The Blackbird Master Plan

When we started Blackbird in 2012, there was almost no venture capital left. Paradoxically, this was just as the startup ecosystem was starting to succeed, with waves of wonderful early stage startups forming and some big winners like Atlassian, Aconex, Campaign Monitor, RedBubble, RetailMeNot, Envato and Half Brick Studios emerging from the prior decade.

As we looked at those successes, we realised they all had something in common. They were founded by high ambition, product-obsessed Australians who dared to attack global markets right from the beginning. Customer acquisition was based on digital marketing, and we were seeing that you can build very large revenue streams (hundreds of millions) from these channels without the need to set up sales teams all over the world (which is hard to do from Australia).

We thought there was an opportunity to build a new venture capital firm specifically designed to be useful to these kinds of founders. We would only invest in businesses that were attacking global markets from day one, led by the most ambitious Aussie founders. We would build a community around our firm and help founders by being the central network switch connecting them with other founders.

And so we created Blackbird.

We raised our first fund of $29m in 2013, backed by 97 investors, most of them tech founders. We invested that money in 20 companies and the portfolio is off to a great start, with companies like Canva, Zoox, Safety Culture, CultureAmp, Autopilot, Skedulo and Propeller growing strongly.In many ways, we’re just now starting to complete the first step of our master plan. We’ve still got a long way to go as the startups grow into meaningful companies.

Blackbird’s plan for the coming decades breaks down into four steps:

1. Become a magnetic force to Australia’s most ambitious founders
2. Surround them with founders who have built successful technology companies before
3. Earn a front row seat to the best business stories of our time
4. Invest at every stage of tomorrow’s truly great companies

1. Become a magnetic force to Australia’s most ambitious founders

Venture capital relies on a “home run strategy”, in that most of the investments fail, and almost all the returns come from just a few hugely successful investments. So it is vitally important to meet those startups and have a chance to invest in them. If we don’t get to see a startup, it doesn’t matter how good our philosophy and selection skills are, we won’t get to invest.

The durability of the great venture capital firms in the US comes from their brands and reputations, such that the next generation of great founders seek them out first when starting their companies. Our goal is to become the greatest venture investor for Australian founders.

There are a number of reasons a founder might think of Blackbird first. By believing in founders early, investing in their seed round and helping them build a company, we earn the right to invest more capital as they succeed. The successful founders will then recommend us to the next generation of founders who ask them for advice and the circle of life starts once more.

Everything we do at Blackbird is built around being useful to founders. Ultimately our reputation is all we have and it spreads like wildfire in coffee shops around Australia and the world. Reputation is built in drops and lost in buckets.

That is why we try to help entrepreneurs everywhere in Australia learn and become better operators through things like The Sunrise conference, where last year we had 1,200 people attend live and thousands more on the livestream, and every other community activity we turn our attention to. It’s why we support things like FIRST Robotics and organise work experience for year 10 students at startups. We won’t stop and we will continue to do this as long as we’re in existence.

2. Surround them with founders who have built successful technology companies before

At the core of Blackbird is a community of founders. The majority of capital from our first fund came from technology founders who had built successful companies. As well as the capital, they invested their time to help the next generation.

We have since invested in more than forty-one companies at Blackbird and seventy-three more through Startmate. The ways in which those founders are deeply helpful to each other continues to amaze and provides us true joy.

Startups are not small versions of large companies. The beginning involves discovery as to whether you are solving a problem or not. Large businesses involve optimising and scaling something that you already know is correct. The people with the truest empathy are those who have tried building something from scratch themselves.

3. Earn a front row seat to the best business stories of our time

Trust and relationships are built together over long periods of time. Being able to appreciate markets and teams is critical to developing a clean view of the prospects of a company.

There are two ways to invest in later rounds of startups. You can choose to monitor media from the outside and get sugary updates and then when a business reaches a certain size, make a decision in a honeymoon-like fundraising process.

Or you can partner with entrepreneurs as early as possible and get to make decisions with bad news and years of context. It’s hard to overstate the importance of making decisions with bad news as well as good news.Charlie Munger, business partner of Warren Buffett, said it best: “Just tell me the bad news, the good news will take care of itself”.

4. Invest at every stage of the truly great companies of tomorrow

Startup outcomes follow a power law distribution. In a power law, the most valuable company is worth more than every other company combined.

Most investors appreciate this distribution but very few adjust their follow on investment strategy to appreciate it fully. We want to invest hundreds of millions of dollars each into the great companies we fund.

We are happy to be humbled most of the time and fail to discover greatness in nearly every single initial investment we make. But we want to hang on to and doubly cherish the great ones when we find them.

Most firms have configured themselves to only invest in a specific stage (e.g. seed or companies that are public) but we don’t believe in investing by stage, we believe in investing in greatness. Companies with durable competitive advantages related to network effects or platform advantages are rare and our mission is to find the ones started by Australians as early as possible and be owners for decades.

The commonly held belief as to who is qualified to make investment decisions in technology companies is wrong.

In today’s world, venture investors sit on the board of a company for an average of a decade before a startup goes public. And yet, the market deems them unqualified to make a decision on whether to invest more into a company at the IPO. Instead, we leave that decision to small cap fund managers who get to know the management team on a whirlwind roadshow.

We believe the person who has the front row seat has the best view of the game and the right context to be able to make great investment decisions.

Blackbird exists to invest in the seed round of tomorrow’s great companies and then, for the very best, provide hundreds of millions of dollars so they can succeed.

We are determined not just to be Australia’s best venture capital firm but Australia’s best investment firm.

The majority of all equity returns will come from technology companies and we will try to earn the right to sit courtside for the very best ones.We are only in a small way configured currently to take advantage of this vision but we will endeavour to achieve it fully over time. We still only operate ten year venture capital partnerships and we have ‘only’ raised $480 million so far.

We are just getting started.