Craig Blair Shares Insights on Investing and Building a VC Fund

First Cheque

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Episode Summary:

In this enlightening episode of the podcast, co-hosts Cheryl Mack and Maxine Minter engage with venture capital veteran Craig Blair to unpack the intricacies of successful early-stage investing. From sage wisdom to navigating the ever-evolving VC landscape, this conversation is a trove of insights for aspiring and seasoned investors alike.

Craig discusses his journey starting from an entrepreneurial venture in the Czech Republic to establishing AirTree Ventures, which has shaped the Australian investment scene. With a particular emphasis on strategic risk-taking and intuition in investment, the episode dissects the balance between data-driven decision-making and the human element in evaluating startups. Craig also shares his pivotal ‘big cajones’ moment—a personal story of bravery and recovery.

About the Guest(s):

Craig Blair is a seasoned venture capitalist with an entrepreneurial background and a track record of successful investments in the tech industry. With a career spanning over two decades, Craig has become a distinguished figure in the VC market since 2002. He co-founded AirTree Ventures, a leading Australian venture capital fund dedicated to investing in visionary technology entrepreneurs. With his expertise, Craig has developed a reputation for making strategic and often contrarian investment decisions that have significantly impacted the Australian ecosystem. His risk-taking prowess isn’t limited to investments though; he’s also known for engaging in adventurous activities such as ocean sailing.

Key Takeaways:

  • A founding partner of AirTree Ventures, Craig Blair emphasizes the importance of being contrarian in investment decisions.
  • The discussion reveals the significance of developing investment theses and being prepared with better information about verticals or opportunities.
  • Avoiding the herd mentality and challenging personal biases are vital for successful VC investments, underscoring the need for continuous learning.
  • Craig shares a personal anecdote of tenacity, underlining the importance of dedication and resilience in the face of adversity.
  • Discipline surrounding fund size and alignment with LPs helps maintain investment theses, ensuring the sustainability of both venture funds and startups.

Notable Quotes:

  • “If everyone in VC, for example, is going into something right now, I don’t want to be there. I want to be somewhere outside that.”
  • “It’s a humbling experience to see a company and be like, oh, it’s not going to work for these reasons, or it hasn’t worked in the past, and therefore it’s not going to work again in the future, and then it really works in the future.”
  • “It’s very dangerous if you start morphing your investment plan to suit your LPs.”
  • “You might not work before, but why would it work now?”
  • “I’ve done a lot of adventurous things. I do a lot in my previous…well, probably still do a lot of crazy stuff. I love risk.”


This transcript has been A.I. generated.

Chery Mack: Okay. Three, two, one. Hey, I’m Cheryl.

Maxine Minter: I’m Maxine.

Cheryl Mack: This is First Check, part of Day One, the network dedicated to founders, operators, and

Maxine Minter: investors. If you want to be a better early stage investor, this is the show for you. So TLDR, if you don’t want

Cheryl Mack: to suck at investing, listen up.

Cheryl Mack: Today we have Craig Blair, so excited. He has been investing in like the BC markets since like 2002, which is totally

Maxine Minter: OG. og old guy or like original in original guy. Original guy in the ecosystem. But I do think it means that he brings this like incredibly sage voice. Every single one of my interactions with him have just been blown away by how thoughtful he is across those areas and like really anchors us in what’s important in our ecosystem.


Maxine Minter: He’s also just like

Cheryl Mack: totally an original thinker and I think his ability to like take strategic risks has really come through the

Maxine Minter: ecosystem. Yeah, a hundred percent. I mean, I think he does it in all parts of his life, right? Isn’t he like a avid e boiler, ocean swimmer? Yes, also a very risky activity. Right, right.

Maxine Minter: He’s also put

Cheryl Mack: together a really strong

Maxine Minter: fun strategy team. Yeah, I’ve heard this. I think Actually, I think if we zoom out, his investment decisions, from what I’ve watched, he’s really good at taking these, like, clever, extremely unusual investment decisions that, at the time, might seem crazy, but really play out, both in the way that he has operated Airtree.

Maxine Minter: But also like in their investments, like pet circle, I think when he did, it was pretty non consensus, but amazing. Yeah,

Cheryl Mack: absolutely. Would have thought right at the time, pet subscription stuff. No, thanks. I mean, I don’t have a pet, so I wouldn’t know. Cool. Well, I let’s welcome him to our podcast today.

Cheryl Mack: Welcome Craig. It’s so great to have you on the first question that we’d love to ask our guests is what is the first thing that you’ve invested in?

Craig Blair: I would say the first sizable investment I did was effectively the Yahoo of. The Czech Republic. Whoa. So I invested a lot of money. I was, uh, about to go to business school and I took my entire first year’s business school fees and put it into this company that I thought was going to be the next best thing in the Czech Republic.

Craig Blair: And I think I got about 10 cents on the dot for one. Did your parents know about this? Well, I was, I was my own person then. No, they don’t. They didn’t. Uh, but I just, I guess I learned a lot from how not to invest from that first experience. Yeah.

Maxine Minter: Yeah. Amazing. Well, out of interest. Thank you. What happened to your business school fees?

Maxine Minter: Did you end up going to business school and just like scrimped and saved for the first year or?

Craig Blair: Yeah, I mean, I, I was unusual. I mean, I don’t know what your experience was Maxi, but many people at business school either were paid for by the company they were working with before or had a loan. I had my own company.

Craig Blair: It was an engineering company in the Czech Republic. And I sold that for enough money to pay for two years of not working in two years of business school. So I sold the business and plowed it back into my own education.

Maxine Minter: Very cool. I actually just think that that is so archetypal of the amazing story that you lived.

Maxine Minter: I feel like every time we have this conversation, I find out some amazing other facts. I didn’t know that you had an engineering business in the Czech Republic before. All of this. I mean, I know that you had kind of entrepreneurial background, but like that in particular is incredible. How did you decide?

Maxine Minter: I mean, maybe just to take us off piece for a moment here. How did you decide engineering in the Czech Republic? Like, what was your journey to developing that?

Craig Blair: That could take way longer than this podcast. Taking on a project in Prague to build a new, what’s called, Bonton was the company. Bonton was a big technology company and they were building new music megastores.

