Andrea Gardiner says disruptive, scalable tech startups are critical
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Andrea Gardiner is the founder of Jelix, an investment firm which focuses on early stage technology startups in Australia and New Zealand. In her conversation with Adam, she shares her conviction that disruptive, scalable technology startups are critical for the future economic prosperity of Australia, and highlights the supportive and collaborative of Australia’s startup ecosystem as a key advantage.
Financial Review article: https://www.afr.com/technology/big-names-back-vc-fund-targeting-early-stage-funding-gap-20210819-p58k99
Andrea Gardiner: Hi, I’m Andrea Gardiner. I’m the founder and CEO of Jelix Ventures. We’re a Sydney based venture capital firm that invest in early stage Australian technology startups.
Adam Spencer: So before we just hit record, just now we were talking about founders raising funds and the fact that you have to raise funds as well. How do you go, what’s your approach to that?
Andrea Gardiner: I suppose it’s no different to anybody else’s. I think the most, first of all, we went to our existing investors that have been investing in our sort of syndicate business for the last six or seven years. And then I suppose our major drive has been just asking those that are investing to introduce us to other people that they think might be interested in investing. We’ve got an interesting profile of investors. Most of ours, a successful technology entrepreneurs rather than sort of established family offices, which, we’ve yet to really build great connections with yet. But what we did instead was really leverage our existing connections in the startup sector, but like any other startup, we have a pitch deck, we have a more detailed information memorandum as well to back that up. And where Ian and I do tag team, he gets the meetings and then I do the pitch and take them through the deck. That’s really how we do it.
Adam Spencer: Just out of curiosity and don’t answer this if you don’t want to, but how many meetings would you go to get all the funding that you need?
Andrea Gardiner: That’s a good question. We are lucky enough to have a really, really high hit rate, really high hit rate. I would say the vast majority of people that we meet with will commit to investing in the fund. Right. But just to put that in content, Blackbird had quite the reputation from going from, had its 29 million fund. Now they’re the big boys with billion under management, but for their $29 million fund, I understand they had something 98 investors or 99 or something like that. And one of those investors invested 10 million. So that leads their 97 or eight investors for, 19 million. We’re I think 24 million and we’re already at 120 investors. So we have an awful lot of 100K checks.
Adam Spencer: Yeah. Yeah. Does that make it harder to manage from your point of view, having so many LPs compared to just a handful?
Andrea Gardiner: It’s much, much, much more work. And it’s hard because we’ve actually got a small team, we’ve got a new full-time investor starting in January that makes us a team of five and two of those are part-time. So it’s a very small team to manage those relationships. Well, so our next hire early next year in sort of February, March will be looking for one, an Ops person and two, a community manager to make sure that we are actually managing those relationships as best as we can because at the moment we are very, very stretched and we’re pretty proud of what we’ve achieved since, the last year in particularly, in August the 16th, we did the first close of our fund. And since then, we’ve just agreed to the 10th investment this year. So we’ll have closed 10 investments in the fund since August. So it’s been a huge amount of work. So it’s to get those small but important things right, your communications with your LPs and managing your investor relationships, it’s important. But it’s probably something that we need to focus more on.
Adam Spencer: Before we do go back to the very beginning when you first got involved in this whole scene, what do you enjoy most about your job?
Andrea Gardiner: That’s an easy question. It’s twofold one. Well, there’s three things, three big things. One, I think it’s an absolute privilege to back the most extraordinary founders to try and make the world a bit better. That really hits an nail on the head for me, it’s intrinsically valuable as well as, you can generate strong revenues. Two, it’s an absolute privilege to work with my small but amazing team. They are extra early high caliber. And I just feel, every day I feel so lucky to be surrounded with such incredibly high caliber team. And the third one is that I get bored really fast. The minute my learning curve flattens off, I get really bored and I don’t function as well. But if I’ve got a steep learning curve that excites me and I think that brings out the best in me.
Andrea Gardiner: And given that it’s a constantly steep learning curve for me, it just keeps me really interested and stimulated. And I have to learn about a new business sector almost every time I invest. That’s exciting. You have to get up the learning curve on the individuals and it’s a steep learning curve, running a venture capital business, not, it’s usually an apprenticeship model and I’ve done it by the seat of the pants right from the beginning. But I’ve been very, very lucky that, we’ve got a wonderful, I think we’ve got a really wonderful startup sector in Australia. That is pretty from what I can gather. Especially if you say compare it with something some of the stories you hear from Silicon Valley, we’ve got these wonderfully generous, gratuitously generous community.
