How investors think according to Australia’s most successful VC.

by | Jul 2022 | Early-Stage Capital

If you’re an investor or startup founder, and haven’t listened to Blackbird‘s Niki Scevak talk about the Blackbird Ventures philosophy, we’ve listed two podcasts at the bottom of this article. They’re both full of actionable insights. Treat yourself.

Although both of these podcasts are useful, one of them, hosted by Rohit Bhargava, left us with some really useful takeaways. We wanted to share these with our own DQventures founders, as well as the people who follow us online.

Niki Scevak Insights

Despite the huge success of Blackbird, Niki remains very humble. One of the things he mentions in both podcasts is how his and his partner, Rick’s, lack of success has helped them be effective. His openness and willingness to share his thoughts and ideas is unusual in the world of venture capital. He makes some great points in both interviews, which could benefit founders and investors alike. To give you a flavour of his style, at the beginning of the High Flyers podcast he says:

I think the other benefit of particularly Rick and I being non-successful before starting Blackbird – usually you have to be quite successful, to do something notable, to then start a venture capital firm, and we were un-notable people beforehand, so I think we never saw ourselves as the expert. I think the problem if you have done something successful before is that you see yourself as the expert or the teacher, and people come to you and you tell them how to do things. I think we had always, because of that lack of success, we always viewed ourselves as this network switch. The best people to give advice were other founders that we knew, whether they were LPs, or people we had invested in, or people we had come across and had great respect for.

The best podcasts featuring Niki Scevak, founder of Australia's Blackbird Ventures
Blackbird’s Niki Scevak

You get the impression, in both recordings, that Niki is still very grounded. He’s worked hard, learned a lot, and is happy to share his insights with others. And on that note, here are some of the things I came away with.

How to measure startup traction pre-launch

A mainstream VC like Blackbird needs to review thousands of deals per year, which makes process and consistency extremely important. One tactic Blackbird employs is to filter opportunities with a methodology based on distance, velocity and acceleration. Niki calls this “speed of learning”. He says that it’s relatively common for investors to review deals based on distance (how far they’ve got) and velocity (how quickly they’re growing or developing), but less obvious to think about acceleration. Some startups may appear to be laughably early in their journey, which makes distance and velocity hard to quantify, but if the idea is quickly gaining momentum, it may be one Niki feels he should keep an eye on.

The takeaway for founders here is to think hard about how to demonstrate momentum and acceleration, even before launch.

Ideas are cheap – but not always

Most investors will tell you that founders generally place too much value on their idea. In the startup world, we’ve all heard someone say, it’s not the idea that counts, it’s the execution. Niki disagrees. In his opinion:

“People underestimate the value of a good idea.”

He follows up to define what he considers to be a good idea:

“It’s almost like the energy gets bigger and bigger as the person describes more and more of it. The idea gets better and better. The second meeting is better than the first meeting, and the third meeting is better than the second meeting.”

We experience this all the time at DQ. We meet many founders who realise, through the course of our conversations, that their idea is actually a lot less exciting, or perhaps more flawed, than they originally believed. This is very common. Occasionally, however, we meet founders who start off with a seemingly small idea, which grows more exciting each time we discuss it.

As we dig deeper, this second type of founder develops their idea and identifies new opportunities. They realise, perhaps, that there are multiple ways to generate revenue, and they see how their idea can develop, over time, to create a lot more potential than they first realised. These moments of enlightenment are fairly rare, but are truly exciting. They’re examples of what Peter Thiel describes as “secrets“. It’s no coincidence that VCs are often attracted to businesses where the ultimate source of revenue is quite different to, and perhaps barely related to, the original business model.

Investors are like sports coaches

While some investors offer little more than a source of funds, those that consider themselves professional investors might like to think of themselves like a football coach. Their job is to identify, attract, and sign the players with the most potential, then help them to become the best version of themselves.

“People appreciate accountability […] The coach’s job isn’t to tell someone what to do […] it’s pushing them to go beyond the artificial boundaries in their minds [and…] knowing when to push and knowing when not to push.”

Niki’s coaching analogy seems to run right through his philosophy as a partner to his founders. He talks about “calibrating” – picking founders up when they’re down, and reminding them to focus when they get overly excited. He also talks about breaking major obstacles down into smaller, manageable pieces, then helping founders to hold themselves accountable against their own expectations.

INvestors are like sports coaches, Niki Scevak

Play the long game

This is something one of our own DQ founders, Rob Bryson of WeNetwork, talks about a lot. Businesses are rarely an overnight success, so to optimise the chances of a positive outcome, it’s important to play the long game. Be kind. Be helpful. Act with integrity. Value relationships over transactions; and when faced with a dilemma, always put the other person’s best interest ahead your own. These are the things that build trust and reputation. If you’re a founder, this is what attracts clients, employees, referrals, and loyalty. As investors, it’s how you get into the best deals.

The example Niki uses is Blackbird’s investment in Propeller. The temptation might have been to offer a term sheet with a short expiry period and exclusivity. Instead, Blackbird chose to act in its portfolio company’s best interest. As well as providing a term sheet, Niki and the team gave introductions to the best investors they knew in Silicon Valley. The intention was to try to get Propeller the best deal possible, while also demonstrating that Blackbird truly puts its founders’ interests ahead of its own. In doing so, they hoped to show that Blackbird is a true partner, which founders could depend on and trust. In this case, it worked, and the Propeller founders chose Blackbird to lead the round.

“Even though that may seem counterintuitive, I think it builds trust. It probably gave us a greater chance of leading the round, rather than a smaller chance.”