Craig Blair: At those times, music megastores were a big thing. So I was on Ventures Square, which is the main square in Prague. I was building this four story building. I was 26 years old. I was an engineer, so I knew. So I had to deal with hundreds of people on site, I had to deal with Russian mafia with machine guns outside.

Craig Blair: I mean, it was like, wow, it was wild. And that company went bust. So I bought it out, took it over and ended up with other projects and sort of just happened through a series of like strange events. I always felt out of my depth and I always felt like I didn’t know what I was doing. And I feel like I needed to get an education around business, not just engineering.

Craig Blair: This is why I went off to business school. Yeah. Very cool.

Maxine Minter: Wow. I didn’t, I mean, I feel like. My observation, at least, you know, I obviously have got to watch from the outside a bunch of the investments you’ve made, kind of heard about a bunch of the businesses you’ve built, including Airtree, right? Like, as one of the premier investment funds now in Australia.

Maxine Minter: How do you think about developing theses that you chase? Do you, like, develop areas that you invest in? I know you guys do this at the fund level at Airtree, but when you’re thinking about, like, Where do I want to invest? How do I want to invest? Are you doing like pre thinking about these areas and then executing them as opportunities become available?

Maxine Minter: Or are you like on the fly being like, wow, that sounds like a good opportunity. Like, how do you think about thesis development?

Craig Blair: Yeah, I wouldn’t require a thesis development until maybe five, 10 years. I think that I usually have, I’m naturally contrarian to a fault sometimes. Like if everyone’s going left, I’ll go right and vice versa.

Craig Blair: So that tends to be annoying because it’s always doing the opposite of what all the people doing. Uh, so that’s the first thing like if everyone in venture for example is going into something right now I don’t want to be there. I want to be somewhere outside that. But then it’s like a question If you’re too far outside that you never get something.

Craig Blair: So I’m trying to fight just on the I’m a fear of the outside of the norm where it’s going to work in the next 5 10 years. Not the next 20 years, but it’s not going to be the same thing I was doing. So that’s what I, that’s what I did my first startup. And I was an online travel company in the UK, um, in the dot com era.

Craig Blair: And online travel is pretty boring now. But at the time it was, It just felt like the first use case of the internet where you can actually buy a ticket online or get a flight online, all normal stuff now, but if music was going to happen, I had friends with music, but it was how it happened, how it turned out to happen 10 years later, you know, e commerce happened, but it turns out, you know, Petzl 20 years later.

Craig Blair: So I think I was lucky to find something which was a little bit contrarian, but not too contrarian and it worked. Does that mean you’re not

Cheryl Mack: going after AI right now, if all the other VCs

Craig Blair: are? I’m just the biggest greech when it comes to all of this hype we’re getting into. Yeah. I have this thing I say, VCs, we’re all, we’re all contrarian together.

Craig Blair: In fact, you can’t make an offer if you follow the crowd, so you’re going to have to do something different. Fair

Cheryl Mack: enough. And so you guys, you know. Speaking to the team each year that you develop different themes each year. Yeah. Really curious to understand, like, how do you do that? You sit down as a team, do you, like, go through what’s going on in Trends?

Cheryl Mack: Like, talk us through some of that theme development that you do.

Craig Blair: Yeah, I think it happens fairly organically. I mean, our first premise is we do develop a thesis, but our first belief Philosophy is that founders will find the best ideas. Like our, our job is to be scaring the market, understand where the, where the best and brightest are thinking, you know, and as you meet people, you can see something’s going on in a sector.

Craig Blair: So yeah, it’s very much a founder driven thesis. But that said, there’s probably a couple of ways we land on the thesis. One is, is something’s happening at a horizontal level. AI is a good example. We want to go on the stack and just think deeply about, okay, how’s it going to play out? Who’s going to win?

Craig Blair: Who’s going to lose? That’s usually a big piece of work done by somebody in the team. They present it back. We sort of thrash it out and land on a position. Like this is the areas where we think it’s interesting. There could be interesting variables. Else is going to be there. This is the areas going to go to the cupboards.

Craig Blair: And then the other way it could be verticals. Actually, we might find a lot of hotspots of activity going. Something’s going on over there. We need to like. Build a thesis around that, and that could be in like industry verticals, it can be things like ag tech or age care in the IAS, there’s a bunch of things like this, something’s gonna happen in there, what’s the role of technology, software, we have a both vertical and horizontal view of thesis, it’s just more of a way of thinking about the segment.

Craig Blair: And like

Cheryl Mack: how much you use those themes to filter out or filter in companies?

Craig Blair: Uh, we don’t, it’s more to let us to have a view on when we’re seeing companies, we say, you know, in these, we’ve seen three companies in that space where our view is that space there is interesting today, but over time it’s going to get computed out by the incumbents.

Craig Blair: Or so I think in that, in that sense, we’ll meet companies, but we’ll have a view going to meeting a great team, but we can’t see this space as being a long term defense force area, for example. But it doesn’t mean we don’t meet people. We just have a sort of thought process, which we’re prepared to change because we’re learning all the time.

Maxine Minter: It reminds me of the anecdote of at least Bill Gurley’s backwards looking, how did we find Uber? Yeah. Right. They like did a whole bunch of work on marketplace businesses and network effects. Yeah. And he had particular theses in relation to like ground transportation. And so when he met Uber, he was like primed and ready to get it before everyone else.

Maxine Minter: Yeah. And so he did that work. Then something came into his crosshairs and he was just like, bang, like, this is my wheelhouse. I’ll nail this. And like, I think we can agree at least on an enterprise value basis, like nailed it. Do you guys think about it in the same way? You like do that work. So you’re prepped if you meet someone kind of in that space, but you’re also kind of opportunistic as.

Maxine Minter: It’s like, damn, that’s a great idea.

Craig Blair: Well, we’ll have a, we’ll have a view for sure. So I do sometimes think that some of these theses do, but sometimes it’s, sometimes it’s great content, but I think it might be a reverse engineering bit of serendipity.

Maxine Minter: Like how

Cheryl Mack: true is.

Craig Blair: Yeah, I mean, I, I know Bill, like he’s amazing, so, but I just, uh, I think from our perspective, we go into a set that we might, we might be, for example, looking at a data infrastructure layer in gen AI, and here’s how we think it’s going to play out.

