Dan Gavel on Building a Diversified Investment Strategy in Venture Capital

First Cheque

Dan Gavel_First Cheque_01

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Dan Gavel, founder of Black Sheep Capital Fund and the Flock Syndicate, shares his unique approach to investing and discusses the importance of understanding risk. He emphasizes the need for investors to have the capacity to accept risk and adapt their investment strategies to the changing market. Dan also talks about the benefits of running a fund, a syndicate, and making personal angel investments simultaneously. He explains how he decides which investments go to each channel and the importance of building relationships with founders. Dan believes that being a lead investor is more about post-investment support and guidance rather than pre-investment due diligence. He also shares a personal story of a risky investment that didn’t go as planned.

About The Guest(s)

Dan Gavel is the founder of Black Sheep Capital Fund and the Flock Syndicate. He has a background in financial planning and has made numerous successful angel investments. Dan is known for his down-to-earth and innovative approach to investing.

Key Takeaways

  • Understanding risk is more important than trying to fully comprehend it.
  • The investment landscape is constantly changing, and investors need to adapt their strategies accordingly.
  • Running a fund, a syndicate, and making personal angel investments simultaneously allows for a more diversified portfolio and greater exposure to the ecosystem.
  • Being a lead investor is about building relationships with founders and providing post-investment support and guidance.
  • It’s important to have conviction in an investment and be willing to take risks.


  • “For us, the pre-seed stage is all or nothing. We’re aware that it’s a risky business, and we accept that.” – Dan Gavel
  • “The lead investor is the person who wants to build a relationship with the founder and do what it takes to get the deal across the line.” – Dan Gavel


This transcript has been A.I. generated.

0:00:00 – (Maxine Minter): Okay. Three, two, one.

0:00:03 – (Cheryl Mack): Hey, I’m Cheryl.

0:00:04 – (Maxine Minter): I’m Maxine.

0:00:05 – (Cheryl Mack): This is first check part of Day One, the network dedicated to founders, operators, and investors.

0:00:09 – (Maxine Minter): If you want to be a better early stage investor, this is the show for you.


0:00:00 – (Maxine Minter): Okay. Three, two, one.

0:00:03 – (Cheryl Mack): Hey, I’m Cheryl.

0:00:04 – (Maxine Minter): I’m Maxine.

0:00:05 – (Cheryl Mack): This is first check part of Day One, the network dedicated to founders, operators, and investors.

0:00:09 – (Maxine Minter): If you want to be a better early stage investor, this is the show for you.

0:00:12 – (Cheryl Mack): So, TLDR, if you don’t want to suck at investing, listen up. Today we have dan gavel. He is a man of many talents. He has run a fund previously. He also runs the Black Sheep Capital Fund as well as the Flock Syndicate. And even better, he also does his own angel investments. What I love about Dan is that every time I talk to him, I learn something not just new, but unique and different. And he comes up with ways of doing things that I just would never have thought of. And I’m really excited to actually dive into a couple of those topics today.

0:00:55 – (Dan Gavel): Cool.

0:00:56 – (Maxine Minter): Yeah, me too. One of my favorite, favorite things when I catch up with Dan is he’s just like, no holes barred, just really down to earth natural. And I do actually think that allows him to be way more innovative in the way that he invests, because there’s no pretense to it. There’s less of the kind of ego pomp and grandeur and just so much of the like, what’s a great return. Who are great founders, how can I best support them?

0:01:22 – (Maxine Minter): And just always good for a laugh. He just nails the classic bound to earth Australian persona for me. And I’m so excited and grateful that you are joining us on the pod today.

0:01:35 – (Dan Gavel): It’s called growing up in the country. We’re a different sort of folk.

0:01:40 – (Maxine Minter): Yes. I think the Australian country, some of my best humans, best friends in the world grew up in the Australian country. I just think it strips away all pretense. It’s such a full on environment.

0:01:53 – (Dan Gavel): Yeah. I think you get very caught up in picturing the definition of what Australia is within 20 major city center. Right. As soon as you get out of there, the world like Australia, is such a different place, and it’s great. I loved growing up without having to lock the doors, without having to wear shoes, without having any parental supervision. Well, you get pointed in the direction of the back paddock of a friend’s farm in the morning, and you come back in the afternoon.

0:02:27 – (Dan Gavel): Probably the first time I learned to understand risk.

0:02:31 – (Cheryl Mack): Yeah, that’s actually a super interesting way of understanding. Well, these are risky activities.

0:02:39 – (Dan Gavel): Sometimes the risk materializes, and as with venture capital, you’re like, your brain is a great machine learning tool, where each time you do something really stupid, you don’t do it next time. For most people to say, put the hand on the hot plate. It was rust. Don’t chase the snake. Don’t go next to the enemy. Don’t tip a cow, sort of.

0:03:01 – (Maxine Minter): I love that. The question of what was the first time you engaged with risk? To or to not tip the cow.

0:03:10 – (Dan Gavel): To pick up the brown snake or not to pick up the round snake? That was a very stupid question.

0:03:15 – (Maxine Minter): Yeah. Wait, did you pick up the yeah. Like pick up the brown snake, I must know.

0:03:27 – (Dan Gavel): Did not end.

0:03:32 – (Maxine Minter): They they bite you. Which, for the context here, for anyone who’s not Australian watching or listening, and not Australian and brownsnake is maybe our most venomous. Maybe other than Taipan.

0:03:42 – (Dan Gavel): Taipan.

0:03:43 – (Maxine Minter): Taipan is the most we are. Australia already has a great reputation for being a country where everything bites, everything kills you.

0:03:50 – (Dan Gavel): Even the yeah.

0:03:52 – (Maxine Minter): Yeah. So the Cliff Notes are dan, picked up our second most, made a mistake, got bitten and lived to tell the tale, and now chooses to be a venture capitalist.

0:04:04 – (Dan Gavel): I’ve noticed which was a more painful lesson in risk, that or the GFC as a financial planner.

0:04:12 – (Maxine Minter): Yes. One of the things that I have been really impressed to see, and one thing I’d love to kind of hear your thoughts on is the way that you think about risk. On all jokes aside, I actually think you do a wonderful job of building from first principles and through that have kind of identified a couple of strategies in the ecosystem that are really clever. So I wonder, maybe we can kind of start there as an on ramp.