Beware of misreading cultural idiosyncrasies

One point that Niki makes is around projecting ones own values and behaviours onto others. Different types of founders behave very differently – for instance, the sales person versus the techie. Parts of Australia are also very diverse – a blend of many races and cultures. The investment process is often quite fast and compact, especially for the more attractive deals. Niki and his colleagues have learned to be aware of cultural idiosyncrasies, and not to be too quick to judge.

“In 2012 there was almost this lost in translation moment, where Americans would come over and the Australian founders in the early stages would be self-deprecating and deferential, and would look at their shoes. […] The global, Silicon Valley, chest-beating archetype would misinterpret that as a lack of ambition. […] The best example of that is actually Atlassian. […] Mike and Scott’s original ambition for Atlassian was to earn more salary than they would have got paid in a PwC management consulting graduate salary role. […] The ambition increased and exponentially increased.”

On this point Niki refers back to the investor’s role as coach. He says that Blackbird has been very deliberate about helping founders to increase their ambition as they proceed through their journey, and to “get companies and founders to respond to the success in front of them.”

All founders have doubt – get some advice

Even Blackbird’s portfolio founders have doubt and perceived ceilings. Niki and his team believe that coaching founders through those moments of doubt is a key part of the VCs role. Of course not all founders have Blackbird in their corner. Those that don’t have a supporter like Niki should be aware of the limiting power of self-doubt. Consider finding alternative ways to overcome your inhibitions and moments of self-doubt (of which there will probably be many). Can you appoint a coach, a mentor, or an advisory board?

Should founders get a coach, mentor, or advisory board?

The importance of the power law

If founders took the time to understand the power law, they would save everyone a lot of time. According to Niki, for most VCs the power law isn’t just important, it’s everything. If your idea isn’t big enough to deliver >90% of the fund’s entire return on investment, it’s not worth them talking to you. VCs invest on the basis that many of their portfolio companies will fail, but it won’t matter, as long as they get into the best deals, whose returns will not only make up for losses, but will make the VC look like a hero. If VCs don’t believe your company can deliver that kind of return, they won’t bet on you, so don’t even waste time speaking to them.

Ironically, even if VCs don’t believe in your deal, they will often still speak to you. Their motivation is not missing any amazing deals. They will leave no stone unturned. Even if your deal isn’t attractive, maybe you will pivot and find a winning formula, or perhaps you share an office with the next Canva! Don’t be too encouraged if a VC is willing to meet you, or if they sound positive. They have a very specific agenda.

Pick the right team

If you’re a pre-Series-A founder, or advising early-stage startups, you might say that hiring is not a priority. In the formative months and years of most companies, the focus is on funding, cashflow, sales, and product. According to Niki, however, there’s probably no more important job than making the right hires. Bringing the best people onboard increases the chances of success exponentially.

The best people do better work, have stronger networks with higher-value contacts. They move faster, act more decisively, require less management, and deliver greater results. Perhaps most importantly, the best people attract more of the best people. Superstar performers want to join superstar teams, where they can learn, develop, and become the best versions of themselves. Typically they don’t want to be the smartest person in the room. In contrast, average performers are often happy joining average teams, because they can still shine by comparison. Hiring the best people early in your company’s lifespan can make the difference between success and failure. VCs know this.

Attract the best with your culture

Niki feels very strongly about culture and language. A strong culture enables employees to take decisive action without asking permission, because they have a full understanding of how the company would act in most situations. Creating this level of certainty in a business can make an enormous difference to a team’s ability to operate at speed, but this means founders must take care how they elucidate.

People think of software as naturally scalable and naturally what’s going to create a great business, but language at a general level is the ultimate scalable thing of how it brings humans together and how it gets people to work together; and I would just think of taking the time to write down your cultural values or write down your operating principles. You’re writing the software for how the team works together. You’re writing the software that is going to attract the best team to come and work for you. And it’s this ultimate software that gets a company to move really quickly and gets a company to build something special.

The takeaway for founders is not to be passive about values and culture. Instead, before you start hiring people, make sure you define and embrace crystal clear values, which accurately reflect the way you want to work, which resonate with the people you want to attract (both customers and employees), and which you find easy to communicate.

Niki points out that there’s a great way to stress test whether or not your values hold water: ensure they also work when inverted. Values that work when inverted are typically much clearer and meaningful than those that don’t.

To illustrate what he means, Niki refers to Blackbird’s commitment to invest in “the hungry not the proven“. This is a powerful value because it also works when inverted. It would makes just as much sense to have a policy of investing in the proven not the hungry (indeed many investors try to do exactly that). This makes Blackbird’s values much more powerful and clear, and acts as a true point of differentiation.

As an example of a value that cannot be inverted, Niki talks about Enron’s value: “integrity”. As Niki points out, this could never work when inverted. Nobody would ever make “lack of integrity” one of their values, which means integrity is actually quite a “flimsy” concept around which to build your culture.

We thought this was a really unusual and powerful insight, and it’s one we’ve brought into DQventures. We understand that, to enable our people to scale DQventures in the way that we want them to, we need to ensure own values are clear, compelling, and strong enough to build our entire company culture around. We can’t be the only company that would benefit from this exercise, and we’ll be encouraging all our founders to consider it for their own businesses. Maybe you can too?

Have a listen

– Niki Scevak on Startup Playbook.
Niki Scevak on The High Flyers Podcast.

Image credits

– Blackbird image by Derek Draithwaite.
– Niki Scevak image courtesy of Blackbird Ventures.
– Coaching photo by Adrià Crehuet Cano.
– Baseball image by Keith Johnston.
– Jumpers for goalposts image Zaid Isaac.

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