Craig Blair: But when we find one in that space, we go, okay, we’ve got a way to think about that. And we probably have, hopefully have more intelligent questions, which makes them feel like we’re partners. And sometimes they’re wrong. Sometimes they persuade us like, you’re wrong. There’s another area, another way to look at this thing, but at least we come in with a, with a view.

Craig Blair: It also

Cheryl Mack: makes me think about how you track the patents that Apple puts in and like why you do that around, well, if I’m looking at companies that might be doing something in this space in the next 10 years, like, how is that going to play out? I think there is something there about like, you have to do the research in industries that you want to play in.

Cheryl Mack: Otherwise, like, how are you going to make investment

Maxine Minter: decisions? 100%. Like, I think a very sage friend of mine gave me this framework to think about being a great investor, which I really love, which is like, you have to see the deal. Then you have to win the deal and then you have to learn from the deal because this is such a long term investing is such a long term activity.

Maxine Minter: The extent to which you have better information at the table, you’re going to make better decisions in the long term. And so, I mean, I think about this strategy as a, like, you just make sure that you have better information on particular verticals or particular horizontal opportunities or like moments so that if you come in to contact with an opportunity that intersects with the.

Maxine Minter: area you’re focused on, you’re more able to see it, win it, like get it and learn from it.

Cheryl Mack: Yeah. Like there’s a middle one there you missed. Like you have to understand the deal because you can see it and not understand it. And then why would you even win it? And like, that’s the piece where like the research means that you understand it.

Craig Blair: Also, learning how to manage your biases, like you’re not going to get rid of learning what they are, when they emerge, and whether you understand things or you misunderstand things, just being really honest with yourself about like, what do you like, if you get it wrong or right. I think that’s where a team can help you because often they’ll see things you can’t and vice versa, and hopefully you three, if you’ve really got a nice, transparent and open conversation, you can get the wisdom of the crowds rather than one person’s bias.

Craig Blair: 100%. That’s

Maxine Minter: such an interesting comment there. Yeah, like I wonder for I mean, maybe this is self serving, but I also think for the folks that listen to our podcast, like a lot of them are angel investors. They don’t have teams and they’re not planning on building teams around them. Have you manage your bias?

Maxine Minter: Right. Like, have you any Any tips or tricks on how you manage your bias as an individual?

Craig Blair: Yeah, so I, well, I can tell you my biases. I used to probably, I used to probably do too much work on LSAs and try and over index the analysis. That sounds strange thing to say, but what I, what I mean by that. And I see it happen now all the time, is you’re looking at a C deal, 30 page IT paper, doesn’t make the thought processing better.

Craig Blair: I think that I used to mistake, and people can mistake, amount of work for quality of the thinking. And it’s hard. Second thing, you know, there’s some areas which I don’t understand. I didn’t, I missed, I missed after pay. I just couldn’t conceive of why you wouldn’t use a cranker. It just wasn’t my generation.

Craig Blair: I, I, I joke now that if you’re gonna invest in a product, we had to swipe. I’m not, I don’t, I didn’t grow up swiping, okay?

Maxine Minter: My gear doesn’t work that way.

Craig Blair: I’m being a bit silly, but there are things you guys, I just know, I won’t be the person who gets. And the last one, which is a problem for when you’re doing it for a while is you’ve almost certainly seen that thing before and it hasn’t worked.

Craig Blair: Your tendency could be, I’ve seen that before in, in certain years, it didn’t work for certain reasons, but everything works at some point in time. It might not have worked before, but why would it work

Cheryl Mack: now? Yeah, it reminds me, I don’t know who said it, but they said like, In my experience, almost anything is possible technologically.

Cheryl Mack: It’s just whether or not you can make the other factors

Maxine Minter: work. It’s a humbling experience to see, like, see a company and be like, Oh, it’s not going to work for these reasons. Or like it hasn’t worked in the past and therefore it’s not going to work again in the future. Yeah. And then it like really works in the future, right?

Maxine Minter: The like anecdote there is it’s really easy in hindsight to be like, Google was great investment. But at the time it was the like ninth to market. In a very crowded search environment and all of the investors that looked at it were like, why would Larry and Sergey win when everyone else has failed? And like, by the time it became obvious on the numbers.

Maxine Minter: Right. It was too late. I do wonder how you think about intuition and investing in that perspective. Like something that actually my executive coach and I were talking about recently was the role of intuition and decision making and his kind of framing was if you could, especially for early stage, like precedence aid, if you could know a hundred percent, it was going to work on the numbers.

Maxine Minter: VC wouldn’t exist in the way that it. Does, right? There’s like an enormous amount of intuition that comes into decision making. I would love your

Craig Blair: thoughts on that. Yeah, I, I think it’s important, I agree with your distinction between the difference between late stage and early stage. I think they’re very different areas.

Craig Blair: You’re right. If it was easy as, as knowing the numbers and knowing anything, we wouldn’t have a job. So there’s always gonna be a bit of gray area, and so a bit of intuition in there. And you have to acknowledge the role of luck, right? So you’re just trying to like force lady luck just to bend a little bit your way.

Craig Blair: Examples of areas, and again, I’m going to say things here, my team will just check the hint because that frees easy. Time analysis, right? I find time analysis to be some of the most irritating. Productive thinking in investing. Interesting. The reason is that I feel like, and I used to do it all the time.

Craig Blair: And I’ve had his business school. I could do a spreadsheet, which would make you the TAM look amazing. But it was almost all wrong. And it’s because there are so many answers. Garbage in garbage. Yeah. There’s so many answers. My spreadsheets look amazing. But it ignored the fact that you just didn’t understand in that also before in order to ignore the future state.

Craig Blair: So you’re dealing with something today that things change in the future, you know, dynamics change in the future. So your market might be growing, but the dynamics might be changing and good founders can often just don’t see markets constrained by spreadsheets, they just see opportunities. So. So I think there, there’s an opportunity to at least have a sense of how big the market is, but don’t be constrained by the spreadsheet.