0:04:38 – (Cheryl Mack): Wait, do we not want to ask our first question?

0:04:40 – (Dan Gavel): I’ll build it in. I’ll build it in.

0:04:42 – (Maxine Minter): Yes.

0:04:42 – (Cheryl Mack): Wait, what was the first thing you invested in ever?

0:04:45 – (Dan Gavel): Yeah, they actually link. Right. Because I think everyone’s attitude towards risk and in financial planning, it’s all come from this. For me. Right. It’s not about how much you can understand the risk you’re taking, it’s more about your capacity to accept that risk and what it means to a broader picture, whether it’s to your investors personally, whether it’s to your business. From an investor standpoint, everything you take, investment you do, you’re going to be judged on by everyone in the industry, your investors, your startups.

0:05:16 – (Dan Gavel): So I actually started in small cap mining. The first investment I bought at age link twelve was Mount Eisen Mines. So I was part of one of, like, the Commonwealth Bank used to do the fantasy stock picking competitions all the way back when, and I’d sort of been involved with that. And I think mom and dad were connected to, I want to say, like a Morgan mum and dad stockbroker who’d basically pick an ETF for you and go, this is the top 20. Look at us, we’re great stock.

0:05:54 – (Maxine Minter): Pickers yay.

0:05:55 – (Dan Gavel): So I was part of that and got to be excited about the process of investing and understanding it. I think I must have saved up some birthday money and soccer refereeing money or whatever, and I think I bought like $1,500 at the time amount isa mine shares.

0:06:11 – (Maxine Minter): Wow.

0:06:12 – (Cheryl Mack): Twelve year old.

0:06:12 – (Maxine Minter): Nice.

0:06:13 – (Dan Gavel): Yeah. Got my first exit at age 16 or 17 when it was bought out by BHP or someone’s I was like feeling pretty stoked about myself yeah and then I think it also started from there where it was like that initial concept of do I do this risk? Because I think a I had an investment sort of mind at that point or do I buy that new cricket bat or soccer ball or whatever. And that was that first risk versus reward sort of thing. And I think I’ve carried that all the way through since then.

0:06:50 – (Dan Gavel): And I think over time from I think my second investment was like a property with Mum and dad when I was like 19 and again was lucky in that they bought half of it and probably paid the deposit. Looking back, I think it’s defined over time and even at Black Sheet. Since we first started, our attitude towards it has changed because our position as a fund and that has changed quite a lot. And I think you have to be aware of where the ecosystem is at as well and how that impacts it. And again, it’s more about being able to accept it. Right?

0:07:31 – (Dan Gavel): We would love to be Series A investors because I think that’s the best price, probably easiest place to pick at the moment, but I can’t afford it. When we came into the ecosystem, like a 250, sort of to 500k check, you were like half a Series A or at least like a big dog in a Series A. Now you sort of laughed at the door and said, oh, we’ve got a little bit of leftover, we’ll sprinkle you some. So we’ve accepted that and the risk of going earlier, but that also speaks to where our team’s expertise is, so we’re pretty happy with that and where our portfolio is at at the moment.

0:08:10 – (Dan Gavel): It all gets baked in over time. Like if you look at our internal documents, I think the last internal strategy document is like version seven of Black Sheet where every year we sort of take a look back and go, how much do we want to spend? Where’s the markets at? What do we think the next three to five years are going to look at and what’s an appropriate investment strategy beyond that? And we could probably invest more if we wanted to, but we’re investing the amount that makes sense to us for now to prepare for, we think like three years from now.

0:08:41 – (Cheryl Mack): Oh, that’s super interesting to dive into.

0:08:43 – (Maxine Minter): That a little more. Coming out of one of the conversations we’ve had previously. Obviously at coventures we’re chasing a lot of all of the companies we invest in. Need to have kind of 100 X return profiles, so have to see that kind of big moonshot requirement for us to kind of get excited about it. Depending on kind of where the entry value is and you shared in the past your unit economics, you can actually make wonderful returns off kind of 200 to 500 million AUD exits.

0:09:10 – (Dan Gavel): Sure.

0:09:10 – (Maxine Minter): I think the way you think about kind of entry price, exit price, delivering really great return profiles in that range is super interesting and maybe intersects with your ability to kind of pause, think about the market every single year and be like, yeah, this is where we think it’s going. This is where the opportunity is in this market.

0:09:28 – (Dan Gavel): Yeah. And look, it also plays to where your head’s at. Right. I think broadly, what you’re talking about, I guess, is our precede seed philosophy of great founder. This is broad stroke, great thematic, great problem being solved, and we really look at companies to go, can you get to a $10 million revenue target? And beyond that, everything for us is upside. And I think it’s unique because if you can get a precede company to ten mil arr, and this is just picking a number out of the air, right, like in a reasonable time frame, you should be able to say you’ve got a 100 mil to 150 mil company there. Which would mean sort of because we get in circa five for ten mil, I think would be our average.

0:10:16 – (Dan Gavel): You can get a ten X there pretty comfortably. And they think the pathway to $10 million, by the way, is getting clearer than in that hyper growth like growth at all cost time over the last couple of years. Then you end up with a great company. And in our experience, at least a couple of those, once they get to that point, will grow beyond that and be your power law. And we’re quite comfortable, like our target is sort of ten to 15 X because the difficult thing for us, because we’re Evergreen or the good thing for us, since we’re Evergreen, we’re not always chasing like a singular fund metric.

0:10:52 – (Dan Gavel): Everything counts towards it. And that speaks to the benefit of having been lucky enough to make some good investments. We can be more risky when we want to. We can do investments which we think are not, I wouldn’t say steady as she goes, but probably more de risked without the big return potential because we’re comfortable that they’ll get a return and that sort of matters a lot to us.

0:11:17 – (Maxine Minter): Yeah. For folks who haven’t heard that term before, evergreen, can you explain a little bit more kind of what that means and also how you got there?

0:11:25 – (Dan Gavel): How did I get to Evergreen? Have a really good friend and a business partner who’s been very supportive of us over time. So we’re unique in that black Sheep LPs are our GPS are our only LPs. So only really my business partner and I have money in Black Sheep, so there’s no stack of investors behind that. And we made a call early on that to build a long term business, we will have to sacrifice Capex for a fairly extended period of time while we seeded it to give it the opportunity to grow where it is today.