Andrea Gardiner: So that I’ve, top people in venture capital. I don’t know, Daniel Petre and Rick Baker and [Michelle Deka], all these people, Bill Barty, all these people are just have been so generous in just answering and responding to my constant barrage of questions. What do I do here? What about this reg- There’s so many questions as we grow and they’ve been really generous in helping me shortcut that learning process. So I love the fact that the community is just so supportive and I suppose it’s any culture. I see it as being set from the top and that we are very lucky here that the big boys and girls are good human beings and they’ve set a great culture. So you’ve got, good human beings like Mike Cannon-Brookes, who’s really investing in a very meaningful way, not just financially, but use time and effort into combating climate change. And you’ve got, people like Michelle and Rick and all these people that are just good human beings. So I think they have been really meaningful in setting the culture for the sector.
Adam Spencer: What amazing mentors you are.
Andrea Gardiner: I know. I know. I feel that’s, again, I feel really privileged. I just feel really lucky that they’re, and just incredibly grateful for the just gratuitous generosity, because it goes so one way, most of the time, I’m not sure that there’s much that I’ve been able to do to help them, but they’ve been, they’ve helped me enormously. And even to the point, when the AFR, they were quite happy, a lot of these people really happy for us Daniel Petre and David Shane, and people that were very happy for us to use their names as having invested in our fund. And that was really powerful because I think took us about nine, around nine months to raise that first 10 million that we were aiming for the fund. Then the AFR published its article. So article and less than two weeks later we had 22 million. It was just.
Adam Spencer: Did AFR get a commission on any of it?
Andrea Gardiner: Well, I have to say I’m very grateful to Paul Smith because it was a really, really tremendously helpful piece of PR for us.
Adam Spencer: Yes. So let’s go back now to the very beginning. When would you say you first got exposed to the Australian Startup Ecosystem?
Andrea Gardiner: Well, we came here in 2002 to Sydney and I don’t think I was ever cut out to be a full time mother and housewife, but yeah, I was pretty busy with little kids and feeling particularly under stimulated. I’d been an investment banker and done stuff before I suppose that kept me occupied and just out of interest, I knew nothing about it. When Ian started Innovation Bay, for the listeners, we are married, but he’s does have quite high profile in the startup sector. He also works halftime for Ilex now, but he started Innovation Bay because he was an entrepreneur and really no other real structure around to facilitate the learning and networking. He didn’t know anyone and he was eager to learn. So he started innovation bay to provide his networking and educational opportunities for himself and then for other entrepreneurs in a similar boat.
Andrea Gardiner: And, as you probably know, that’s now he ran it as a labor of love for about 15 years, but it’s now, he works halftime for Innovation Bay and halftime for us. But back then he started adding in these pitch event type dinners, which were, I think they very well might have been the first or at least one of the very early pitch event type, the pitch events that were held in Australia. And so I used to go to those just out of interest. And after a while there’s this sort pattern recognition, you start to see the characteristics of those that go on to do well. And those that don’t. And then when we saw StorReduce pitch, Vanessa Wilson, they were the first to market with Deduplication Software for the cloud. And we thought, oh my God, this is a huge technical problem.
Andrea Gardiner: If they can sell this, it can save enterprises, hundreds of millions of dollars. This is a really good investment opportunity. Pre-revenue, pre the results of the pilot. We knew, Ian was well connected enough that he could, knew someone that could actually test whether the tech really did solve this problem, that some big enterprises thrown a lot of money at and failed to solve. So we didn’t have a lot of money ourselves. So we wrote a very modest check ourselves. And by the end of the day, filled the allocation that we had. And two things happened, three and a half years later, we returned 10X to our investors. And when StorReduce was purchased by a New York Stock Exchange listed company called Pure Storage. But at the time I realized that there was this huge, there was this really, there was a big appetite out there for investors to access the asset class, but it was crippled with fear of the unknown and the recognition that it’s a really high risk asset class, great potential, but it’s a very high risk asset class to invest very, very early pre-revenue in these early stage tech startups.
Andrea Gardiner: So I started Jelix to provide a much better risk managed or hopefully risk mitigated way for these, for investors to access the asset class. And so, because I’m a bit of a dot the ice cross, the Ts person. And I have a previous life as a lawyer and, big global debt, capital markets transactions. I like to do things properly, especially if, I feel big weight of responsibility when investors are following me, they’re making investment decisions basically based on having confidence and trusting my decision making. So I probably, did pretty heavy due diligence, probably more appropriate for series A rather than precede startups, but we’ve continued to do that because it is a really high risk asset class. But the potential’s enormous. And I think that worked really well to help build that investor base, because it’s all about trust and confidence in your decision making, I suppose so.