Craig Blair: Like you need to think you have a gut feel, this could go somewhere, it could build somewhere, you know. It was a great example. I do think there’s a lot of intuition, but I think it’s, if it’s just becomes gut feel and you’re just throwing darts at the darts board, that’s not So it’s got to be sort of a thoughtful, thoughtful analysis with, with a bit of intuition.

Craig Blair: So

Cheryl Mack: do you even look at a founder’s like market size TAM slide, or do you just like totally discount that? Do you think founders should not even bother doing

Craig Blair: them then? Well, again, I’m probably a bit out, I, I, I’m more interested in how a founder is thinking about it. If a founder puts a tan down, I think that’s the answer.

Craig Blair: Then that makes me question that judgment. If a founder puts something down and says, here’s an answer, but you know, they understand the ambiguity and complexity of the future, then that’s great. Cause that’s the, well, that’s, that’s, that’s the real ones. So yeah. More about how they phrase it. I love it when founders say, I don’t know.

Maxine Minter: Yeah, it’s rare. Right. Yeah. 100%. 100%. Actually, I mean, I think it is one of those divisive topics, right? Like there’s people on one side of the fence that are like time analysis really matters and then other side of the fence It like really doesn’t matter and we both are right, you know And I think that nuance is it’s about the way the founder is engaging with that information

Craig Blair: My only challenge is like, assume there’s a world where TAM analysis is right.

Craig Blair: Okay, fine. Then you come back to where’s the alpha, because you can run the same numbers as everyone else. What’s the inside, right? So if TAM is going to be an important factor in your decision making, and you think you, you’ve got to find what’s your angle that the next analyst is just as smart as you has on their same

Cheryl Mack: spreadsheet.

Cheryl Mack: Yeah, because we’re all getting the same numbers at the end of the day from the founder. It’s like, do you believe them, or do I believe them, or does nobody

Maxine Minter: believe them? Yeah, yeah. So you’ve been

Cheryl Mack: doing this a long time, and I think that kind of shows, uh, you know, just the way that you, you talk about some of these things.

Cheryl Mack: But I think it’d be really interesting to get a sense of like, what it was like growing a VC fund from scratch during a time where there really wasn’t. Many or any when you first started, can you walk us through that journey a little bit?

Craig Blair: Yeah, I mean, look, you know, you’ve both done this as well. So you’ll have your own, your own journeys to share.

Craig Blair: I’d love to hear. I mean, I think I started Airtree 10 years ago and I’ve had almost 10 years experience in a front before that. So I wasn’t coming in fresh, but I think the first thing I’d say is like, it’s, it’s like starting a business. I’ve started, I’ve had started a lot of software business. It’s the same thing.

Craig Blair: It’s like, it’s really, really hard. The odds are stacked against you. Lots of reasons to fail, plenty of doubters out there. So you really have to have a sense of conviction and belief in a world where everyone’s saying, don’t do it. Uh, back then, now it’s more obvious, but back then it wasn’t obvious. And I guess that forced Us to thinking of it really, really crisp on what our thesis was, why do we think there was a right for VC to thrive in Australia?

Craig Blair: And if so, what was the right model in VC? And for us, it was a multi stage, regionally focused VC that had full service offering. Yeah. And it’s not rocket science. It’s a model you’ve seen work in other markets pretty well. Yeah. You got to find quite a market fit, right? You got to find a You’ve got to have a vision of the land, you’ve got to raise money from people who really have no reason to believe in you, you’ve got to convince the team to join you when they don’t have anything.

Craig Blair: So, um, you know, we were lucky to have four investors come on board, two of the people who joined in the very first week still with us right now. Wow. Cool. So that’s it. It’s like a seed fund. It’s like a seed investor, pre seed, you know, business.

Maxine Minter: 100%. I actually, I remember when I was raising. the pre seed round and the seed round for my last venture back business.

Maxine Minter: And because pre seed and seed is overdominated with emerging funds, we spoke to a bunch of emerging fund managers at the time. And I remember them being like, we raise capital too. Therefore life is like you. And I remember being like, it’s not the same. It’s so not the same. Like this is so different. And then now I’m in it.

Maxine Minter: I’m like, it’s actually surprisingly similar, right? There’s like lots of similarities, but I try not to talk about that with them because I remember how deeply I was just like. You don’t get it as a founder when I was talking to, to fund manager, but actually like I didn’t get it at the time. And there’s so many parallels that you’re building a business here that has all of the features of building a kind of early stage unproven business and even some like other weird elements to it.

Maxine Minter: Right? Like it’s almost like an enterprise sales motion in that you. lock in a certain revenue and it’s like yours for 10 years. And then you like lockstep up revenue jumps that you get busier up behind them, you know? So you’ve got like set revenue, but then you get busier and busier up to a point. We haven’t got to that stage yet, but like actually the growing of the business behind your like.

Maxine Minter: Interesting revenue structure, I think, is something I’m definitely kind of learning about. I also There’s a lot of parallels there. There’s a lot of parallels, yeah. I re Learned recently that the graduation rate from Fund 1 to Fund 2 in the last couple of years has been about 30%. So actually, the death rate for Like fund one to fund two fund managers is higher than like pre seed and seed stage companies, at least.

Cheryl Mack: What’s the death rate between seed and series

Maxine Minter: A? I think it’s about 50 percent in the U. S. I don’t know. Have you seen any more recent data? I know some people have said recently it’s closer to like 25 to 50 graduation rate from seed to series A. In the U. S. Do you know what it is in Australia at the moment?

Craig Blair: Ah, I’d say the same. So it has, well it should be, it should be 20 50%. It has been much higher than that. Yeah. But I think we’re going to find the failure rates have just been extended. Which we’re finding now. Yeah. But I think the better sort of point I agree, I think you’re making, which I agree with is, is BC failure rates are about the same as Australia.

Craig Blair: Startups. And they fail for the same reason. That’s not part of a market fit. The economics didn’t work or the team fell apart. They’re the same. Things are breaking. They see a breaker startup.

Maxine Minter: Can’t raise the next round. Yeah. Right. Yeah. You can’t raise the next fund round. Fund round. Fund round. Um, I’m wondering from your, I mean, you’ve obviously done this progression twice now, right?