0:12:07 – (Dan Gavel): And because we’ve been able to take that approach, we’ve been able to slowly build an evergreen. Part of that is we don’t ever have to go out and re raise capital. It’s just a singular fund that money will recycle into and out of as we get returns and make new investments over time. In the non our world, like black sheet world, you would generally put sort of a quarterly unit price against that. And people where you value everything internally and people can come in and out whenever you want as soon as more like a share as opposed to a VC fund which will get to the 30 June. That’s the closing date for First Investments. And no more money can go in after that. So Evergreen are just sort of eternal like just keep going.

0:12:53 – (Cheryl Mack): Yeah, thanks for defining that, Dan. I think it’s important we do have a good audience of newer investors who are coming in and wanting to learn as well. One of the things I think is really interesting just to pull on that thread a little bit more is that you do a number of different things across the board. So you run the Black Sheep Fund, you also run the Flock Syndicate, black Sheep Plot for those at home getting the joke.

0:13:18 – (Dan Gavel): And my personal shepherd portfolio.

0:13:21 – (Maxine Minter): Yeah.

0:13:21 – (Cheryl Mack): And then you also have your personal angel portfolio. Most people I have the benefit of knowing you ran the fund, you started angel investing, then started with the fund and then moved to the syndicate in that order. So I’d really love to understand, actually first, what was your first angel investment and then maybe we can double click on how do you run all three and how do you decide what to put money into.

0:13:47 – (Dan Gavel): Yeah, our first angel investment was a Queensland based mobile payments company. I won’t give the name, but it wouldn’t be that hard to work out. Look, it was a good learning curve. We talked about it like maybe we committed too much. Maybe.

0:14:05 – (Cheryl Mack): What was your first learning check size, Dan?

0:14:09 – (Dan Gavel): Half a million.

0:14:12 – (Cheryl Mack): For added context. Mine was about 20 grand in vaccine.

0:14:17 – (Maxine Minter): Mine was two and a half grand. It was orders of magnitude many orders of magnitude smaller.

0:14:23 – (Dan Gavel): The things you wish you knew, talking.

0:14:25 – (Maxine Minter): About that risk profile, the things you.

0:14:26 – (Dan Gavel): Wish you knew, like our understanding of how that market work changed pretty quickly and we adjusted. But look, as much as that was probably just a bit of an insane first play and unfortunately it probably didn’t work out the way we wanted it to. It got us into an ecosystem which I’ve been very blessed to be part of and I think that’s part of it in going like if we hadn’t have learnt from those first few investments and started to refine our system, it would have been a really painful journey. But I’m very happy for every investment we make, we get better. We get better at the post investment work.

0:15:04 – (Dan Gavel): And I think it is part of that. Just because we review and change all the time, we’ve been able to, I think, keep ahead of getting outside of our risk comfort zone. And that was sort of when we were less VC, more angel, and over time we’ve transitioned to more of a VC style operation where we’ve got a team and a process of how we help companies and a much deeper DD process.

0:15:33 – (Cheryl Mack): But it’s interesting that you run all three still at the same time. I feel like most people go from that transition of angel to maybe running a syndicate to only running a fund, whereas you still do all three. How do you manage those three together?

0:15:46 – (Dan Gavel): Partly they cross over. Like the bigger fund that we had, full circle is now fully invested and it’s in harvest mode and there’s a couple of crossover portfolio companies, so that’s a bit easier. The Flock is actually great because it augments black Sheep’s ability to participate in the ecosystem in that we’ve got what we like to write as a standard check. And then if we put that alongside the Flock Fund investment, we actually get to be a bit more significant piece of rounds, which gives you access to more deals and makes it more worthwhile for a pretty terrible term to get out of bed and actually do this every day.

0:16:31 – (Dan Gavel): I think below a certain point, there’s just not the incentive to actually want to be deeply involved with founders and startups, which is probably why the syndicates and the Flock fund come in, because more and more as tech is becoming more forward, particularly in the last six months, I’d say that’s escalated. Again, there’s people that want to participate in this ecosystem but just don’t have the time but have the money. And I think the syndicate models and the fund models to a degree are a great way of participating in that. And I actually think probably the smaller syndicates and funds like Maxines are almost more palatable because often the check size is a little bit less to get in the sophistication around the investors, they can be comfortable but still be comfortable. They’re working with people who have been doing this and understand what they’re doing.

0:17:28 – (Dan Gavel): And of course, Aussie Angels, which I can conflict and go, I’m an investor, so I love the solution, everyone should use it, by the way.

0:17:36 – (Maxine Minter): Yeah, the angels have to that gives.

0:17:40 – (Dan Gavel): People a way to, I guess, do the dip the toe in the water, get exposure, get comfortable with managers who know what they’re doing and people who are generally passionate about them. And it gives both people who want to progress into bigger roles in VC the chance to see what it feels like for them, which cost us a lot to learn. Well, we were lucky enough to sort of hit a couple of good investments early, which have meant we’re like a plus over one DPI, so like distributed income sort of thing. So we’ve returned the fund.

0:18:16 – (Dan Gavel): We had a good learning because it was sort of funded in that way where I think giving a broad stroke approach to seeing different types of investments at different stages through earlier funds and syndicates is actually a really good way for people to test if it’s where they want to be without having to do a big commitment. Like half a million I think would be what some of the bigger funds are asking as a bare minimum these days.

0:18:41 – (Maxine Minter): Yeah, absolutely.

0:18:42 – (Dan Gavel): Plus you just bluntly can’t get into most of the funds that most people think they want to get.

0:18:49 – (Maxine Minter): Do. It makes me think we had Julie Anderson Firth on here and she was talking about building Euphemia and kind of family offices and she mentioned this kind of tidbit of the kind of standard advice for folks looking to build a kind of diversified portfolio. They should have about 20% of their wealth in alternatives include of which VC is one. I mean, I think I could probably say for all of us and most people in this ecosystem that you’re heavily significantly above that.

