability to get on well with others, 85% of US students put themselves above the median and 25% rated themselves in the top 1%1

1. Mark D. Alicke; Olesya Govorun (2005). "The Better-Than-Average Effect”2. Svenson, Ola (February 1981). "Are We All Less Risky and More Skillful Than Our Fellow Drivers?"

• When surveyed about their driving skills, 93% of US respondents put themselves in the top 50%2

Illusory superiority - the above-average effect


• Actively coaching and supporting our founders

• Recruitment support

• Data and finance

• Leveraging the AirTree network of over 100 founders

• Global VC network

What Founder Friendly means to us

AirTree Ventures ● November 2016 Kim Scott is the author of Radical Candor, to be published by St. Martin's Press in March 2017.

The importance of radical candor


Approaching a VC

Do homework on the

VC/Partner

1

Use advisor sparingly

3

2

Know your metrics

4

Use contacts to get an introduction


✔

Can they add REAL value over capital?

Are you aligned on how to scale the business?

How you solve problems together in the early discussions?

Can they support the business through future rounds?

Does their brand help hire talent and raise future rounds?

VCs are the employees you can’t fire

Do at least 3-5x reference checks

IT‘S NEVER BEEN A BETTER TIME TO LAUNCH A START-UP

AirTree Ventures ● November 2016 30

We are seeing 10x the number of start-ups we saw 10 years ago

Start-u

ps p

er y

ear

2005 2010 2015 2020 2025

100

1,000

10,000

$40m

$60m

$250m

Size of fund

netus

AirTree I

AirTree II

The future


Great companies are started in all markets

Source: CB Insights, 2015


START-UPSIconic

Companies

FOUNDERSSuccessful exits

VC FUNDSReturn on Investment

ANGELSReturn on Investment

For the Australian ecosystem to thrive, ALL parts have to demonstrate success

THANK YOU

@craigRblair

@dominicreardon


VC funding flows have been declining since a peak in Q3 2015

• Investment count and value is down• Late-stage VC count materially lower

AirTree Ventures ● November 2016Source: Yahoo Finance April 2015

Avoid the temptation of a subscale ASX listingThe sugar hit does not last long...


Tech exit valuations for 2015

Source: Global Tech Exits Report 2015, CB Insights

Financing your start-up

Technology

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