Maxine Minter: Like you ran a venture fund prior to Airtree and then now you’ve done it again. You’ve kind of scaled to fund. What is it like to take those steps? Yeah. From, like, Fund 1, those early believers, I love the fact that you’re, like, still so close to some of your early LPs that are hanging out at your house right now.

Maxine Minter: Um, like, what did you learn in those steps up from Fund 1 LPs to Fund 2, Fund 2 LPs to Fund 3?

Craig Blair: Well, that, I mean, that’s, that’s been a fascinating journey. I think, uh, we, our first fund was a 60 million fund. We actually raised close to 80, about 80, but we felt that was too much money. It scaled back to 60, which is tiny by today’s standards, but that was a big number, right?

Craig Blair: It was a really big number. Um, and we got there because we had, uh, Well, we had a track record, which helped, but we generate a DPR. We’d had a pretty good network of people we worked with before, but the main thing was they were looking for like some sort of proof points of track record and they want alignment and this is where the curly this Concept of GP can be I know it’s it’s a sensitive issue because it’s it can be icky particularly for early managers Um, so I don’t want to rush over that.

Craig Blair: So it’s an issue. We need to resolve as a sector We want to find managers coming in for sure But I guess from our perspective, it was a very good way of saying, we’ve done this before and we’ve made money out of it and we’re prepared to put it back in. And secondly, the alignment point was really important to me personally.

Craig Blair: Like, you know, it was really important that I was able to look my LPs in the eyes and say, if this doesn’t work, I’m going to hurt way more than you are. It’s no free option here. And so that made for some tough conversation with my wife, you know. I’m always my try and have a practice thing with VC, which by the way, has never worked in Australia.

Craig Blair: Your point earlier, it hadn’t worked before. Thankfully she believed and trusted me, but I think that were the big, big statements and big signals that we had to show that we were confident and aligned and we couldn’t afford for this not to work. That was how you raise the first five instead of family officer through.

Craig Blair: Just alignment and our own kind of like momentum. And then some of these are friends of mine and friends I’ve worked with before, friends that are family officers that I’d grown up with. So, and then the transition for the second farm was interesting because that’s when, prior to 2000, our second farm was 16.

Craig Blair: And up to that point, BC was really on the nose for institutional investors. Uh, in fact, there was superannuation funds. I remember one CEO, CIO, who said he was only two asset classes he was forbidden to take into IC. One is Japanese jump bonds, and the other one is Australian venture capital. So, because it just hadn’t worked before, actually.

Craig Blair: That’s great. Sixteen had changed, and they started knocking on our door, and it was a totally different. experience. You know, they are a hundred billion dollar plus funds. They want to write big checks. They didn’t really understand Venture Frampling. They answered P. They thought it was kind of similar to P.

Craig Blair: Uh, the DD process was just next level. You know, frankly, our operations DD, it was really, really hard because we weren’t really there to be honest. So we had a lot of leveling out, a lot of learning to do on operations, risk, technology. Uh, we had it, we had the track record, we’re making money, but the other parts of the business just weren’t quite there.

Craig Blair: So that was a big learning curve for us in that second part.

Cheryl Mack: And there’s just, maybe I’ll jump in there cause, uh, we had, have had some feedback from our listeners that, uh, we tend to use a little bit of jargon, uh, in our conversations. So there’s a couple of terms there you used, um, that I’m going to define really quickly, but there was one that I, that you said that I’m, I’m going to ask you about.

Cheryl Mack: So one of the things you, you just said was DD that stands for due diligence, which is just the investigation that VCs or investors tend to do on, on startups before they invest. You also mentioned P which just stands for private equity. That’s kind of the bigger end of town that tends to come down and invest in funds, even when they don’t understand it, like you mentioned.

Cheryl Mack: And another one that you mentioned was GP commit. Which essentially is just, uh, the amount of money that you have to, as fund managers, uh, commit to the fund itself. Um, it signals to us as, you know, LPs that you’re committed to the fund and that it’s your money on the line as well. And then there was another term that you used, and I might have heard it wrong, but you said we generated DPR or DVR, um, at the start.

Cheryl Mack: What was that?

Craig Blair: Yeah, that’s, um DPI is basically the capital returned TVPI total value paid in and DPI was distributed paid in capital and as fund managers, the only way, the only thing that our investors care about is DPI ultimately they give us. It’s 1 on day one and I’m hoping to get 2 or 3 back in real cash at some point.

Craig Blair: And so it’s liquidity. Awesome.

Cheryl Mack: Thank you. I learned something

Maxine Minter: today. I love that. I was, as you answering that question, I was watching Cheryl like take notes of the list of defined terms. It reminded me so much of being. Like a baby lawyer and then a baby investor where you just be like, Mm-Hmm. . Yep. Mm-Hmm mm-Hmm

Maxine Minter: But what does that mean Down where? Going in Ed and being like, what in God’s hell? What is his DPI .

Craig Blair: But that quickly fast. I used too much jargon. It’s blasted through that thing.

Cheryl Mack: It’s okay. I knew

Maxine Minter: three

Cheryl Mack: outta four, so I’m calling that a win. ,

Maxine Minter: 75%. I’ll, yeah, I’ll down that. I would, I would say like on the GP, commit.

Maxine Minter: point and on the like track record and DPI point, I think it is such a area that I think we need to solve as an ecosystem if we want to change the demographics of the people deploying capital, because just for the kind of context here, the industry norm for GP commits are the amount that fund managers are asked to put into their fund is somewhere between kind of one and 2%.

Maxine Minter: So if you’re raising a big fund, And you aren’t independently wealthy, you have those conversations, if you’re lucky enough to kind of have a mortgage with equity in it, like you’re having conversations with your loved ones, like, yeah, hi, I would like to bet the house, but if you’re not in that situation, kind of not yet at that position, one version that I’ve seen in the U S here is cashless commit, which I actually believe I’ve done in my fund for a portion of our commitment.

Maxine Minter: And we use a company called Boutique as our back office and in our early conversations with Tim at Boutique, I was like, I would like to do cashless commit for like this portion of our investment. And he was like, go on, what is cashless commit? And so it’s like a new thing to the Australian ecosystem.

Maxine Minter: But I do think that that’s a really exciting opportunity, which for context here is essentially you forego management fees. And then you take the kind of equivalent of that. So you are still aligned to it. You’re not taking revenue to kind of run the business. That’s, I think, a really exciting option on the DPI piece as well.