0:19:18 – (Maxine Minter): But it does open the question for me. I wonder how much of Australia, like the ones who are in the privileged position to be able to build a diversified portfolio, how many of them actually directly hold any alternatives, let alone like venture? And I wonder over time how that will change. My observation of the Australian ecosystem is it’s growing at such a crazy pace, like it’s growing so quickly.

0:19:41 – (Maxine Minter): It’s moved from relative obscurity in 2016 through to now the 6th largest employer in Australia and it’s going to be awesome to have a front row seat and I imagine the flock will get to watch a lot of that as a syndicate as people look for that on ramp into learning more about this space.

0:19:57 – (Dan Gavel): Yeah, look, I think most people’s investments are through super in managed style, growth, balance, so they would just never know what’s in there. Funny enough, I had a friend complaining and I’m not picking aside or I had a friend complaining about the Qantas thing and going like oh, I hope they go broke. And I’m like man, you know probably 85% of Australia is exposed to Qantas investment, right? No, they’re not.

0:20:26 – (Dan Gavel): Anyone who holds super is in Qantas. So if they go screwed, then people’s super gets hurt. Right. I think it’s a very privileged way of thinking and I’ve often been a subject of this where I actually think people beyond my direct line of sight actually give a shit about tech and what’s going on. Our ecosystem likes to think it’s world changing and it probably is in a lot of directions, but in most people’s day to day life, they just wouldn’t even think about it.

0:20:56 – (Dan Gavel): This is something that is beyond the realm of what matters to them. And you want more and more because obviously I would actually prefer people paid more attention to where tech is going in terms of changing lives and how lives are going to be impacted more so than the investment side of it because there’s people that will always be out there to do that. But I also think it should be democratized a lot more because I think there are a group of people that would want to get into it. Like crypto is a really good example of people wanting to get into innovative assets.

0:21:31 – (Dan Gavel): I think you should solve for people who want to be more heavily involved at a smaller amount because there’s that old age old argument of casino crypto. Why not tech, right? What’s the difference? But yeah, my personal philosophy is I would just really like to see people be more aware of what’s coming to them. I met with a high end, top tier litigation lawyer the other day, and I was talking through the sort of legal tech that’s coming, and there are a lot of people, even in their own ecosystems, that are blissfully unaware of what’s coming for them. And I think that would probably be more important for someone’s day to day life.

0:22:08 – (Cheryl Mack): We might start getting a whole bunch of lawyers joining Aussie Angels just to get into the next legal tech field that comes along.

0:22:14 – (Dan Gavel): Maxine and I both do legal tech just sign up to exactly.

0:22:19 – (Maxine Minter): Exactly. I mean, I will say having been in those big firms, that tech has been coming for the big firm for a really long time, but they’ve put up a really great defense, I’ve got to say. They do a great job of not adopting it.

0:22:32 – (Dan Gavel): Look, I don’t even mean just in relation to the adoption side, right? It’s not about taking their jobs. Like as an ex financial planner and stuff, you can see the sort of efficiency driving upskilling, all that sort of stuff, where in very margin driven businesses, if you’re not doing it, you won’t compete.

0:22:55 – (Maxine Minter): Yeah, 100%. Yeah. I’ve been amazed at their ability to not focus on margin. It’s like net dollars to them. Don’t care about margin. I’m like this stuff really matters. Your client cares about it and they’re like, well, they’re still going to buy legal services and we are still going to maintain a monopoly on it via.

0:23:13 – (Cheryl Mack): The bar association and charge by the hour.

0:23:16 – (Maxine Minter): And charge by the hour.

0:23:18 – (Dan Gavel): But I mean, all these things are coming, right? And I’m not saying doctors get replaced, but doctors may become more like customer service or customer support than actual frontline right there’s. AIS that have passed quite a note equivalent of a doctor’s certificate is like the bar equivalent for doctors in the US.

0:23:39 – (Maxine Minter): The bar exam.

0:23:40 – (Dan Gavel): Yeah, equivalent. And over time they’ll get much better at diagnosing than a normal doctor. Again, I don’t think it replaces it, but it definitely changes how their role how I’d be thinking about my role if I was a doctor.

0:23:55 – (Cheryl Mack): Speaking of health tech and other kind of crazy futuristic things, I’d really love to maybe double click a little bit on how do you decide whether something gets invested in by the fund versus goes to the syndicate versus just as like a personal Dan Shepard investment.

0:24:14 – (Dan Gavel): By and large, there’s two filters. Like one, whether my business partner Paul is interested in the concept at first and whether it fits what the fund looks like. And the probably second more blunt answer is how much DD I want to do. Okay, it’s true. Right?

0:24:35 – (Maxine Minter): Say more about that. Less DD goes to Angel, I’m assuming.

0:24:39 – (Dan Gavel): Or less DD goes sure, less DD goes to my personal syndicate, which has been set up as this is very much on a thematic of I love the idea. I love the founder. It’s probably batshit crazy and it’s a lot earlier in the piece or it’s related to something that really resonates with me. Right. So I’ll give you an example of where that would happen. So I invested the precede tech in a company called Layer Licensing.

0:25:13 – (Dan Gavel): So it’s basically taking real world IP and selling it into metaverse web three sort of development studios. I made that investment, like wrote committed in the actual first meeting because I was meeting telling with Ratchet, the founder. I’ve known Ratchet for years, since he was like the first sling sales employee at Go One. So I’d seen him sort of expand them to the US and the UK and the good work he sort of did.

0:25:43 – (Dan Gavel): He told me a story about what’s his name? I want to say travis Barker. Is that like a singer maybe?

0:25:50 – (Maxine Minter): Potentially. I am like so bad at pop.

0:25:52 – (Dan Gavel): Culture anyway, insert big singer that people who are probably age 15 to 18 really like. And he was telling me how in Fortnite they shut down the whole game for ten minutes. He did an in game concert and they sold like he made $10 million in digital merchandise sales. I was like, wow, holy shit. Yeah, kids are crazy. Well, kids will spend money on stuff like that. That is something which I think could be a very big industry ecosystem.

0:26:24 – (Dan Gavel): I by no way plan on going away and doing the research to prove that I like Ratchet. I really like the idea. It made a lot of sense. So I wrote a personal check and Paul wasn’t super interested in Black Sheep. So that’s where they sort of, you know my philosophy is if you don’t get it from that first story or that first little tidbit of information, it’s just going to be too hard to sell to you at that point anyway.

