Don’t get me wrong we LOVE Australia, each of us won the lottery by way of our parents migrating to this great country, and we dutifully tow the parochial line of participating in the national sport of playful mocking of New Zealand whenever possible, which is a heck of a lot easier now that they have lost one of the greatest political leaders of this generation and we have lost one of the worst.
But Australia is a critical but not sufficient pillar to our investment strategy. At Tribe, we have a pretty specific investment thesis which is designed to optimise returns for our investors and designed to ensure we are ‘good for companies’. We invest in:
- Aus/NZ companies that have a B2B product/platform or service,
- with product market fit,
- looking to expand into the UK or US.
We have previously written about why we focus our investment thesis on B2B – companies that sell to other companies, not consumers. I’m not going to rehash that here except to say there are some very important traits about this vertical which we believe bias returns in venture capital and it’s a sector where we as a team have weathered the war wounds, and returned half our weight at times, so our companies don’t have to.
While it may seem obvious why we would be interest companies who are looking to expand internationally….I mean, why not sell your product to……(hand gesturing wildly around me)…. the world!? It is, of course, a MUCH bigger opportunity than lil’ ol’ Aussie. But we don’t look for companies expanding internationally, we specifically look for companies looking to expand into the UK and US, and the reasons are rooted in some key strategic principles we believe build better companies and make our investors money – make it frictionless, focussed, easy and scalable.
The F word. Focus.
The first is focus. In our experience, companies that try to expand into too many markets at one time, tend to expand into no market particularly well. And we know there is a tipping point for market share that not only makes the process of sales much easier (because customers start hearing about other customers using the product all the time, and the social and professional validation that brings provides a credibility anchor), the sunk cost of the overheads needed to stand up a new market are met and the exercise is in net positive gain territory. Each of these makes the next market easier to win because you can point to success in another market and it becomes a virtuous cycle. But you have to survive the battle to win the war, and a we believe a focus on these two key markets positions our companies best to live to fight another day.
Another F word. Friction.
The second is reducing friction. We focus on two markets which are English speaking, and largely mimic (with caveats) the structure of the markets the companies have already obtained product market fit (Australia and New Zealand). This way, the likelihood of being able to replicate the past success is optimised. While there are always nuances and differences which companies need to be aware of (and which we filter for), these markets ensure companies are better placed to get some early wins which will make every subsequent market that much easier. They are also markets we at tribe KNOW, because we have put the time in over the last 6 years to build strong, current, and influential networks that will be useful to the companies we back. This means that when a company is looking to land ‘in market’ we have a ready made network of people to help support them (if they need it), which includes legal, accounting, government, strategic, PR and financing help. We have developed co-investment partnerships with larger venture funds who can invest in the companies for subsequent rounds. Most importantly, all our companies know they need to scale up, we actualy help them work out how to do it. We do this through strategic and operational support– we help companies identify their rota of dynamic challenges, and develop systems to overcome them. Sometimes that support might feel a little like your grandma telling you to pull your jeans up, sometimes it might feel like a warm hug, sometimes it will feel like we are the enemy, sometimes it will feel like we are an ally – but it will always feel like we are pulling towards the same thing. Our experience in those specific markets whether it’s scaling our own business or helping tens of other businesses expand into those two markets have allowed us to see patterns for success and failure, and given us specific market experience to help companies accelerate their success.
There is an easier way.
The third is Easy. look this is a cheeky word– nothing about building a business, or generating returns for investors is easy, BUT, there is no point making it harder for everyone if there is an easier way. We chose these markets specifically because they present clear and persistent arbitrage opportunities, which accelerate or supercharge success. Companies raising capital in the UK and US have consistently attracted premium valuations over the last 7 years (ref the Aventis slide) compared to Australia. This means that an Australian company we invest in, should, all things being equal, attract a valuation uplift if raises capital in any of those markets (post market entry) if it is tracking well. For example, the median value of Australian software companies over the last 7 years was just shy of 12 x EBITDA multiple, while the median US companies attracted a 21 x EBITDA multiple. We have been involved in several companies that sought to raise money were able to attract a considerable valuation uplift simply by raising capital in one of these markets and so a core pillar of our strategy is to support companies prior to their first round of US or UK capital to optimise for this benefit.
Lastly, scalable. The truth is, we don’t deliver venture returns for our investors if we cant invest in companies that will scale globally, and equally, if we can’t identify the companies that wont scale early enough to ensure we don’t continue to invest good money after bad. After all, capital preservation is our first priority at Tribe, capital amplification is our second priority . And while there are always exceptions, its difficult for a company to provide venture capital returns and scale globally without success in at least the US market. And so, investing in companies that seek to pursue these markets initially provides the right proof points which will allow us to determine early, whether companies in our portfolio have the ingredients to succeed. Or not.
It’s not rocket surgery.
None of the principles mentioned above are rocket science or unique, but they are the foundation of our investment thesis and hopefully we have explained why. What is unique, we believe, is our commitment to helping companies work through the how. The how, we believe, is the real secret sauce for the success of most high growth companies – ideas are great, products are great, but without good execution they are irrelevant. How to scale up your business quickly but sustainably in core markets, how to work through the myriad of time and age based problems, how to navigate the interpersonal conflicts that will arise, and how to do it without blowing it and you up while also delivering great returns for our investor, that’s the real goal of Tribe Global Ventures.