Maxine Minter: Like you have to be fairly far along in your career just because of the nature of the timelines of venture show DPI to show DPI, right? Like you have to hold a whole fund or like the majority of a fund to start to like return that return back. Do you have any theories on like how we break out of that cycle?

Maxine Minter: Or does, is it just a structural requirement? That means that you have to be further along in your career to be able to be a fund

Craig Blair: manager. Um, I, I don’t have a match bullet, but I think I agree with you. It’s, it’s, you need to spend time on this. So I think it’s also breaking it down as a component path.

Craig Blair: What are you trying to achieve? The first bit is alignment and foregoing management fees is one way to do that. That when we do it, when we back founders, we ask them to do the same thing, right? We say, we want you to earn next to no salary and we want you to invest your shares before you, so we, we, we’re doing, we’re asking our founders the same thing.

Craig Blair: We should do, reset ourselves for a bit. Like that feels like a, that feels like it’s solvable through Capstone Script. The actual cash in DPI, so I think that’s a slightly separate point. And I think it really, it just comes down to what you’re pitching, right? If you’re pitching first time manager, then you won’t have, you can’t pitch track record.

Craig Blair: So that’s that you’re going to have, it’s a different thing you’re pitching, right? If you’re pitching a track record, which we were, you can’t pitch track record and then not put money. So I think it’s, it depends what your product and then it comes down to, okay, well, where’s the product market fit or a fund market fit for a.

Craig Blair: Early stage fund without a track record because they’ve got an interesting thesis in a market or a different angle on the view. That’s, that’s, that’s fine. It’s like a pre seeded investment in some ways. It’s riskier. But it might be better than backing it, you know, invest as an LP than backing yourself into a established fund that’s doing the same thing.

Craig Blair: And that’s it.

Maxine Minter: And there’s some really interesting data on performance of Fund 1. Like Fund 1s and Fund 2s to a lesser extent of emerging managers actually statistically outperform later funds, but they’re generally smaller. So I think, like, it kind of aligns to that, that conflict there, like a pre seed investment versus a seed stage investment versus like, you get compensated, ideally you get compensated for the risk you take and you see a better kind of return profile on those bonds.

Maxine Minter: Yeah. Obviously controlling for like market dynamics and those kind of things. Yeah. I think it’s going to be pretty tough to return an excellent fund one if you launched in August of 2020 and did for two years of deploying 21 and 22, like that’s a tough. A tough macro to be returning

Craig Blair: alpha in. Yeah, a hundred percent.

Craig Blair: And that’s, and that’s where timing is everything, right? It’s, again, it’s the same for our companies. If you raise a seed round in 21, which, a round in 21, chances are we’ve got worth the value you were there. So you’re scrambling to try and build up, build your value back up to whatever you promised back in 21.

Craig Blair: What’s the state of the

Maxine Minter: file? A hundred percent, yeah. Actually, that raises a question for me. One of my takeaways from that period, let’s call it like middle of 2020 through to Even to 23, one of my takeaways is the importance of like clear communication, the incentive structure in which you’re operating.

Maxine Minter: You know, a terminology I’ve been using for our fund is like, we are a two sided marketplace. We have customers on either side. Yeah. And being very clear with Canvas that we work for that, like we have other sides on the other side to our marketplace that we have to serve. And I found that to be a kind of a useful way to.

Maxine Minter: Recognize the reality that like the customers on the LP side of our marketplace inform the decisions we can make and what we can invest in and how we operate on the founder side of our marketplace. I’m wondering, from your perspective, what have you, over your time of investing, how do you factor in the incentive structure that is having LPs, whose capital you’re investing, into the way you think about investment decisions?

Maxine Minter: How do you square those two?

Craig Blair: Yeah. Um, I think a few things there, sort of incentives and communications. I think on the incentives, I think it’s, I mean, the reason they’re called limited partners is they should have limited liability. The reason they’re limited liability is they shouldn’t get involved in decisions.

Craig Blair: And good investors understand that. So I think it’s very dangerous if you start morphing your investment plan to suit I mean, you promised them an investment thesis and investment plan when you took their money out of the fund, but then they would trust you with their money to deliver on that plan. So I think we just haven’t found LPs who want to get involved because they know.

Craig Blair: The reason they gave us the money, they trust that we’re doing a good job. They know they’ve got an opinion. It’s probably not as well as it for ours are. If they get it wrong, it’s going to come back at them. So it just doesn’t come, it just doesn’t come into play for us. That said, there’s probably a couple of things that you do feel from LPs.

Craig Blair: One is, um, DPI, distribution paid in. Yeah, there’s a sense of how, I mean, as you know, the venture community has been working for incredible boom for the last 10 years, but some of the earlier funds have not figured out how to return capital investors yet, DBI. And that really matters because it’s a proof point that the valuation, holding valuations are actually what they say.

Craig Blair: It’s also part of your promise to LPs to have given you a dollar 10 years ago, they, they deserve to get their money back at some point. So I think just understanding how they think. Think about DPI and the need to give back DPI is something we’re mindful of. We don’t get pressure from it. We talk a lot about, here’s how we’re thinking about it.

Craig Blair: We communicate how we think about exit plans, equity plans in our portfolio. The second thing that it’s not really how it doesn’t affect investments, but it affects fund size is it’s going to sound like a total privilege problem to have is. Largely investors want to write big checks. And so the temptation is, especially in the last five years, is can you take a hundred million dollar line, and you can get, your funds can get bigger than you, you need to be.

Craig Blair: And I think, I think we’ve always taken the view that we want to size our funds bottom up and top down. We want to do some careful work about what’s the right size of the fund, given the market we’re seeing, the space we’re going to play in, the team’s capacity. And we don’t want to go too much more than that.

Craig Blair: But it’s fair to say with, you know, large institutional investors, you can get beguiled into taking more than you should, and that, that can be a real problem. I appreciate that’s a nice, it could be seen as a nice problem to have. Yeah,

Maxine Minter: for some. I, I mean, I think that that tracks also to companies, right?