Andrea Gardiner: But it was an interesting way to start having no track record and no money and no operational experience, but I was eager to learn and originally, the investors that were interested, they would come in and they would want two and a half hours with me just to get to know me and get up that learning curve. That comfort curve with me as a person and deal flow was good. A lot of that was because of Ian’s high profile in the sector initially, or it was all because of his very high profile in the sector, which we leveraged the wazoo out of, but direct with, we have built a reputation ourselves now and we have really strong, direct deal flow that doesn’t rely on him at all anymore. Though his reputation is very helpful. And so we’ve now done, I think I’ve lost track because the cadence has been so fast recently, but we’ve done over 40 investments now. In I think it’s over 30 companies and then we raised our first fund in August.
Adam Spencer: I would to talk about the deal flow in a second, but what’s been the biggest. Two questions, how is your law and investment banking background really helped you, but also, move into being a venture capitalist. But also what is the biggest surprise about being, starting a venture capital firm?
Andrea Gardiner: Great question. So I think the law and investment banking background, oh look my whole professional career before this was in debt. I barely knew what a share was. I mean obviously I knew what a share was, but equity was not my area of expertise, but I think it helped my credibility, that believe it or not having worked for Lehman Brothers in London, I think that helped build confidence in me. And I think it’s just that expectation of excellence in your approach to things and the way you did things, you don’t cut corners, you just do things right. Or you don’t do them. And I think that attitude is probably been helpful. And I think there’s a very, I think the other thing that’s been helpful, this is a heavily financially regulated area.
Andrea Gardiner: So the legal background, I suppose in particular made me particularly concerned to make sure that we’re completely compliant with and no gaps type of thing. And I suppose the transaction management, some of those basic skills and stuff, but I think the surprise thing, the biggest surprise has been a complete delight. The biggest surprise is that to sort of provide the context, integrity is a really big part of me and who I am, my values. It’s just really, really important to me is trying to always do the right thing and, I’m feeling a bit emotional now. Because I’m quite touched that I’ve found that it to be more highly valued in what I’m doing now with Jelix than ever in my whole career before that. And that’s just, it’s wonderful because I suppose what’s happening is that I spoke to branding person once.
Andrea Gardiner: Some marketing branding, people said, “Oh, you’ve got to work out who your customers are. And then target focus your branding on them.” And then I spoke to another one through Head Over Heels, I’ve forgotten his name. James, I’d love to give him a plug because I thought what he said was spot on. He said, “No, that’s the wrong way around. What you need to do is work out what your values are and get track message out there. And then you attract the right people to you.” And I think that’s, what’s been happening. So we have, our investors they seem to share our values and are attracted to us partly because of our values. And it’s the same with the team and the talent that we attract and the founders that we attract. And that’s just this wonderful luxury of having people with aligned values that on your team and your portfolio and your investors.
Adam Spencer: How do you balance that commitment to not cutting corners at integrity with having a small team with punching above your weight. And I suppose being a little under resourced compared to what your output is?
Andrea Gardiner: Well, you’ve hit the nail on head there. It’s pretty impossible to balance. We’ve been able to do it so far because of the incredibly high caliber of my team with, Alon Greenspan and Kym Hooper, and Ian obviously, but I think what’s happened is they’ve just worked far too hard for the last, in particular, since about July last year, when things just took off like a rocket and we’re all tired, and it’s not sustainable, but luckily we’ve got an awesome new investor, full-time investor joining us in January, [Will Lee]. So, we are super excited about him joining us and that will help ease the pressure. And then as I said, now that we have a fund and we have that certainty of revenue, we’re planning on hiring a couple more people.
Adam Spencer: That’s fantastic
Andrea Gardiner: In around March April. And the cost of it, as I said earlier, the cost of it is that, some of the, I think just seeing some of the management of our relationships with LPs, which we’ve seen, and which we recognize as being really critical and really important is probably not been of, we could do better and we just need, we will get more manpower to do that.
Adam Spencer: I mean, I obviously don’t have tens of millions of dollars under management, but I relate in a way to, interviewing 150 people, managing 20 partners for this series. I feel I have dropped the ball in some regards as well in terms of relationship management. And I feel terrible about that. So I can relate a little bit to what you’re talking about. What do you think some of the gaps are looking at today and into the future within the Australian Startup Ecosystem? Where can we make some improvements?
