In the finale of StartupSmart’s Investor Series we’re joined by prominent venture capitalist Dr Elaine Stead.
Named one of Australia’s coolest people in tech by Business Insider and renowned for her work with leading venture capital firm Blue Sky, Stead has been a powerful advocate for startups and founders from all walks of life.
“Private equity and venture capital has a diversity problem,” Stead recently wrote.
“The data doesn’t lie, women are woefully underrepresented … I am certain that we are casting our net too narrowly when recruiting new candidates because we, as an industry, are too risk averse and too lazy to test and manage alternative strategies.”
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As Stead continues to actively drive change across the sector, she tells StartupSmart what startups should consider before choosing investors, the best approach to get a VC’s attention, and her advice to new investors in the market.
What kind of startups are you most interested in?
“We are interested in companies that have made it to market, have demonstrated product market fit and now need help to scale up, whether that be domestically or internationally.
“We actually invest in scaleups not startups.
“I am always impressed by founders who make the decision to [not continue pursuing] a mistake or a setback simply because they spent a lot of time making it.”
WHAT’S THE BEST APPROACH A STARTUP HAS USED TO GET YOUR ATTENTION?
“The best approach is, and will always be, just getting to know us and building a relationship with us way before capital is needed.
“We have invested in two companies this quarter which haven’t been announced yet, and on each occasion the founders got to know us years ago just by dropping in and introducing themselves, then catching up for coffee each time we were in our respective cities.
“It’s allowed us to get to know each other on an authentic level and build trust which is one of our key filters when we look to invest in people.”
WHAT’S THE WORST PITCH YOU’VE RECEIVED?
“Well, we have had many.
“The latest one that springs to mind was an incredibly sexist app that was built just for women.
“I can’t mention the industry because it would probably identify them but let’s just say because it assumed women couldn’t make decisions on real data, it allowed women to interact with the app based on colours, favourite letters and star signs.
“The founder used the line ‘sexy ladies’ 14 times in the pitch.”
What should a founder consider when selecting investors?
“The VC you choose should offer something extra, whether that be industry specific networks, or [merger and acquisition] experience to know when to sell [and] exit or how to list.
“This is often overlooked for two reasons in my experience: because some companies just want to raise capital and can’t afford to be picky; or they pay lip service to it and don’t actually believe the VC investor may know best about some of these things. Do so at your peril.
“If you are looking for smart money, not passive investors, make sure it really is smart money.”
WHAT MAKES A STRONG INVESTOR?
- “EQ [emotional intelligence] because most of the role of a VC is portfolio management and this is never a straight line; the ability to navigate complex human systems—other investors, management, other companies—is critical. In line with this, I think empathy, authenticity and honesty with portfolio companies and with the VCs investors (in limited partnerships) is also critical for mutual success. Lack of any of these usually results in a short VC career.
- “The ability and experience to know what is important when, [because guiding] companies [to] make the right decisions on the important things is 80% of the challenge.
- “The ability to add extra value.”
Who do you look up to?
“Our former CEO Mark Sowerby has been a huge influence in my life, as an example of what true entrepreneurism is [and] as an example of someone who walks the walk and never asks anyone of anything he wouldn’t do himself.
“He has also been my biggest critic and my biggest cheerleader, which everyone needs in my opinion.”
For a brand new VC, what’s your best advice?
“Be authentic, honest, invest in building and maintaining broad networks, and work out what is the one thing you do better than anyone else and focus on strengthening that. This will place you well within your firm and in building your reputation in the startup ecosystem.
“It helps to have thick skin because founders and your investors will spend alternating periods hating and loving you.”