0:26:53 – (Dan Gavel): And it sort of leads to what sort of investments are right for syndicates versus funds versus whatever. So our most recent fund was structured around. There’s a world where people really want to be invested in those precede companies that we were finding in our syndicates that were getting really hard to get support on, because you get the common questions of oh, what’s the revenue, how do you differentiate, how can any tech at a precede stage be super differentiated? It’s more like the potential to differentiate and what can they build over time?

0:27:28 – (Dan Gavel): It’s easier to bring people into a pooled approach to that than it is to do it one by one by one.

0:27:34 – (Maxine Minter): That’s super interesting. I wonder, I mean, do you think you would be able to run that strategy, those kind of three parallel tracks, if you had a different fund structure? What I’m thinking about here is for fund managers, you generally have some kind of requirement that your investments go through that fund or anything that’s kind of on thesis that goes through that fund. I’ve seen a couple of versions of this actually in their ecosystem. And so I think it’s not a kind of hard and fast rule.

0:28:01 – (Maxine Minter): But how do you think is it because you run an evergreen strategy that you can run those in parallel?

0:28:07 – (Dan Gavel): It’s because my business partner and I have like we’ve been friends for so long and we have a trust that I know what needs to go into Black Sheep and I know what shouldn’t. And we always run everything through Black Sheep first anyway, because without the Black Sheep brand, my personal brand doesn’t get deals. Wouldn’t get deals, right. So the ownership of the pipeline for me is to Black Sheep. So both in terms of the layer licensing and the sort of super crazy medical one we’re doing at the moment, they both went to Black Sheep first. And if Black Sheep had wanted to participate, they could have. But I’ve also from time to time topped up on top of and personally on top of stuff that Black Sheep’s done because I really believe in it and have a stronger thesis in it.

0:29:01 – (Dan Gavel): So we do follow that sort of hierarchy, but it’s also because we have that system of yes, no before we sort of work out what channel to take it down. And that’s sort of again, being expanded because of solutions like Aussie Angels that allow me to do a personal syndicate because I wouldn’t be able to do that if someone wasn’t doing the admin for me. Right. In the same way other tech models couldn’t have existed a year ago because the technology wasn’t there. These sort of personal syndicate for me couldn’t have worked without something like Aussie Angels or angel list in us.

0:29:39 – (Maxine Minter): Yeah, it’s such an inflection point for the ecosystem, I think, and the kind of activation of a longer tail of investors into the transaction. I mean, I think it’s classic, right? The transaction cost goes down because it has been systemized and it’s got a lovely UX on it and. So the number of people that can participate and the innovation that happens on top of that has been just such a pleasure to watch in the very short time that platforms like this have existed in market.

0:30:06 – (Maxine Minter): So exciting to kind of continue to see. And I really like the strategy you have of running a syndicate alongside a fund. I’m starting to see more and more people do that. I think especially in this moment in the macro cycle, there is significantly more demand for investment than there are dollars being deployed into the ecosystem. At least on the last PitchBook data I saw, I think the delta was about 20 billion in last quarter, $20 billion more demand for investment into startups than there is capital investing in startups at the moment.

0:30:37 – (Maxine Minter): And so wonderful opportunity to kind of support founders with more capital.

0:30:41 – (Dan Gavel): Yeah. Look, everyone’s going to have a different point on that though, right? It’s just the way, I guess, not survival of the fittest, but it’s like how many companies that were getting funded two years ago probably deserved funding in the great long term scale of things. And look, I think it’s important, but I’ve always been a very big like I’ve always said, the good companies will always get funded no matter how much. It’s just maybe how much they’re getting and what you need to look like to get it. That’s changing, but it’s super exciting.

0:31:20 – (Dan Gavel): We’re seeing more founders who have exited, coming back and investing. We’re seeing more and more people spinning out of companies. What we love about, say, Go One is it’s becoming like a canva atlassian of an ecosystem that is creating people who want to be founders out of it. I think that’s one of the most under reviewed part of the ecosystem. That’s something that we should be nurturing a lot harder. Because I don’t know if you guys saw it, but if you were at Lassian or canva you’re just like, yes, wait, yeah, cool.

0:31:57 – (Dan Gavel): Automatically you get money because of no.

0:32:01 – (Cheryl Mack): You see that all the time. Like founders were like, I’m ex canva. It’s like, cool, how much do you want? But that wasn’t the case. Like, if you looked at that maybe four years ago, that probably wasn’t the case. We maybe had it lasting at that.

0:32:13 – (Dan Gavel): Time, but more are coming.

0:32:15 – (Maxine Minter): Yeah.

0:32:15 – (Cheryl Mack): If Go One is the next company that that’s happening with.

0:32:18 – (Dan Gavel): Yeah. And it’s more about the more we build an ecosystem where that’s happening, that’s just going to make us such a stronger and stronger overall. Because people have done it absolutely second time found. Everyone’s either wants a second time founder or someone who’s been there and done it before and seen it. And it’s great because often there are ideas that came out of these companies. Like we go on, we’ve seen a few that are sort of around the edge of tech space, some which are nowhere near it, which is great, which is great as well. But I think that’s a really strong thing for the ecosystem and that will feed into those big companies with touchwood, but companies like GOone and that have big exits.

0:32:59 – (Dan Gavel): Our future of angel investing and our future of getting better. Because I’d hazard that the Silicon Valley ecosystem got better when operators were investing in companies and helping them grow. And it’s sort of like a cascading upward effect of people getting more support and having a much better chance. But the current market is exactly where we love to invest. Right? It’s slower. Companies are being much more thoughtful around it. Like, I met with a company the other day where we had sort of a conversation to what we talked about all the way back, where it’s like, well, do you want to grow to be a billion dollar company or do you want to own more of the company at 400 million and have had a much more?

0:33:41 – (Dan Gavel): Not steady as she goes. But it’s a different journey of building a more capital efficient business than that. To get to a billion dollars is no easy feat. And you can do it. You really can. But it’s not easy and it’s not a journey every founder should or could go on. So I think all these little parts of the ecosystem are making it super exciting to be part of it now. It’s great. More people know about tech, more people are wanting to invest in it.

