From Yahoo to raising an angel/seed fund: Alan Jones talks to Techboard

Leading Startup Commentator and Startup Investor Alan Jones from M8 Ventures spoke with Techboard correspondent Matthew Parker from MitchelLake about his journey from working at Yahoo, through founding and investing in startups to joining the KMPG High Growth Ventures Team and raising a new venture fund. Alan has been one of the members of Techboard's NSW Panel of Experts who provide a valuable input into the Techboard Ranking of trending Australian startups and young tech companies.

Matthew Parker (MP): To give some context on how you got here…  I thought it might be useful if you could share what was it like working in Yahoo back 2000, and how did you get from there, to here?

Alan Jones (AJ): It was crazy fun in those early Yahoo days. I left Microsoft to join Yahoo and I thought I was taking a really big risk but I felt it was something I had to do - a proper Silicon Valley tech start-up experience. It was also the first international launch that Yahoo owned outright so it was a big experiment for them. Our launch team was amongst the first 100 Yahoo employees globally, we were wired some money into our local account and told to get cracking!

Back then, I had to learn how to hand-code a lot of the product on the fly, I had the contact details from an engineer in San Fran who would sometimes take calls, but because of the time difference he would take calls at crazy times, sometimes from pay-phones in a club! So basically I had to learn how code by myself, typically getting a few hours sleep a night, barely seeing my wife-to-be.

But also imagine, we were really explaining the opportunity of the internet to media companies for the first time. The first 10 advertisers to come onto Yahoo had never advertised on the internet before and no advertising agency said yes in the early days either, everything had to go direct. I was creating banner ads for some of Australia’s biggest companies and no agencies were getting involved. Every change had to be made manually, and often we accidentally broke the website.

Yahoo was an amazing experience and a tremendous opportunity but as the organisation grew and we added layers of assistance across the APAC region, Yahoo started to slow down as a group. It was becoming more of a corporate, and I felt less and less comfortable in that environment. So I decided to leave in 2002 and started my own record label. Over the subsequent years, I worked in a variety of early stage businesses where I learned a lot, raised some really good rounds and had some success. But when one of the startups fell victim to the second dot com crash, I was getting into my early 40s. I realised as well that every startup would take between 3 to 5 year period to see out and you can only do one start-up at a time. So I was trying to work out how I could continue to work with early stage start-ups without actually being a founder. I started mentoring people, invested in a few business and got involved with Startmate. I then started a business called the New Agency, building a tech platform for non-technical founders. This focused on gig-based work for early stage businesses which operated in a similar model to Blue Chilli at the time, so we got to know the team quite well. When Blue Chilli went out to raise capital, we were going out at the same time, then an investor recommended the acquisition and here we are today.

MP: You’ve invested in lots of start-ups yourself, why did you choose those start-ups? How do you assess for quality in founders?

AJ: It’s always been an evolving hypothesis. If you’re a VC you go out to a network of investors, and the investment hypothesis for this fund is XYZ. But if you’re an angel, you can change your mind all the time and make risky decisions whenever you like. The first cohort of companies coming through the Startmate programme was my first opportunity to invest. It was a really diverse portfolio. I ended up investing in people who I got along with, and products that i would use myself like BugHerd. They were really down to earth guys, solving real customer problems. They’re still around and doing well today.

Over time, my hypothesis changed, I think that I started to understand that if the founders and I get along really well, then I will go further to help then when they need it. For example, one important job for an angel is to help funders get additional funding by making warm introductions to investors. There’s a certain amount of social risk in that. I’ll take a greater social risk for people I really care about vs just a financial opportunity. A lot of these conversations also happen on my personal time as well so an active decision has to be made whether I want to spend time on the phone instead of watch netflix with my wife, and i’m more likely to do that with a person I really want to go the extra mile for.

MP: Tell us a bit more about the High Growth Ventures (HGV) team, what have been some of their key successes? What’s the ambition here for KPMG?

AJ: Well, we launched in March this year, we’re a small team, less than 10 people and growing still. HGV essentially sells the same services that would be provided across the rest of the businesses, but packaged for start-ups. Typically start-ups need our help around the series A stage when they’re transitioning into a more formal structure for that funding round. They often need advice around “all the boring stuff” that they no longer have time to learn and do themselves. Up until series A, you can support the business with a pretty messy back-end, but around the series A you really need to get all of that in order to raise more money. This often means putting in more money to a business like us to ensure that round doesn’t fail. For example, preparing the company for due diligence, making sure all the numbers line up and there are no disparities, and who owns the IP are all things we support with.