Andrea Gardiner: Well, I think to start the gap, look the clear glaring gap that’s growing is in the seed funding state, professional investing. So, go back to the Blackbird example, started off with a 29 million fund. Now it’s got a billion under management. It must be pretty tough to write a check for three or 500 as seed stage now. And look, this has been across the board. I don’t want to single out Blackbird who I’m a super fan of, but I think if you’ve got a billion under management or 800 million, you probably, the fund economics suggests that you probably need to be writing much bigger checks than three or 500,000. And, especially if you think about, if you’ve got to work actively on a board, each partner might work on say four to six boards. You’re not likely to be wanting to work on a board that, you’ve written a 300 K check for out of a billion under management.
Andrea Gardiner: The result of that is that I think that, and you there’s some good evidence in the AICs last report that, while there’s a lot more venture capital funds under manage in Australia, there’s less professional investment going in at the seed and pre-revenue stage, and that’s creating a growing gap in the market. And I think that that has, there’s a very serious risk that that will undermine the pipeline for the big companies, the big venture firms, which obviously ultimately has the risk of impacting on economic growth in Australia, because startups are providing, the big provider of jobs and economic growth. So I think that that growing seed funding gap is something that would be good to do something about, I like to think we are doing our bit there, and it’s a great opportunity really, for us to leverage.
Andrea Gardiner: So it’s a good opportunity. The other thing I think that’s happening in the market, it seems to have changed quite significantly by COVID in that, our original fund strategy was to, write a small check and then you’d be very disciplined about not following on in those that don’t do well, but because we’re investing so early, but also, triple, quadruple down in those that do well. But those that are really doing well, the competition for that is really hotting up. And even if you’ve developed this strong relationship with the founders and the founders really want you in the round, they are often having less power and part of the power to make that decision when the increasingly big US investors are coming in and competing for these deals and squeezing some of us out here and, or maybe not out entirely, but instead of quadrupling down, we’re only getting a bit more sort of thing.
Andrea Gardiner: A lot of that I think has been brought about by COVID that the US investors that weren’t comfortable not investing without meeting people. And I was the same. Pre COVID, I wouldn’t have dreamed of investing in a founder that I hadn’t met, but since COVID, I’ve invested in plenty that I’ve only met over Zoom and they’re becoming more comfortable investing in Australian startups that are doing well over Zoom without coming over here. And so the competition’s hotting up.
Adam Spencer: What do you mean by, and this is going to show a little bit of reflect on how much I know about this space, the investment space, but what do you mean by them, the founders not having the power to just let you quadrupled your investment in them? How are you getting forced out?
Andrea Gardiner: So I’m thinking of one particular example recently, I think the round size was it’s not completed or anything yet. But the round size, I think was six and a half million the USVC was not going a condition of its investment and absolutely non-negotiable conditions that they took most of that.So there was a tiny, tiny slice of the pie to divide up between existing investors and those that the founder felt they wanted to look after.
Adam Spencer: Yeah. So it is just a more favorable-
Andrea Gardiner: The founder has had the choice of, do I take investment from one of the top funds in the world that can have a massive impact, a potentially really game changing impact on our business because they’ve helped take to market a business this before, they know how to help us scale it. They’ve got tons of resources in terms of HR, recruitment, strategic connections, so massively valuable investor. Risk that for someone, a small investor in Australia that cannot provide that game changing help, it just means that in a sense, their power, well, I suppose they still ultimately have the power, but not in practice.
Adam Spencer: I’ve read a couple of articles. And you’ve said in the interview here as well about your amazing deal flow for Jelix, how have you managed that?
Andrea Gardiner: Well, I think there’s, there’s a couple of ways. One, there’s that growing seed funding gap and that’s, our focus. And I think we’re well known for that. That’s actually where we focus and that’s where we feel we can help the most. So there’s that reputation. I think, we do have a reasonably high profile for the size of business that we are. And a lot of that is, because we originally leveraged Ian’s high profile and he probably has, he’s got one of the highest profiles in the sector. I’m biased, but I suspect not, I’m not very biased obviously as my partner in business and in life, but my guess is that most people would probably agree. And so that’s helped.
Andrea Gardiner: We have our own profile, I suppose, but I think also, we have wonderful portfolio founders that talk to other founders and they encourage us to come out our way. And when the founders come to us that way they come pre-sold, we don’t have to sort of compete for the deal really, because, our founders have often done a really nice job of selling us for us, which is, it is lovely. And I think that, I also think that, whereas further down the life cycle, maybe series A, B the competition is hotting up where we invest. I mean, I love the, because it’s high risk. You don’t really want to take the whole round, or even 80% of the round. You want to spread your risk across many more investments.