0:34:09 – (Maxine Minter): Yeah, absolutely.

0:34:10 – (Cheryl Mack): And one of the things that I’ve noticed you do really well is around like you find companies that are kind of in that space or potentially even the moonshots, and you get excited about them, but often because you said you’re writing the smaller check, but you kind of take the lead position. And that to me is just like when you told me how you do that, I was like, I need to figure this out. So explain, how do you lead without leading?

0:34:34 – (Dan Gavel): I mean, this comes down to I just don’t really believe in the traditional what a lead is. Right. What is a lead? Like, Maxine, if you would say to me, what do you think the term lead investor means?

0:34:48 – (Maxine Minter): I am not going to be good at answering this because I agree with you on it, especially at Precede, I think it’s different once you get to seed and Series A. The level of diligence you need to do to kind of fully derisk it and be able to say, like, yeah, hound on heart. We did hours of diligence here, we did all of the background checks, we did all of the legal, all of the accounting DD, and we’re ready to underwrite this price. Absolutely. But at Precede, I think it is a misnomer.

0:35:18 – (Maxine Minter): What are you diligencing? I have invested in multiple companies where the company doesn’t exist until the check is written. There’s literally nothing I could DD other than the founders so I could rant about this for a bit. I’m more interested in how you think about it.

0:35:32 – (Dan Gavel): But that’s the exact answer. That is the exact answer. Who fucking knows? If I had to break it down to what I think the lead is, whoever’s the first one to put a number on a term sheet and give it back to the founder, that makes them happy. And then in our world, we’re like, well, in the case of the one Cheryl was talking about, I was super passionate about the company. I had a big belief, like you said, I’m an instinctual investor, right?

0:36:02 – (Dan Gavel): Probably the thing we always say is, I’ll probably know at the end of the first meeting how much chance it is of investing or not. The rest is just proving, I think founders get a bit misled to think DD is a process where you’re working out if you want to invest. For us, it’s the opposite. I really want to invest and then I’m going to spend the next couple of weeks trying to prove myself out of it. Like talk myself out of it. So it’s more of like the other way we try to get to know as quickly as possible.

0:36:30 – (Dan Gavel): So in this case, there was a sense that a few people wanted to be involved, but no one wanted to be there. I thought in this world, for precede, VCs were out of the question. I got that. So it needed to be someone with a bit of sophistication that would put a number on a piece of paper and give them the chance to go structure up something around it. Because at that point, I didn’t really give a shit who came with us.

0:36:55 – (Dan Gavel): Luckily, a good friend of mine came in and stuff, but I didn’t really care who came in. I just had a passion for the company and wanted to give them a shot. And that shot meant I had to have a conversation with the founder and go, your valuation is too high. How much you’re raising is too high. If you bring both those down, I think you’ll give yourself a much better chance of raising and just moving on with this and give yourself a much better chance of grinding into a company.

0:37:22 – (Dan Gavel): He did that. He then had the chance to pitch a much different version of the company. And there’s a whole set of work behind making sure the financials stack to the new numbers and whatever, but it meant people who weren’t interested because it was too high and too whatever meant could actually have a look because there’s a number on a piece of paper and there’s a timeline that this was going to happen in. And I think that really more reflects the world when I came into VC than the other way around.

0:37:45 – (Dan Gavel): The definition of the lead just turned into who was going to write the biggest check. And I don’t necessarily think that’s the case. It’s the person who wants to build the relationship with the founder and do what it takes with them to get it across the line. But I actually think the lead is probably for me, more important post investment than pre. I think it’s a post investment term, not a pre investment term.

0:38:08 – (Maxine Minter): 100%.

0:38:09 – (Dan Gavel): Who’s going to lead it? Who’s going to be the devil’s advocate, the voice of reason, put in the resources to actually give them the support they need? To me, that’s the lead. That’s more where I focus on the lead. And that’s not always the person who writes the biggest check or the person who leads the pre due diligence stuff.

0:38:34 – (Maxine Minter): Absolutely. Yeah. I’d be interested to know what you think about this. I feel conflicted about it, this version of the world where a bunch of people want someone else to lead so that they can draft of that investment. I accept that it is a reality of our ecosystem and I accept that it is an important part of the way that rounds come together and momentum happens. But a conversation I would really love to have is like from a bottoms up fundamentals.

0:39:02 – (Maxine Minter): If we accept that early stage investing is a non consensus sport. Yeah, I don’t understand. I would like someone to kind of take the counterpoint for me here and explain to me why following is a great strategy.

0:39:17 – (Dan Gavel): Because you can’t get the conviction to actually make a call. Like if you if we were in that and I had to like, no offense for using your name, Maxine, but I need Maxine to price it and give a price to it and write a first check for me to be comfortable with it. Like, fuck that, I’m not doing that investment because I don’t have the conviction to actually go, I know what this company is worth, I believe in it. And that’s why I can write that, Cheryl, because I don’t really care what anyone else is thinking about it. I know what I believe about a company and I know if I want to invest. And in that case, I knew if I wanted to invest, I had to force something to make that round happen.

0:39:57 – (Dan Gavel): I’m just not a big believer in that. I get it when it relates to this round isn’t going to happen unless someone with a much bigger check comes in and kicks it off to give it a chance of rolling. But in a smaller round, that’s not so much there.

0:40:13 – (Cheryl Mack): See, I would maybe play like a little bit devil’s advocate there because I am the one that typically I’m on the other side.

0:40:20 – (Maxine Minter): Yes, perfect. I was going to say that was like the worst defense or counterpoint. It was just you and me just being like, yeah, we agree with each other.

0:40:28 – (Cheryl Mack): No, I will defend it because you both know I send you stuff all the time where I’m like, hey, I really like this but I just yeah, that’s true. So there’s two things. One is I often know that I really like something and want to invest. But one is that I just don’t think I believe in the price but I don’t know what the right price is. I have a sense that that’s not the right price but I don’t know what the right price is and I don’t feel comfortable setting that price.

0:40:54 – (Cheryl Mack): And then the other thing is if I’m not writing a big enough check then I just don’t know if I do agree to something then the round is going to get filled by someone else and then if I write the check then they can’t fill the round, they don’t get enough money and they die anyway.

0:41:08 – (Dan Gavel): Yeah.

