The venture capital world from the investor’s point of view: tips and insights

Leading venture capital group OneVentures has laid out what they look for in the companies they invest in.

Dr Michelle Deaker, one of the executive directors of OneVentures, spoke to StartupSmart about the role venture capital plays in Australia, and what makes businesses stand out, for both better and worse.

How OneVentures invests

The OneVentures team is Anne-Marie Birkill, Dr Paul Kelly and Dr Michelle Deaker. All three have decades of direct experience in tech start-ups and commercialisation.

“If you look at the leading venture capital firms in the US, all have launched, grown and exited really valuable businesses. At OneVentures, we believe you should have walked the entrepreneurial road if you want to do the venture capital road,” Deaker told StartupSmart.

OneVentures has invested in nine companies and exited one so far. The investments vary, but are around three to four million.

They’re looking to invest one more for this round of funding, which is $40 million. Half of this is from 55 high-net worth investors and family trusts, and the other half is matched by the government.

They usually take 20% to 30% of a company. “We like to have enough ownership that we have a strong interest in the business. Sometimes entrepreneurs forget that the more interest the investor has, the more of their time and effort they will invest,” says Deaker.

The average investment plan is for three to four years. “We’re fairly patient investors. In an ideal world, we’d have an investment that goes four years, but we know lots of great companies can take seven or so years to grow,” says Deaker.

Common pitching mistakes

The OneVentures team have a weekly process to assess new candidates who approach them, are recommended to them, or who they spot at start-up events and initiatives and university research teams.

Beyond looking for big and reachable markets, Deaker says they also pay attention to the team and company character.

“We ask ourselves if the people operating the business have the credibility, skills and the domain experience to run this business,” says Deaker. “We ask if the business is going to be disruptive, if it’s going to be a game changer. We see a lot of opportunities every week, so we’ll see 10 companies that look exactly the same.”

Deaker says one of the most common errors is looking for the wrong kind of capital, and failing to understand that venture capital investors need a business case to invest.

“A lot of entrepreneurs forget that we’re investors. They’ll tell us a lot about the technology but not about how they’re going to grow the business, or they don’t show us how we’re going to make money. They need to build an investment case for the investors,” says Deaker.

The businesses that stand out to Deaker and the team at OneVentures are the ones that are ready to go but require capital to reach their goals.

“You need to have a horizon where you need capital before you can push hard on your revenue stream. Or you’ve got revenue coming in and can’t get the product or service out fast enough.”

The most common use of the funds is working capital.

“We don’t just give them a big wad of money, and we help them structure what they’ll do with our money,” says Deaker. “Most of the time it’ll go to driving the business forward, such as profit development staff, or sales and marketing staff because often our companies have great products but no marketing expertise.”

Deaker also encourages entrepreneurs to focus on the small stuff too. Seemingly small oversights such as not leaving enough time for investing teams to ask questions, arguing with legitimate questions raised by investors and not being able to describe your business in one sentence all add up to a picture of your company, and what you’ll be like to work with.

Why venture capital matters for Australian and global business markets

Deaker thinks venture capital plays a powerful role in driving productivity and innovation in Australia.

“We believe there is a great background of innovation, research and development and technology coming out of Australia. Australian venture capitalist investors can and should take those opportunities and translate them into the global market,” says Deaker.

OneVentures was instrumental in enabling innovative vaccine company Vaxxas. It was the second company they invested in. Vaxxas is a patch-based technology that does away with needles for vaccines. Deaker says the vaccine market is global and worth about $20 billion.

“Without venture capital and the ability to syndicate businesses with our venture partners, Vaxxas would probably never have got off the bench top at University of Queensland. Because that company will probably need $30 million to get it going. So without venture capital, great ideas like that can’t make the big step from getting the big research dollars to successful commercialisation in a global market and scale.”

OneVentures focuses on investing in early stage companies. Companies can be making between zero to $5 million in revenue and need to be ready to go to market.

More than money

But like most venture capital, the partnership is about more than just money. The team at OneVentures sit on the boards of the companies they fund and help drive the growth strategy.

Deaker and her business partner’s approach to assessing potential companies to invest in is shaped by their experience.

“You do look at things a little differently when you’ve been an entrepreneur. We look for the classics, such as a passionate CEO and a business with access to a large addressable market that is preferably global, so the business has some real scale,” says Deaker.

“But from a more personal view point, when we assess a company, we ask if we could actually CEO this company if we had to? Would we be comfortable doing that? Can we add value?”