Bold Strategic Move 7: Investors with benefits

From left: Spreets founder Dean McEvoy, Blackbird’s Rick Baker and Niki Scevak, and Daniel Friedman of Ninja Blocks. | Photo: Graham Jepson

A group of successful entrepreneurs has banded together to stimulate growth in the tech start-up ecosystem.

Getting a technology start‑up off the ground in any market is tough.

But in Australia, the task is made all the more difficult by a lack of investment funds for young companies.

So it seems fitting that a group of successful Australian technology company founders is banding together to provide a leg‑up to the next generation.

They are doing so through Blackbird Ventures, an unusual venture capital fund that seeks to invest exclusively in early-stage Australian technology start-ups with international potential.

Blackbird is the brainchild of Australian entrepreneurs and investors Niki Scevak and Rick Baker, with the backing of the partners of a more traditional venture capital firm, Southern Cross Venture Partners.

Rather than tapping Australia’s vast superannuation funds as a source of capital, Blackbird has drawn its reserves directly from the bank balances of successful entrepreneurs.

And it is not just Australians who have thrown their money in.

Blackbird has also attracted the backing of US venture capitalist Bill Tai, and the founder of US incubator 500 Startups, Dave McClure, both of whom have shown previous interest in Australian start-ups.

Scevak describes Blackbird as filling the “series A” investment gap between the so-called “angel round” of seed funding and the “series B” rounds of A$10 million or more that VC firms will typically invest.

Series A investment is the first round of financing for a new business venture after seed capital. Typically, this is the first time company ownership is offered to external investors.

“The real pain point for the Australian ecosystem is you could raise a few hundred thousand dollars from angel investors, but once you succeeded, that small classic series A round of A$2 million was really broken,” he says.

So far Blackbird has raised A$20 million, which will be invested over five years, and hopes to raise more.

Street smarts: from left, Rick Baker, Niki Scevak, Dean McEvoy and Daniel Friedman. | Photo: Graham Jepson

Street smarts: from left, Rick Baker, Niki Scevak, Dean McEvoy and Daniel Friedman. | Photo: Graham Jepson

Blackbird will invest in both seed funding and series A rounds, and Scevak says the fund is looking to make about four of each kind of investment.

The director of new ventures at research centre NICTA, Andrew Stead, says the Blackbird model brings more than just money to its investee companies, thanks to its backing by successful founders.

“The importance of this is the value that they can bring to an early‑stage business beyond the capital, in the form of networks, experience in growing a business and potential follow-on investment,” Stead says. “Thus Blackbird is a great addition to the investment community.”

To date Blackbird has made seed round investments in two companies. The first, Canva, is an online design platform.

The second, Ninja Blocks, is creating a software platform that enables multiple types of devices to be easily connected and managed over the internet.

Ninja Blocks CEO Daniel Friedman says the Blackbird model puts his company in direct contact with a group of successful entrepreneurs who also have a vested interest in seeing his business succeed.

“The mentorship and ongoing advice has been critical for Ninja Blocks,” Friedman says.

One of the backers is Dean McEvoy, who made his fortune in 2011 when his group buying start-up, Spreets, was sold to Yahoo!7 in a deal purported to be worth A$40 million.

McEvoy says his willingness to throw some of his fortune into the pot is driven by a desire to see other Australians succeed.

“It’s taking the best practice principles that funds like Founders Fund learned in Silicon Valley, of engaging founders to invest so they provide some motivated expertise, and balancing that with people experienced at managing funds,” McEvoy says.

“There is clearly an opportunity to find the best Australian-grown global technology companies and help them be global.”

With venture capital investment a scarce activity in Australia, Scevak says Blackbird has something to prove to the superannuation funds.

“Australian venture capital funds have traditionally fared very poorly, so there is an extreme reticence to invest in Australian venture capital on the part of super funds,” Scevak says.

“We’re a first-time fund, and results speak louder than words.”

Ironically, Scevak says US venture investors have to date had more success in attracting funds from Australian superannuation firms than local funds.

Hence Blackbird’s long-term goal is to create companies that attract the attention of these US funds – many of which have already been active in Australia, as witnessed by the July announcement that US-based Revolution Growth would invest US$40 million in the Australian e-commerce start-up, Bigcommerce.

“The aim of Blackbird is to help partner with and shepherd the company through that early growth stage [until] they reach the levels of traction where US and global equity companies are looking to invest in that stage,” Scevak says.

This article is from the October 2013 issue of INTHEBLACK magazine.

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