0:41:08 – (Cheryl Mack): I think from our perspective it is helpful to say look, I really love you, I really want to invest but I don’t think I can do it at this price. Go find somebody who will value this and set, give it a tick mark and then I’ll be in.

0:41:20 – (Dan Gavel): Sure, but that’s just the internship of VC and investing, right? It takes time to get the confidence and a number of deals to be able to do that. I get it as like it’s just a positioning thing because we’ve led rounds before. I’ve had these conversations a bunch of times. I’m pretty comfortable with it and in fact I’m going through it again now.

0:41:44 – (Cheryl Mack): I need to sit in on one of these dan, please. That I can get that confidence because.

0:41:50 – (Dan Gavel): Look but I know you well enough to know you could get there and I think it’s just a confidence know because I also think where you send the deals and stuff is not quite at that point, right. Because we have a few people you just call that like your thought group where you just want someone to talk to it and give you a sense of where their conversation is. The next level where you’re like I have the conviction now to want to make an investment and I need to find a way to make this happen. That’s sort of the trigger for me to go into that call to action. It’s not before that. It’s like I am really strong that I want to make this happen and it’s that big driver to go like well if unless I do something this isn’t going to happen.

0:42:36 – (Dan Gavel): And I always say this may not happen. And that’s the other thing. It’s zero risk to me because you’re like well we’ll do our best but I’m telling you it’s not happening. If it doesn’t happen, there’s no round because we’ve got the condition precedence around what that money would have to look like. It’s just about giving it a shot because we are closer to the ecosystem than probably they’ve seen more than pretty much every founder, right? Like a lot of founders I just think may not and this is probably pretty prevalent last year where you heard your mate raised for 55 million with $6 revenue.

0:43:09 – (Dan Gavel): It’s sort of like you’re close enough to know where the market’s at more than a founder, and sometimes you just got to inform the founder of that. And I think the other thing is, and we do this sometimes as well, probably not the greatest for it is like sometimes I don’t think founders are given a fair assessment of why a no is a know, because can a VC really go it’s a no? Because I just don’t think this is ever going to be an idea that works. No.

0:43:37 – (Dan Gavel): You’ve got to give the San Francisco yes. Where it’s like, oh, not right now. I like what you’re doing, not right now, but let’s keep in touch to the next round. That is a no, by the way, to anyone who’s listening.

0:43:48 – (Maxine Minter): Yeah.

0:43:49 – (Dan Gavel): I think that it’s just a conviction thing to go and look, to be fair, it doesn’t happen all the time, but if you spent enough time getting up that level of conviction on an idea, it just feels natural to want to give that a chance.

0:44:05 – (Maxine Minter): Yeah. I do also think to kind of underline that point, Gerald. I think if you try to lead around with a too small a check or it’s a bit hard to lead it with a syndicate because you don’t have certainty on how much you’re going to be able to deploy, I think you can’t really lead around there. Right. I think it’d be really hard to.

0:44:26 – (Dan Gavel): Lead around unless they want to underwrite.

0:44:28 – (Maxine Minter): Yeah, yeah. Which Matt Allen has a wonderful story about Mr. Yum where he did something similar, I think he terms it a whoopsie. Yeah.

0:44:37 – (Cheryl Mack): He did end up running.

0:44:39 – (Maxine Minter): Yeah. He underwrote it’s first investment into Mr. Yum and like, wow, what an you know, when he first did it, he kind of took it to market. He was like, yep. Will I don’t think he was leading, but he was filling in an allocation. But I do think there’s a minimum check size below which it’s harder to use that as a kind of catalyst for the round. But I do think for us, smaller funds or for those listening who are wanting to think about kind of that strategy, or let’s say a family office who are kind of writing pretty meaningful checks, I think there are a lot more rounds that could be catalyzed in the kind of after work terminology as opposed to lead.

0:45:20 – (Dan Gavel): Correct.

0:45:20 – (Maxine Minter): That I think at precede, that’s exactly the right way to think about it.

0:45:24 – (Dan Gavel): Agreed. The concept of a party round precede is definitely coming back. Like just grouped investments where a million dollars there’s plenty of people know we’re in the same check size range.

0:45:36 – (Maxine Minter): Right.

0:45:36 – (Dan Gavel): Maxine you can probably find four or five of us generally more easily these days than you can someone write a million dollar check. And I guess there’s a few of the bigger VCs who are actually wanting smaller checks to lead and take relief how you do their sort of deal sourcing for future round strategy there. But I think there are people who will write bigger checks and want to write bigger checks behind a lead because they just want someone to do that because they’re either out of country or not their core let’s say the family officers who it’s not their core built strength to negotiate and frame up deals.

0:46:15 – (Maxine Minter): Yeah, I think the art of the negotiation in these deals is a really interesting one, especially right now while the market is moving so quickly. Being in those negotiation conversations, it’s a time to set norms between kind of how you will work for the founder, how you will and the team, how you will approach difficult conversations, et cetera. But also to approach it in a way that doesn’t burn bridges and within that early, I don’t know if you I’m sure actually, I’m confident that you two would have heard a lot about this from the companies that you work for, but they are.

0:46:44 – (Maxine Minter): Sometimes during these negotiations, investors can go a little bit too hard and actually bruise relationships in a way that doesn’t serve them long term. So I think as folks are thinking about how do they do this? Well making sure you thread that needle of thoughtful caring but also direct and.

0:47:03 – (Dan Gavel): A hard negotiator and look everyone views this differently right? But absolutely we have a founder friendly everyone wins approach right? But as a precede investor we’re very much aware of the impact what we force on a founder makes down the line and also understanding what if you put it in precede gets washed away at the next round if it shouldn’t have been in there in the first place. Sort of stuff like stuff at the early stage we don’t need preferencing we don’t need stuff like that because in a lot of preference stacks the precede people if you put it in the first round by like a series C it’s so washed out anyway that it was basically impractical to negotiate it in the first place. And if you’re not prepared to lose it all as a precede investor you might want to buy BHP or something I guess that’s not financial advice.

0:47:59 – (Maxine Minter): I was going to say like go up the risk curve like get a seed or a series A.

