5 lessons on investing from Niki Scevak
Insights from one of Australia's leading investors on his investment approach, philosophy and what makes their best companies tick
Hello š and welcome to the very first issue of our new and improved newsletter! In this newsletter, I will be sharing details from the latest podcast episodes as well as diving deeper into some of the topics, themes and insights discussed on the podcast.
If you havenāt already, I would love for you to subscribe to stay up to date with our latest podcast episodes and content here.
A little history on Niki & Blackbird
Who better to kickoff our inaugural newsletter with, than Niki Scevak, the Co-founder & Partner at Blackbird VC.
Blackbird VC is one of the leading VC funds in Australia.
Since launching in 2012, Blackbird has raised 4 funds for a combined committed capital of $1.24B with an astonishing net internal rate of return of 46.7% for every dollar invested as of June 30, 2020.
Their portfolio includes some of Australiaās most iconic companiesĀ such as Culture Amp, Safety Culture and Canva where they own 14% ownership stake, which is by far the largest of any external investor.
The overall success of their first fund led them to selling 40% of their fund 1 for $100M, providing a 3x return to all of their LPs.
The successful track record over the last decade has seen them go to market to raise their 5th fund and Australiaās first $1B fund! More details here
Niki is someone who Iāve admired for a long time and was thrilled when he agreed to hop on to do a podcast together!
This hour long episode was jam packed with insights from Niki and I wanted to share and unpack some of my key learnings from Niki, on his approach, philosophy and strategy to investing in Blackbird!
Here are 5 lessons on investing with Niki Scevak!
1) The Power Law is everything!
The Power Law, refers to the unique distribution in VC investing where a small number of investments will provide an outsized return, this is often a multiple of the return on all other investments combined!
As Niki mentioned on the podcast, The Power Law is THE significant law in venture capital indicating that not only will one company in a given portfolio provide the return for that fund, but rather āthat one company will provide the majority of returns of every fund in a single decadeā
2) Trust & ownership
It has been interesting to see how the Power Law has shaped Blackbirdās investment strategy in investing early and following on into best performing companies.
Blackbird owns a 14% stake in Canva which is by far the largest of any external investor.
Niki also shared the story behind Blackbirdās follow-on investment into PropellerAero, where they tripled their pro-rata investment and provided a number of introductions to VCs as Rory was flying over to the US.
Great companies will often be in the position to have more investors interested in their round than there is room on the cap table.
Blackbird earns the right to be on the cap tables and increase their ownership stake through the relationships they build with the companies over the long term.
As Niki mentions, itās important for the founders to choose their investor.
3) The importance of confidence when investing
Although investing in a runaway success like Canva is obvious now, it wasnāt so obvious in the very beginning of their journey!
Mel was raising Canvaās first round at a valuation of $8M which was 2-4x the standard valuation at the time for a company that was pre-revenue (let alone pre-product!). It also happened to be one of Blackbirdās earliest investments after a gruelling fundraising process for Niki and Rick Baker in raising $29M from 500 meeting to get their initial 97 LPs.
Niki and Rick could have easily overlooked Canva due to internal and external pressure, but decided to write a $250K cheque into the company anyway!
Canva was also not the only time that Blackbird took a big risk in their early investments. Just a year after launching Blackbird, they made their first hardware investment in a company called Zoox. Not only was this a major shift from Blackbirdās investment purely software companies, but the proposed solution Zoox wanted to take to market was illegal at the time!
Hereās a clip from the podcast where Niki shares the story behind the context in early investments into Zoox and Canva.
I thought it was fascinating how Niki retrospectively viewed the risk into those early investments.
But at the time we hadnāt developed the confidence that we have now, we hadnāt calibrated the processes and investment philosophy that is now true and thatās what made it dangerous that we might not have made the investmentā¦however 10 years on, it would almost seem straightforward that we would make such an investment - Niki Scevak
40% of Blackbirdās investment from the first fund went into pre-revenue companies and now that number is around 60%.