Maxine Minter: Like, Kim Teo just blows me away. I am persistently amazed by her. One of the moments I have been particularly amazed by her is in the Hetty. environment of 2021 or maybe, yeah, 2021 when Tiger came knocking on that door, they offered them, Tiger offered them a significantly larger valuation and a much bigger check size than they took.

Maxine Minter: And Kim and the team in their infinite wisdom were like, None. We’re going to have significantly less. And I believe at the time the fund manager who led it was like, what? Even

Cheryl Mack: on valuation? Like they took less money and less valuation. Yeah. How did they, I would love to talk to them. Maybe this is, we get her on the show.

Cheryl Mack: Like, I would love to understand, like, at what quantum did they go, cool, you’re offering us a hundred. We’ll take 75 of that? Or like, we’ll take, where do you find,

Maxine Minter: how’s the right number? Right. But I think like Craig is an example of this, but he’s doing it at a different topic, right? Yeah. It was like, You’re offering me a hundred million, but actually I have the discipline to know my investing plan and I know a hundred million breaks my model.

Maxine Minter: And I’m like, not going to give in to the greed of like, excellent, that’s 2x the management fee I could take on that. Or like, kind of move away from that, from that discipline. So maybe, I mean, I would love to have Kim on the show. Kim, if you are gracing us with your ears, like, please come on the show. But Craig, I’d be interested in your thoughts.

Maxine Minter: Like, what is the mental discipline for you to be like, thank you, no. Well,

Craig Blair: I think it is just having confidence that in your investment plan, this is how many checks we’ve got to write, this is the size of checks we think we’re going to need to get, the strength we need, so we’ve got a plan we believe in.

Craig Blair: In our case, we’ve done it four times now, like we know, we’ve got a fairly good idea about what this plays out, so if you take more money you have to change things, so like that’s just dangerous, many models working well, particularly in this market. But the second thing is like, why do you take this money, what are the things that make you take more money do you think, well it’s usually like.

Craig Blair: Hey, it’s pretty flattering, right?

Cheryl Mack: Yeah.

Craig Blair: Yeah. Exactly. I was just acknowledging this. It’s real. Like, Hey, it’s a bigger check. You maybe the front page of the AFR looks better. You know, you maybe you make more management fees or in Kim’s case, you have a longer runway, but longterm, is it really that good for you?

Craig Blair: And I think, you know, as we found out at the company level and the file level, it can be really bad for you to take too much money. And I think we’re certainly seeing that at the company level. You know, Q is an exception to that rule. And I think you may see at the fund, if funds that took too much money and they just have to stretch their investment thesis, write bigger checks, go harder on things just to put money to work.

Craig Blair: And that can, that can be very dangerous. Yeah.

Cheryl Mack: Speaking of the AFR, we, there was an article recently around, you know, larger checks attracting founders and whether that’s a sustainable model. And I’m curious, you know, what are the thoughts there and how that impacts things?

Craig Blair: Yeah, I think I know the piece you’re referring to.

Craig Blair: I don’t, I don’t, my view is that we should all care about the ecosystem. We want to see more founders back. We want to see more startups get capitalized. Whether it’s us, any other fund doing that, it’s a good thing. If someone wants to pay more money for it to get an early, I think that’s, that’s not a bad thing.

Craig Blair: That’s, that’s a good thing for the ecosystem. I think, uh. So, I, I, I, I’m not sure that, I’m not sure that story hit the market, I think it misunderstood how venture works. If you can get into the best companies and pay a little bit more early on, which we did the same thing, and you find the next employment hero, or you find it to go on, that’s a great strategy.

Cheryl Mack: Yeah. Sage voice. Sage voice. Yeah.

Maxine Minter: We were talking earlier, like, Craig’s the sage

Cheryl Mack: voice in the, like, drama of the tech scene

Maxine Minter: sometimes. A hundred percent. Just like, anchor on, on the realities of it, right? Every day, if you gave me the opportunity to buy, like, as you said, go one, can buy any of these at a, you know, 20 mil valuation, I’d do it all day.

Maxine Minter: Yeah, you’d do it. Yeah.

Craig Blair: Yeah. And then when you’ve done this, I sound like a wise old man, but if you’ve done it enough, you would have seen that work well. Yeah, those examples at those sort of numbers, like that’s a really, that works out really well for you, right? But you also assume you’ve missed things because you didn’t pay enough or you didn’t write enough.

Craig Blair: That’s just the silliest reason to miss. So we never want to miss a deal because of valuation or checksign The later stage is a whole lot, it’s really got to do with some serious analysis. Yeah, yeah, that’s, that’s more, this is a different discipline, but early stage, getting into it and paying a higher price is an entirely sensible strategy.

Craig Blair: Yeah,

Maxine Minter: I totally agree. So do you

Cheryl Mack: compete on valuation then? If you’re like, the founder wants a higher valuation because they’re getting it from someone else, if that’s not something you want to miss out on a deal from, do you actually compete

Craig Blair: on that? Well, I think we’ve said we have to pay market. We won’t noticeably bid the price up.

Craig Blair: Because of the previous conversation, we actually think sometimes we can damage the company. If the company takes our money or somebody else’s money at too high a valuation, checks two sides, and it’s going to take them longer to do what they need to do in that Series A, they’re going to have a problem in 18 months time.

Craig Blair: So you’re looking for the Kims of the world to go, Oh shit, it doesn’t always work, but

Craig Blair: We’re able to get into companies that are low evaluation and less checked because they’re thinking long term, but they’re not thinking about optimizing this route. The

Maxine Minter: psychology evaluation is so interesting. Like I’ll say for my own investing activity, like I noticed that it influences like my gut level reaction and I have to counteract that.

Maxine Minter: Gut level reaction. Yeah. You know, someone like an amazing founder building, something really cool comes to me with like an unreasonably low evaluation. I find myself being like, why? Like, you know, what does that say to me about the information your flows are in? Like, what’s that say to me about the like quality of the founder?

Maxine Minter: And I have to check that and be like, yeah, there are so many reasons why that might be the case. And similar on the other end. I don’t, I think it’s very important not to lose sight of the, like, we are humans. We’re not computers. It’s. Like, there’s like so much psychology around valuation that also matters.

