What Products and Markets Do We Want?
We have a fairly narrow investment focus which is defined by our ability to add value to a company
We have a fairly narrow investment focus which is defined by our ability to add value to a company. Here are some guiding principles:
We’re looking for businesses which are attacking global markets. Although you may be proud of your Australian heritage, ideally your customers should not know or care that you’re Australian.
Your chosen market should be BIG, big enough for your business to generate the magical number of $100m p.a. in revenues. We’ll discuss this further in future blog posts.
Digital marketing and sales
We like businesses that are taking advantage of digital marketing and sales, where the sales cycle is short and/or revenue is recurring. We’re not very keen on businesses which rely on direct sales, and which need to set up sales teams in each market they pursue. And unless you have something truly exceptional, please don’t come to us saying that you’re going to make it big selling banner ads on your site.
Capital efficient model
The days when it used to take $5m to get an IT product to market are over. With today’s development tools you should be able to bootstrap your way to a prototype product and start to prove that people want it on the smell of an oily rag. We know it takes capital to prove out and scale a business (that’s why we’re here) but we’re looking for those kinds of businesses which can make a small amount of capital go a long way.
Businesses We Like
Here are some examples of types of businesses we like. It’s by no means exhaustive and the principles above are the real determining factor.
- Consumer subscriptions, particularly low priced monthly subscriptions where the product grows in value over time through more customer data being accrued or where there is a network effect. Firms like Evernote or products like Gmail are good examples.
- Marketplaces that connect buyers and sellers of a particular community. 99designs, oDesk and Envato are great examples of marketplaces that started by serving small but growing markets and now have large defensible positions. Two-sided marketplaces are very difficult, so if this is what you’re setting out to do, make sure you search for a solution to one side of the market so you’re not stuck in a ‘chicken and egg’ situation.
- Social Games and mobile apps that are either free with in-app transactions or paid apps. Examples include Tapulous or Flight Control.
- Direct response advertising where the customer is measuring their spending on a completely direct response basis. This means firms like RetailMeNot, HotelsCombined and AdWords but not sites like large portals or businesses that need to reach extreme scale to appeal to media buyers looking to purchase brand-directed advertising. In general, if the site is helping a consumer make a financially-significant decision then an advertising business is attractive. If advertising is being used to support a tangential application like communications, then we are unlikely to invest.
- Enterprise software. particularly high value products for enterprise customers where the price points are very low so that they can be sold online and without a large sales force. Firms like Xero, Campaign Monitor or the Atlassian suite of products.
- Tools in the form of software and services which provide the picks and shovels to other applications above. We particularly like founders who have solved a problem in their previous roles and are now setting out to provide this to the world.
Temporarily Unpopular: Investing Lessons
Invest in unqualified founders, where you know nothing, who are unpopular and where you will be wrong most of the time.