So much of investing and opportunity comes to luck and timing, but also having the confidence to back your philosophy and process.
4) D vs V vs A (i.e. How to assess companies at pre-product/traction phase)
Building conviction is tough, especially when assessing and sifting through 1,000-2,000+ companies that VCs see each year. This process is made substantially more difficult when you donāt have traditional markers such as revenue, traction or even a product to invest in.
Nikiās approach to this is by going back to high school physics!
Most people look at Distance, i.e. how far those founders have achieved to date through things like revenue or user base but it doesnāt factor in time and often over looks companies or people that are early in their journey.
Velocity is how fast people are learning and sometimes people are mid in their career or business and have a ceiling they are close to hitting and so the ROI is limited in this area.
What Niki truly looks for is acceleration and steep learning curve those founders are going through.
Despite having ālaughably smallā distance in their progress to date, having strong acceleration and steep learning curves gives Niki conviction that the founders are backable!
5) The biggest risk to Blackbird
One of the core values behind Blackbird is ābacking the hungry not the provenā. This philosophy has helped them build an incredible track record and portfolio.
However, as Niki mentioned, this has a double sided effect. First time fund managers on average usually perform better than existing funds. Niki attributes this to the hunger that first time fund managers have and the importance of retaining the hunger and risk mindset over the long run.
When you are successful, it can be difficult to take the same level of risk as when you are starting out because you have something to lose. As Niki mentions in the clip below, heās āparanoid about losing hungerā as Blackbird continues to be more successful over time.
He mentions that Blackbird is constantly looking to re-raise its ambition.
What this has looked like in practice is a significant shift in the way Blackbird approaches its own business.
As Niki states later in this episode, the initial ambition for Blackbird was for it to be the āCraiglist of VCā, i.e. a highly successful business run by a very small team.
However alongside raising the ambition for their portfolio companies, they have raised their own ambition for Blackbird. This has seen the company grow from 4-60 people and launching programs and focus on productising their network and help they provide to founders. 2 examples of this are through the excellent Sunrise conference that takes place each year and through the Startmate Fellowship program to supercharge the process of new people coming into the startup ecosystem and being hired, not just for their portfolio, but for every startup hiring in Australia & NZ.
In the rest of the episode we cover topics such as;
the importance of writing down your operating principles
how they curate and shape Blackbirdās internal culture
how founders can find and due-diligence their founders
& much more!
You can find the full podcast episode on all of your favourite podcasting apps by searching for āThe Startup Playbook Podcastā or you can find all of the links here:
Thank you for reading the first issue of The Startup Playbook Newsletter! If you would like to see more content like this and keep up to date with the latest episodes from the podcast, subscribe to the newsletter to be notified about our latest content.
Also a big thank you to our partners for this podcast episode:
Lawpath
Lawpathās Legal Advice Plan gives you access to lawyers on demand for one low monthly fee. Create legal documents, sign online and have a lawyer on-call to help you through any legal need for a fraction of the cost.Ā Ā Lawpath has helped Australian businesses save over $100 million in legal fees, and are offering Startup Playbook listeners up to 20% off their most popular legal plans. VisitĀ lawpath.com/playbookĀ for your exclusive discount and discover an easier way to get your legals sorted.
ScendarĀ
Weāre Scendar, an accounting and advisory practice better described as Finance as a Service (FaaS). Weāre focused on founders, funders and startups. Clients that are ever-changing and adapting. We like fast movers. And as you might have guessed, weāre not your basic accountancy. We can take care of tax and the books whilst building a syndicate fund and a multimillion dollar exit strategy.Ā At Scendar, weāre empowered by our clientās potential. Find out more atĀ Scendar.com
Dovetail StudiosĀ
Dovetail Studios operates a venture studio and VC to transform ambitious ideas into unstoppable businesses. On top of being a renowned product development partner for startups like Afterpay, they also operate a VC fund to invest in early-stage companies that go through their venture studio program. So if youāre a non-technical, early-stage founder looking for a talented team to help supercharge your success, check outĀ dovetailstudios.com