Founders and false prophets: a pitch to the founders who’ve stopped listening

There’s so much virtue-signalling in VC it’s starting to feel like the two-door riddle in Labyrinth - one guard always lies, one always tells the truth. Everyone’s dishing out smart money, everyone’s parroting the same promises. It left us struggling with the vocab to communicate our real value. So what do we do?
Written by
Sam Henderson
Head of Growth

It’s official: Skalata is the most active Australian investor of 2024 so far.

And we’re excited not just because it’s nice timing for our third fund, or because deals across Aussie are up 30% on last year, or because we beat Blackbird… 😉 

We’re excited because we can finally show - not just tell - that we’re doing what we say we do. 

Which is: investing early, investing at volume (70 portcos so far), investing across sectors… then backing our founders to the hilt.

Because, you know… we kind of need the investment to succeed.

The way we do things is safer for our investors, because it’s diversified. And it’s safer for our founders, because it’s not handing them a lit match.

It’s a drum we’ve been banging since 2018, and we feel like it’s resonating. So we're seeing more deals, therefore we can make more investments, therefore we can help more founders grow.

And without this brand of does-what-it-says VC… the meaning of “helpful” and “supportive” and everything fragile seed-stage startups actually need gets diluted to zero. 

“Supportive capital” in the post-trust era

Amid the “value-add” crusade where everyone jumped on the “we're not like other firms” bandwagon, it was founders who got burned - 62% say those parroted promises of value addition were broken.

Countless promising startups fell prey to VC neglect, shiny object syndrome, and overvaluations followed by inevitable down rounds.

Then the dynamic shifted.

Founders just stopped buying it. They didn’t know who to believe, they didn’t buy the promises. Forced to focus on the only things in black and white on the term sheet (cash and valuation), they felt like they might as well just take the “best deal” (aka most cash/highest valuation) and run.

And then, thanks to wrong-fit firms and crushing pressure to deliver, they end up running right into the 9/10 failure-rate scrap heap. 

Now, thanks to more pre-seed firms in the ring, and later-stage VCs moving their model to include the early stages, founders – in theory – have more choice than ever.

We pretty quickly caught on that we needed to show - not tell - them the value we offer. 

The AFR naming us Most Active Investor 2024 👑 (capitalisation and emoji added by us) is long-awaited social proof - but it doesn’t prove we keep all our other promises. 

And we don’t want to be called hypocrites by our portfolio founders, who we constantly lecture about dining out on press hype.

We’re not huge LinkedIn-ers and we don’t tend to hog the thought-leadership limelight, but we still need to market to startups in this post-trust era. 

So, until the next AFR article drops, here’s all the other things we think we’re doing pretty well… in black and white. 

What we’re doing pretty well

1. We are (and have only ever been) specialists at seed

Some of us are ex-founders, but it’s not what we hang our hat on. Because while founding a startup teaches you a hell of a lot, it doesn't teach you how to do it for every company, or industry. What worked for a General Partner’s startup back in 2015 = a potential death knell for a founder in their portfolio.

There are plenty of VCs who dine out on being "for founders, by founders” - and they may be excellent specialists in their own niche.

We’re specialists at this. Navigating companies through the seed stage is literally all we do.

We understand seed better than anyone, and faster. The whiplash pivots, business model overhauls, failed MVPs, hard-to-hear feedback. It’s by far the toughest stage - one that few get past. 

A seed specialist knows what to fire up (and what to let burn 🔥).

We knew Tablogs needed a new GTM strategy (and helped increase MoM revenue by 111%). We knew Explorate needed to change its revenue model (they’re now doing >$50m ARR). We knew Preezie needed to ramp up its defences (they're now partnering with Microsoft).

It’s about increasing rate of execution, de-risking the business, and multiplying your appeal to Series A investors. Win-win-win.

2. We like growth, but not at all costs

We get the core engines of startups firing stably in the short term, so they can move faster in the medium term. 

Because of our fund sizes, we don’t need $1b outcomes to generate market-leading returns for our investors. So we’ll never thrust the weight of “fund returner” on your shoulders before you’re even generating revenue.

We also don’t need your market size to be “everyone who breathes” for you to get a look in.

And we won’t tell you to “go to war”, Richard. 😏

Of course, we want you to be a raging 3 comma success. But our livelihoods (and our investors' profits) don't depend on it.