The ultimate idea here to find the large companies of the future, which are unlikely to be the incumbents based on the current evolution of the Australian economy. So we’re going to be working with companies at their series A with the idea that one may become the next Atlassian and we’re used through that entire journey. So it’s not entirely different to what i’ve been doing as an investor and mentor - probably why I was asked to join!

MP: Why did you decide to make the flip into “corporate” with KPMG?

AJ: Well I was waiting for a new venture, I had been angel investing and mentoring in Blue Chilli and Startmate so wanted to learn something new. Amanda Price had been discussing HGV with me for the year, steadily reassuring me it’s possible to be Alan in a business like KPMG, and at the same time I wanted to free myself up to work on a third goal - building M8 Ventures. I think I have most of the aspects of being an angel investor down, but I don’t have the capital to invest in all the deals I would like in a year, so I have decided to learn about how to build a VC. We will be out raising a fund at the start of next year under the ESVLP, so the fund will be a minimum of 10 million.

My hypothesis is, founders are seeing challenges in investors making decisions slowly. There are a small number of VCs making investments, but not many of them are actually making any investments into Seed/Pre-Seed (even though they may say they do). So we want to invest in the first round of start-ups and i’m prepared to invest in companies that are pre-revenue with a MVP or prototype of some kind and make a decision based on the calibre of the team, their ability to execute on the vision of the product, the total addressable market and their ability to address that from Australia. Initially we’ll be making investments between $50-200k in the first round, and ideally following on.

MP: What do you think the appropriate relationship should be with a startup and a corporate business like KPMG?

AJ: So much of the value of Australian economy is tied up in a only a handful of large organisations with very few small players in the sectors of Australian economy. This means it’s very challenging for businesses to boom if they don’t work with “corporate Australia”. Start-ups that are consciously attempting to evolve technologies in Enterprise businesses where they are solving old problems will be really successful. Lots of people in these organisations have been tasked with trying to improve processes that tech start-ups could solve. Corporate Australia is now funding a lot of activity in series A / seed and accelerators so they can learn more about how these companies can impact their own business.

MP: You’ve advised lots of founders throughout the years, what would you say are the most consistent challenges founders come to you with?

AJ: Everyone says it, but recruiting a team. Australian founders find it very difficult to convince anyone to come join - the cost of living is so high and they have security from so many large organisations. Australians tend to get into the start-up world much later in life than in Silicon Valley for example, where university graduates are joining start-ups as a primary option. This has a big impact on the broader talent pool available for early stage businesses in Australia, both now and in the future.

The other piece is raising capital. We have a supply and demand problem. I’m probably one of the only investors that will say there is not enough investment capital, and not enough competition between VCs. In Silicon Valley you have to fight so hard to work your way into a deal. In Australia it’s all inbound, you can be pretty comfortable every deal is gonna come across your desk.

I also think there’s a tremendous opportunities in regulated industries. Australia is too small a country to build a billion dollar company so the future is overseas. One of the biggest challenges is regulations from market to market. If you want to sell online insurance products, it would probably be easier to sell directly into US vs trying to learn in Australia then launch overseas. We need to make it easier for Australian start-ups to learn as much about the US market as quickly as possible and bring down some of the barriers for growing internationally. Start-up landing pads for example are a great start and well intentioned, but it’s such a tiny drop in the bucket.

Where do you see the Australian technology ecosystem excelling in comparison to other countries around the world?

AJ: We have tremendous advantages in autonomy - moving things that move themselves without a human. We have some of the flattest and longest road systems in the world, if we choose to liberalise our transport to include autonomous vehicles this could be an enormous opportunity for testing and using. We have a great lead in drone technology for supporting agriculture, mining and livestock, so we have some really promising start-ups supporting those businesses. But one of Australia’s most successful drone start-ups decided to headquarter in Nevada not from Australia for example which is really disappointing.

There is a lot of interesting competition for quantum computing, but these labs and companies are underfunded in comparison to their international competitors. We have the right regulatory environment for fintech innovation but that needs a bit more time.

There are a lot of good starts and great opportunities in Australia to partner with the successful industries that already exist in Australia, but not quite the right level of support for these technology industries… Yet.

Visit M8 Ventures.

Matthew Parker is a Senior Consultant at MitchelLake Group in Sydney. Matthew connects great people, with great stories, with great businesses.

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