Since 2012, I have been one of the more active Adelaide based angel investors. I have invested in 6 tech startups started in Adelaide and have invested in all 4 Blackbird Ventures (Sydney based) funds (2012,2015,2018,2020). I have also been on the other side of the equation, cofounding Adelaide startup YourAmigo which was the SA exporter of the year in 2008. We raised capital from 2000 to 2006 when raising capital for a risky tech was not common in Adelaide or Australia.
Raising capital anywhere, even in Silicon Valley, is hard work. Capital raising is even harder in Adelaide where there is a limited track record of successful exits (cash return, IPO, trade sale, dividends) providing a return to investors. All investors look for a risk adjusted return greater than alternative investments (share market, property, etc).
Angel investing is very high risk with 70% of investments resulting in failure (no return or negative return). 10% of angel investments provided 85% of all returns. Although this article on angel investing is US centric, I believe it applies to Australian angel investments https://www.afr.com/technology/why-you-shouldnt-be-an-angel-investor-in-startups-20180606-h1119u#:~:text=The%20median%20amount%20deployed%20by,in%20an%20average%20six%20years.
The common advice is for an angel investor to diversify their portfolio over a number of investments and not to invest money angels cannot afford to lose. The lack of liquidity is a big issue for angel investors. An exit for an angel investment can take 10 years and it is difficult to sell shares in a private company. I am 66 and with some recent health issues it doesn’t quite make sense for me to make further angel investment when I may not see an exit until I am 76. A big risk for Adelaide angel investors will be whether the startup can raise further capital and there is a serious risk the company will make progress but run out of money.
The first question entrepreneurs need to ask themselves is do they need to raise capital? Taking investment creates a number of obligations for founders such as reporting, legal, and a pathway to exit. If a founder can bootstrap their company, they maybe better off not taking investment. If you are a tech company in a competitive space you may have to raise capital to keep up with the competition.
The second question the entrepreneur needs to ask is can their company can attract investors? Is there a large enough market for your business, do you have a team that can execute, and most important do you have traction such as revenue or proven technology and product market fit? Many businesses that turn out to be a viable business may not be investible because they will not become large enough to attract an exit (a buyer for the business). A venture capital company will likely want to invest only in companies that can be sold for over $1B as they need the big success to make up for the investee companies in their portfolio that have little or no return. Since angel investors tend to invest early at lower valuations and don’t give up 20% of the gains to a venture fund manager, they can make a good return on a much smaller exit valuation. I understand why having revenue, even small amounts, are important to investors because it proves you have technology that actually works and someone will actually pay for it.
Building relationships with potential investors is the best way to raise capital. Of my six Adelaide Angel investment, I knew the founders of 5 of them for over 2 years through my mentoring activities and could see their progress. This reduced my investment risk and there isn’t a lot of competition to invest in risky startups in Adelaide. Investors tend to invest locally because building relationships is important. If you are an early-stage company, it may not be realistic to raise capital in Silicon Valley or even Sydney if your startup is based in Adelaide.
Raising Capital maybe the hardest thing the founder has to do. A key to our company’s raising capital in Adelaide was the ability of the CEO to network and sell the vision. The founders need to leverage their personal network and expand their network. Where do you find angel investors? Attend events, get to know accountants, lawyers, stockbrokers, consultants, talk to other startup companies. Getting accepted into a good accelerator that has a proven track record of raising capital, like Startmate, increases the probability of raising capital. There are a number of angel groups like Southern angels (Adelaide) and innovation bay, Sydney angels and others around Australia. A cornerstone investor may bring other investors with them. A warm introduction to investors is more likely to get interest than a cold call.
Angel investors look for more than just a good return and invest in markets and founders that they are passionate about. Seek investors who have an interest in your offering. Five of my investments were Adelaide based Business to Business (B2B) Software as a service (SAAS). I really don’t have an appetite for manufacturing, Agtech, Edtech, B2C (consumer) type companies. Mike Cannon Brookes (Atlassian founder) has a keen interest in renewable energy through his GROK ventures investment fund.
You need to have a polished investor pitch deck. There are many resources on the internet as to which slides to include in your pitch deck. The more you practice the better you get and you will probably be able to anticipate the questions you will be asked and have your answer already scripted. I have read that within about 30 seconds of your pitch, investors will probably decide whether they are interested in investing. Do you have an elevator pitch that is easy to understand and describes a unique solution to a very large problem? Are you a confident presenter with body language that exudes confidence and likeability? I think this is often more important than the substance of your pitch. If investors believe in you and your ability to deliver results, that is often more important than the details.
So how have my investments fared so far? I didn’t follow the rules and diversify early on. Perhaps I am lucky, but my investment in Blackbird’s 2012 fund looks like one of the top VC funds in the world as their investment in Canva will likely be a decacorn (valuation >$10B) and that fund has 3 other Unicorns (valuation >$1B) with Safety Culture, Culture Amp, and Zoox. The fund has already provided me a good cash return as they were able to sell part of the fund to another investor and I anticipate as these companies start to exit my return will be a multiple of all my angel/vc investments combined. My Adelaide portfolio companies have taken longer to develop, but my investment in Happy Co, a mobile app for property inspection which moved to San Francisco, is now valued at over 10 times my original investment, more than my entire original Adelaide angel investments.
I graduated high school in Cupertino California in 1972 and saw Silicon Valley being created overnight when my classmate Steve Jobs listed Apple in 1980. I saw the same transformation in Sydney when Atlassian listed on the US stock market and is now Australia’s 4th most valuable company (market cap). I am hopeful Adelaide will produce a Unicorn company one day and provide a vibrant tech ecosystem so our bright young people can stay in Adelaide and have a global impact.
About the author – Stuart Snyder was a cofounder, director, and CFO of YourAmigo Ltd which was the SA exporter of the year in 2008. YourAmigo was a technology leader in the search marketing space with installations on web sites in over 30 different countries including many of the world’s top 100 ecommerce companies.
Stuart grew up in Silicon Valley, starting his career as a CPA with KPMG in San Jose, California and migrated to Adelaide in 1993. He is now an investor in SA start-ups, Happy Inspector, Portalalink Solutions, Frontier microscopy, Ping,Myvenue, Bygen, and is a limited partner in Blackbird Ventures.