0:48:07 – (Dan Gavel): Like know where you’re like it’s. For us at preseason we understand it’s all or nothing and we sort of bake that into the way we approach early deals. When you get asked the question safe or full subscription blocks they’re based not that different really anymore. It’s more whatever people are comfortable, we won’t argue stuff like that. It’s like, let’s just get it in, get it done. Because none of the stuff that you have in shareholders and again, this is probably more out there most of the stuff in shareholders agreements and that is basically not worth the ink it’s written on anyway. Because no one’s going to chase you up if you don’t do a quarterly report.

0:48:50 – (Dan Gavel): Half the stuff is actually unenforceable anyway, so why get caught up on it unless you’re prepared to put your reputation on the line to take down a founder? Most of it is pretty irrationally in there, I think.

0:49:05 – (Maxine Minter): Yeah, 100%. This is actually maybe a good segue into the question that we ask everyone at the end of chats with them, which I feel like we might have some juicy one here, but what is the biggest big honors moment? A moment that you were extremely ballsy.

0:49:24 – (Dan Gavel): I put all my money into crypto two days before the winter.

0:49:32 – (Maxine Minter): Is that ballsy?

0:49:33 – (Dan Gavel): No, that was stupid. No, I didn’t just bull yolo. Probably. I would actually say the biggest one was we did what has turned out to be probably our most significant investment in two days. Whoa. Turned around in two days from wow. First being allied to the idea. So weekend, I was going away for the weekend. I got a phone call, I think, on a Friday, saturday morning. We were in a meeting with the founder.

0:50:02 – (Dan Gavel): Sunday afternoon, we’d written about a half a million dollar check.

0:50:08 – (Maxine Minter): Wow. You love that number.

0:50:09 – (Dan Gavel): Yeah. And to be fair, there was some serendipity in there around, like my business partner from Full Circle had done DD on the company before they’d had a relationship with them, and it was making up the difference. But we had those two days to make the deal or not do it, so we had to get really comfortable with doing know that company is now not insignificant.

0:50:36 – (Maxine Minter): Wow, that’s amazing. Do you know what the multiple was.

0:50:40 – (Dan Gavel): On that investment for what we’ve made on it now? That’s a very good question, Max.

0:50:48 – (Cheryl Mack): And speaking of half a million dollar checks, what happened to that first half a million dollar check that you wrote?

0:50:54 – (Dan Gavel): Yeah. That got turned into gold and robbed by the Italian master in Milan.

0:51:01 – (Maxine Minter): Oh, spicy. So spicy.

0:51:05 – (Dan Gavel): Found a mistake. Look, I don’t know what was going through his head. That was back in the days where founders used to think the way your capital raised was to fly around the world, spend $35,000 visiting everyone in the US. Knocking on 150 doors. They were in desperate straits. They got sold on a deal which the lawyers on their side, on our side all sort of said, that looks okay. What you can’t control is the founder having a brain fart and doing something very stupid. In this case, they took the money in, took half a million dollars, converted it to golden, took it across the border from Switzerland to Milan, and were subsequently robbed in a hotel room. Wow.

0:51:52 – (Cheryl Mack): That is nuts. Holy crap.

0:51:54 – (Dan Gavel): See, why don’t do DD like it? Fuck. It doesn’t matter.

0:51:58 – (Cheryl Mack): It doesn’t matter because you do DD and it could still get turned into gold and robbed by the mafia.

0:52:04 – (Dan Gavel): Look, and it’s a crazy story, and I really feel for the founder because obviously to get to that point, there was something really like there was a level of desperation that you just couldn’t have seen coming.

0:52:14 – (Maxine Minter): Yeah.

0:52:15 – (Dan Gavel): And again, it was a shitty situation for us, but we don’t focus on it because again, we don’t invest in that company. We’re not in the ecosystem, we don’t make the great investments we’ve made. We don’t meet the great people we’ve met. And this is nine years past, eight years past. So, like, a lot has changed.

0:52:36 – (Cheryl Mack): It doesn’t hurt as much anymore.

0:52:37 – (Dan Gavel): Gold price has gone up. So someone won. Right?

0:52:44 – (Maxine Minter): So true.

0:52:45 – (Dan Gavel): Yeah. Look, it was difficult to go through, but I do feel for the founder because that must have been pretty challenging situation to get to that level.

0:52:54 – (Maxine Minter): Yeah, for sure. And I think so indicative of the way that you think about it, right? Like, take big swings, do everything you can to derisk it if risk materializes. That is the nature of the business that we’re in.

0:53:08 – (Dan Gavel): Yeah.

0:53:09 – (Maxine Minter): Not the walking across land borders with gold, but taking big risks and things go wrong, but structuring the way you make investments to be able to absorb that downside and still return, an amazing return.

0:53:22 – (Dan Gavel): Look, it’s big picture thinking, right? Like, you could get super caught up and jaded on that, or you could go, like, honestly, that’s like chapter three of my book, so fuck yeah, I’ll make some money back on that at some point.

0:53:38 – (Cheryl Mack): I’m into it. I’m here for the book.

0:53:40 – (Dan Gavel): I wouldn’t say that exact situation is part of the game, but equally, I’ve seen people lose money quick and stuff because it’s a naturally risky ecosystem to be in, and we accept that. I would prefer not to have that happen again. But at the same time, we’re in the nature of risky businesses. We are very much aware that it hurts, but we’ve always been big picture thinkers and going like, you could get caught up on that or I could go home and spend time with my son and not ever think about it. So I choose to.

0:54:19 – (Maxine Minter): Fair enough.

0:54:20 – (Cheryl Mack): I love that about you. Well, Dan, thank you so much.

0:54:25 – (Dan Gavel): Thanks for having me.

0:54:26 – (Maxine Minter): Thank you so much.

0:54:27 – (Cheryl Mack): As always. We’ve learned so much and had a laugh while doing it. You’ve been amazing and thank you for your time.

0:54:33 – (Dan Gavel): Find me on Aussie Angel.

0:54:35 – (Cheryl Mack): Yes. If you want to join the flock or Dan’s Shepherd personal investments, you can find them on Aussie Angels.

0:54:44 – (Dan Gavel): Awesome. Thanks for having me, guys. Really enjoyed it.

0:54:46 – (Maxine Minter): Thanks, Dan. Thanks, Dan.


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