Maxine Minter: Yeah. And I think having discipline around it is really valuable. Yeah. I do wonder, you know, you have watched such an amazing progression of things in the Australian ecosystem, right? Like, I think your first fund was 2002 from memory. You’ve watched this incredible journey. Is that right? Or were you in market prior to that?

Craig Blair: 2005 was the first one, yeah. 2005,

Maxine Minter: yeah. 2005 was 2009. Okay. So, like. You are an OG of the ecosystem, old guy slash original g of the, of the ecosystem. Like you’ve watched some amazing things happen in this world. I, I wonder if you can kind of be the voice of history for us and share what do you think are the trend lines you’re watching into the next stage of the Australian ecosystem?

Maxine Minter: Yeah,

Craig Blair: I, I think, I think that time series give you perspective of just how far we’ve come and, and then how far we have to go. If you think of how far we’ve come, you know, we used to see, we used to see 500 investments a year, even just 20 years ago and make two or three, but, you know, we see 3000 now and make 15, 20, you know, most of the companies we saw were either pretty derivative ideas.

Craig Blair: There were caveys and global ones, but it really wasn’t. It wasn’t the efficiencies, anywhere near the efficiency now, but you didn’t have these showcased for companies like Canva or go on showing that’s what a global, it’s a multi billion dollar global company looks like. So ambitious increase. We’ve gone from no funds, VCs there, to no VCs, to VCs starting again in the seconds in this next epoch, starting in around 14, to now there’s hundreds of VC funds, you know, both your examples, you know.

Craig Blair: Different diversity of capital coming in from different sizes of funds and types of capital. It’s a totally overused word, but the ecosystem is working. Like, you can just see it sort of knitting together, that, you know, talent’s coming in from universities or jumping out from a host of child startups.

Craig Blair: You know, Asian investors are becoming more sophisticated. Hopefully, you know, shows like yours help that. You know, seed funds, multi stage funds. And sure, we compete sometimes, but I think one of the hallmarks of Australia, which we should not take for granted. Is, it is actually genuinely collaborative, I think generally sure we’re going to compete when we need to, and that’s, that’s the right thing to do for our founders.

Craig Blair: But in general, we want, everyone wants each other to succeed because we’re trying to lift this whole thing up. I think we shouldn’t take that for granted. You don’t find that in Israel or Canada. Or UK. It’s much more cutthroat. You say you love the U. S. So,

Maxine Minter: yeah. I just learned

Cheryl Mack: that there’s no, um, VC conference in any other country.

Cheryl Mack: Like we’re the only country that like gets all the VCs together in one room every year.

Maxine Minter: Right. I think that might be more about scale than it is about collaboration. Like you can fit all of the VCs in a room. I don’t think you can do that in the U. S. Or it’s like. Madison Square Garden, you know, like it’s been, yeah, I do, um, we’re coming to you.

Maxine Minter: The reason we’re sitting together today, which is unusual is we are very rarely in the same part of the world, but we’re currently in Perth for West TechFest. Yeah. And I think my takeaway is just like how collaborative you can be when it is a small knit community. I think that, you know, as we continue to see this growth trajectory, there’s going to be a point at which Australia.

Maxine Minter: Like we can’t all fit in the same room physically or like theoretically and so thinking about how we hold on to that collaborative roots even while we scale into an environment where we kind of do have to bifurcate or the cells kind of have to split. How do we make sure we still collaborate? I think it’s really important.

Maxine Minter: I do think that the Australian culture kind of lends itself

Cheryl Mack: to that. It absolutely does. Yeah. I think we’re coming up to our last

Maxine Minter: question, Maxine. Yeah. I, I’m really excited to ask you this, Craig. Um, so what is the biggest big cohones moment you’ve ever experienced? A moment where you felt really

Craig Blair: brave. I do a lot of adventurous things.

Craig Blair: I do a lot in my previous, well, we still do a lot of crazy stuff. I love risk. I love understanding how far you take risk. I have no interest in dying. I really don’t want to die, but I’m happy to risk almost everything else. So I won’t bore you with that. I think maybe, maybe you go back to bravery. So I think I go back to maybe when I was at university.

Craig Blair: I was in my first year of university studying engineering and I had a stroke. And I was paralyzed down one side of my body and I couldn’t speak and I was in hospital for a pretty frightening period. And it was just before my final year, first year exams. About this time of year actually, and I obviously did two exams, I was in hospital for a long time, we didn’t know whether I wore speech, and so I had to learn all those things again.

Craig Blair: And then I just, and I was pretty uncertain of the future, and I just decided well I’m gonna go back and I had to do these exams, all these exams in February, I had to have a special room and I couldn’t really think properly, but I just did the exams, probably not very well, but I got through the exams, and then I went straight back to competitive sport as fast as I could, and I couldn’t really run properly, but it all came back pretty fast, and within a year, within a Six months I was playing, you know, pretty competitive sport again, and I passed my first year’s exams, which was a nice win.

Craig Blair: So I think that was probably a moment where I could have gone the other way. I could have sat back and taken a year off. Yeah, I just wallowed a little bit, but I didn’t. I sort of just got stuck in and that’s amazing.

Maxine Minter: Wow

Cheryl Mack: That is very brave. Like you kind of made it seem like you weren’t gonna come up

Maxine Minter: with anything there.

Cheryl Mack: Yeah mic

Maxine Minter: drop I actually, um My partner had a stroke a year and a bit ago. And so I watched firsthand what that’s like to rebuild. And I don’t, I just really want to underline the bravery element there. Cause it is, at least from what I’ve watched is like effing terrifying for your brain and body not to work.

Maxine Minter: Yeah. When you’re used to being, what I’m assuming is a like very capable outdoorsy engaged person and like the choice to be like, Nope. I’m not letting this stop me. I am going to, you know, be embarrassed, be kind of wobbly, say weird things, you know, drip slightly, all of those things as your body is recovering.

Maxine Minter: I think that’s incredible. It speaks volumes of the bravery that you brought to that. Wow. Wow. Wow. That’s

Cheryl Mack: incredible. Thank you so much for sharing that with us and for sharing everything today. Just, I think we’ve learned so much. Amazing conversation. Thank you for bringing us into

Maxine Minter: your home. Yeah, this has been the best.

Maxine Minter: Thank you so much, Craig. Thank you.


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