We want to help you build a scalable, sustainable business – not pump up your valuation and fob you off to a Series A investor at the first opportunity.

3. We give founders more time than anyone else

We have more people than almost any other VC firm of our size. 

So we can give founders a lot of personal time (dedicated team members, strategy sessions, check-ins, lunches, actually replying to texts…), as well as the time to find their feet. No undue pressure and no countdown clock to the next funding round.

In this business, there will be failures. The majority of VC profits come from a small % of big winners - that’s just the power law.  So when failure (and by failure, we mean failure to realistically generate venture scale returns) becomes inevitable and we’ve done all we can (every startup gets at least 6+ months of intensive work), we sometimes do have to dial back our resources. 

That’s how everyone gets a fair chance, and how we’re able to give our other investments what they need. And we make sure our portcos always know where they stand.

Until we hit that final hurdle though, we’ll back every single one to the hilt.

4. We have an extremely agile funding model

Smaller, more frequent rounds of capital mean founders keep more equity and protect their cap tables. We get to work with our investment before we go all in. We’re risk aligned - and that’s a special bond.

The alternative (chucking down a mil and telling them to come back when they’ve 10x’d it) isn’t in anyone’s best interest.

“Move fast and break things” was coined by a sociopath. We prefer the data, which proves that capital-efficient startups fare better than super capital-enriched ones.

Having us on hand for future tranches means you can work on your business rather than working the room. We are your short-term funding plan - one less major timesuck to worry about.

Once we’re tapped out, we go in to bat for you with Series A investors - connecting you with our friendlies and pitching your company as if it were our own.

5. Our founders like us

The things we hear repeated time and again when we ask our founders why they chose us: We liked the vibe, we felt understood, we got on well, you got our vision.

We think it’s because we like to speak to people like humans - not projects. 

A long (and prosperous) road ahead

Unfortunately we can't market ourselves off a $100k investment we made in Canva 10+ years ago. Sure, we’d love to, but we’re not long enough in the tooth. 

Most of our startups are still at Seed and Series A, laying solid foundations for long-haul success.

They’re not being shovelled into the growth furnace - they’re getting it right the first time. The huge, mind-bending innovations they’re making and leaps they’re taking are the risk. So why add more with pressure and cut-corner processes?

Our version of “support” 

Capital is the minimum viable product - everyone can give you that.

What matters most is what happens after the bank transfer.

And it's not necessarily “support”. Cheerleaders are supportive. 

It's about validating your ideas (“this is worth doing”) and dispelling your fears (“you can make the jump”). It's about giving actual direction, considered connections, and sometimes brutal honesty.

It's about helping founders rather than hooking them - regardless of whether we get the deal across the line.

It’s about acknowledging that they’re people, not projects - and that they’re taking a risk too.

Founders are demanding more from their VC, as they should - because they’ve got a limited window to make this thing a success.

We can’t turn every promising idea into a profit-machine, and some founders will have a better experience than others. Despite the fact we give more time than everyone else, we’d like to give even more - and sometimes that’s just not feasible. 

What we’re talking about here is bigger than startups and founders and VC at large. It’s bigger than Australia (and not many things are).

VC is no longer reserved for the technical-minded or well-connected. Emerging companies are the future of work. Our role in it all is to support high-potential startups at the riskiest stage - their infancy.

When seed investing is used as a branding exercise or a top-of-funnel strategy, it’s startups that get burned

Seed is the basis on which all future success is built. And it deserves specialist attention with a laser focus.

So, we're forgoing the virtue signalling Olympics. We know ourselves, we trust our values, and although a complimentary AFR article doesn’t = validation, like we always tell our founders - the proof is in the publication.

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Soon
Past events
Melbourne
April 11, 2024
17:30
-
19:30
Skalata x OIF Ventures Founder Drinks

The OIF Ventures team is in town from Sydney, and we thought it would be a perfect opportunity to join forces for a night of networking and conversation.

Register now
Soon
Past events
Sunshine Coast
April 11, 2024
6:30
-
10:30
Yoga, Surf, Network

Skalata, Cake Equity and River City Labs are teaming up to host an energising morning of Sunrise Yoga, Surf kicking off at 6.30am at Maroochydore Beach followed by a rooftop breakfast at Ocean City Labs.

Register now
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