Blackbird Ventures happy to fly close to start-up sun

High-risk, high-reward projects are the only ones Blackbird Ventures is keen to back.

Blackbird

When it comes to investing in budding technology companies with ambitions to take on the world, the founders at Blackbird Ventures — Australia’s premier technology venture capital fund — follow a simple philosophy: swing for the fences or go home.

The firm, which started three years ago with dreams of resurrecting Australia’s anaemic venture capital scene, says high-risk, high-reward projects that might just revolutionise the world are the only projects they ever want to back.

“We only want to back moonshots,” says Niki Scevak, who co-founded Blackbird Ventures with Southern Cross Venture Partners managing director Bill Bartee and former MLC Private Equity portfolio manager of venture capital Rick Baker.

“Venture capital is a business where you need a small amount of cases to work out and to really work out well,” says Scevak.

“And that’s only going to work out if a project is deeply ambitious. I believe that it’s easier to do a moonshot than a safe project, because moonshots inspire people, which means it’s easier to raise money and to get people to help you and work for you because it’s something important at stake.”

The downside of aiming for the moon, of course, is that sometimes you miss. And when you miss the moon, you invariably crash back to Earth. That’s why when it comes to leading Blackbird Ventures there’s a depressing certainty that the firm’s three founders eagerly embrace: failure.

“The exception in this game is to be successful, the default is to be a failure,” says Scevak.

“You’re always going to lose money more times than you make money so it’s not about minimising the failures. It’s more about that for those that do succeed they have to wildly succeed.” Blackbird — named after the iconic Cold War-era Blackbird stealth jet — was born in 2012 when the poor track record of venture capital firms threw up early challenges.

“I remember early on we were scheduled to speak at a conference hosted by the Australian Private Equity & Venture Capital association and the panel before us had a guy from a super fund who said that Australian venture capital simply had no place in any institutional portfolio ever. It was quite the welcome,” Scevak says. The distaste for new Australian venture capital among the investment community made it a tough first year for Blackbird when it went after its first fund throughout 2012. The firm slogged through 500 meetings before it secured its $30 million investment fund from 96 technology entrepreneurs.

“It was literally scorched earth before we came along. There was no one around and there was this paradox that although there had been lots of successful Australian technology companies, there was just no successful Australian investors,” Scevak says.

“The uncomfortable truth was that the reputation of Australian VC was horrible because historically they had done very poorly.”

Having secured its first fund, Blackbird set out to differentiate itself from the VCs before it and launched with a single, simple desire: to focus on Australian businesses with the ambition to attack global markets from day one. “That was different to a lot of the established thinking that said companies had to first learn to crawl in Australia before they could walk over the rest of the world,” Baker says. “That still is the established wisdom with lots of players but we’ve kind of smashed that and turned it on its head.”

To help support start-ups, Blackbird provides successful candidates with seed funding in chunks of $250,000 to $500,000 or in amounts as high as $3m to $5m, depending on the stage of ­development of the company.

“We saw a huge gap in the market when companies are looking for $3m to $5m to take them to the next step and so we thought that if we could raise this capital then it would put us in a really good spot to be a leading VC,” Baker says. “We think its strange because series A raisings are the solid, best risk return spot in Silicon Valley. There’s still lots of risk but no where near as much as in seed funding.”

The inherent risks and rewards of seed investments were laid bare with Blackbird’s first ever investments which included online design platform Canva and Ninja Blocks, a software developer building a platform to connect home devices to web and mobile apps.

While both of those companies sat in Blackbird’s sweet spot — being in global markets and wanting to be the best in the world — only Canva has become a standout success while Ninja Blocks has taken the ignominy of being Blackbird’s first big failure.

Ninja Blocks promised to provide a slick tool that would be the holy grail of home automation — a spherical device that could switch lights on and off, play, pause and select tracks on hi-fi systems and access smart TVs.

While the high-profile start-up received more than $3m in investments — $700,000 and $103,000 from two Kickstarter.com campaigns and $2.4m from three funding rounds — it ultimately collapsed as its Ninja Sphere device ran over time and over budget. “Ninja Blocks sold millions of dollars’ worth of product but it ultimately didn’t translate into the market because it was difficult to explain to consumers what it was and did,” Scevak says.

“We are incredibly proud of our association with Ninja Blocks and won’t shy away from the failure because we know there will be much more failure to come. But the failure was its market which just wasn’t there. You only find out by doing and sometimes you find out that there is not a particular market for a solution.”

But as Ninja Blocks failed, Blackbird’s $7.5m investment in design company Canva has shown that when things go right in venture capital, they can really go right. This week Canva — which allows companies and individuals to create graphic designs in the cloud — closed its latest raising after it landed a $US15m ($21m) series A funding round to value the company at $US165m. Blackbird’s stake in Canva has not been disclosed but given the company has been through all four of its funding rounds, it’s understood to be pretty sizeable.

Canva holds bold ambitions to unseat established graphic design programs like Adobe Illustrator. Given it’s early days, the company is off to a great start and is now used by 40 per cent of Fortune 500 companies and boasts more than 5 million users who collectively create two new designs every second.

“Canva is a wonderful example of what you can do from Australia. What’s great there is that it’s a company that if it were from Silicon Valley it would still be in the top few per cent of growth companies,” says Baker. “If Canva continued its success we’d love to invest $100m into it,” adds Scevak.

The appetite for venture capital has dramatically turned for Blackbird since launching its maiden fund a little under three years ago. Last month the firm revealed it had closed its second fund, a $200m bounty that has been backed by the vast majority of its original 96 investors plus two major superannuation funds — First State Super and Hostplus Super.

The fund is now considered Australia’s largest-ever technology start-up venture capital fund. The new fund consists of two sections: a $75m replenishment of Blackbird’s core fund and a new $127.5m follow-on fund for cheques of $5m and above that will allow the firm to invest deeper into companies than was previously possible.

“This will allow us to go a little bit deeper into new companies and take a higher percentage of equity which is great for us,” Baker says. “The strategy for that is to invest in the later rounds of our core investments. So it allows us to continue backing these companies and founders for longer.”