Andrea Gardiner: And so there’s an awful lot of, collaboration and co-investing, and, we talk to each other a lot, those that we co-invest with, and we co-invest a lot, we co-invest with AirTree, with Carthona, with Blackbird, Investible, we co-invest, yeah. I’m trying to think of some others, but we co-invest a lot and help each other, I suppose. So maybe that’s unique to the stage we invest at because it’s in our interest to help each other, because we want to co-invest. Either way, I love it. It’s a really, it’s really nice to work in that environment where everyone want wants to help each other. And we are all aligned with wanting to help the founders.
Adam Spencer: Moving over in 2002. We’re in 21, 2021 now. I have that right. 2002?
Andrea Gardiner: Yeah.
Adam Spencer: Yeah. What are some of, what are some of the biggest movements or changes you’ve observed in the ecosystem over the last, whatever that is 20 years?
Andrea Gardiner: I think there’s a lot more infrastructure to support startups. There’s lots of incubators, accelerators. Some have come, are gone, but they’re still lots still around in different capital cities. There’s actually communities in each of the capital cities around Australia. And you’ve got South Australian government. The Premier is really supportive of startups and they’re throwing lots of really helpful support to startups to attract them to South Australia, because they know they create jobs. The Victorian government is as well. I know that they’re even funded of fund of funds, which is really, I think that is a really powerful thing to do because getting a new venture capital business off the ground, raising that first 10 million often without a, most often without a track record is really hard.
Andrea Gardiner: But if you’ve got a fund of funds providing some matching funding that I think will have a really big impact on helping get the capital, the early stage founders need, because, as I said, there’s that growing gap there that the bigger funds managers can’t, that’s not really their focus and that’s helping sort of grow the amount of investors that can actually invest at that stage. So I think that’s a really good move. I don’t think it’s off the ground yet, but it’s well on its way. And then I think we could do with that in New South Wales. And we’ve got, I think another really important thing is that you’ve got, what we didn’t have back then was second time founders reinvesting their time and expertise and money into the sector. And I think that’s probably the biggest and most powerful and important change is that we now have lots of second, third time founders or successful founders that are reinvesting their time, their expertise and their into the sector. You just have to look at Scott Farquhar, Mike Cannon-Brookes, and a ton of our investors.
Andrea Gardiner: And we’ve got 700 registered investors and a ton of those are actually successful founders. And so for example, when COVID first hit last March, April, not the last one, the year before, I think I wasn’t unlike a lot of people that I felt a bit the Coyote when the Road Runner had run by, it was just sort of spinning around going eek, oh, shit. What do we do now? How’s this going to affect things? So what we did was we organize all these Zoom calls with each of the syndicate investors with the founders of the companies that invested in and did a big brainstorming session to identify the risks and how we might brainstorm how to mitigate them or identify any opportunities there might have been generated by COVID and how we might leverage them. And I think seven or eight years ago, there wasn’t enough people around to do that.
Adam Spencer: So congratulations. That was the very first Road Runner reference in the entire series of 19 interviews. So that’s amazing.
Andrea Gardiner: It sows my age.
Adam Spencer: I absolutely love Road Runner, huge fan here. So thank you for that. And these last two questions, I end every interview with these and the first one is what advice would you give a brand new founder that would help them succeed slightly? One piece.
Andrea Gardiner: One piece, Oh God, can I do two? I’ll be very brief.
Adam Spencer: Yes. Yeah.
Andrea Gardiner: One piece, trust in yourself, back yourself. They’re already doing that, but back yourself. And then when it comes to raising funds, do your homework, do your due diligence on the potential investor and on what terms look like and how they might impact on you later on.
Adam Spencer: And alignment because as we, I think we mentioned before we hit record, that, well maybe it was while we were recording. Yeah. Finding an investor that is actually suited to your company.
Andrea Gardiner: Absolutely. Yep.
Adam Spencer: So this last question, not really a question, but just a bit of a prompt. As we’re trying to create a documentary that will tell the history of the Australian Startup Ecosystem as well as we can. As honestly, and wholly as we can. I want founders, investors, academics, policy makers, everybody from every corner of the ecosystem to listen to this story. What message if any, do you have for them? What would you like to tell, all of those categories or pick one.
Andrea Gardiner: The politicians, I would like them to be, look at the hard numbers of how the startup ecosystem is creating more jobs than any other sector in Australia and get behind it. I think we’ve been terribly let down by the federal government and I think the New South Wales government could do a lot more. But yeah, that’s probably my main thing is recognize how important it is and that it’s much more important for the economic future of Australia than digging stuff out of the ground.
Adam Spencer: Thank you so much for your time, Andrea.
Andrea Gardiner: My pleasure. Thank you so much.