Catalysed — The ‘Goldilocks’ Zone

by Daniel Gavel (General Partner Black Sheep Capital )

I recently attended the Start Up Catalyst investor trip to San Francisco, where I had the opportunity to spend time with a great group of people from Australia, as well as meeting with some extremely knowledgeable people working in the Silicon Valley ecosystem — ranging from Angel investors, VC’s, professional service providers and more. My thanks go to Steve Baxter and his team for arranging an amazing week. Post my trip and over the coming weeks I am going to share some of my insights via a series of “Catalysed” content pieces, as I have time personally to reflect on my learnings.

We had the opportunity to meet with Jason Calacanis, arguably the worlds most successful Angel Investor, and the person who literally wrote the book on Angel investing, “Angel: How to invest in Technology Start-ups”. Jason’s fireside chat was one of my favourites of the week, as an early stage technology investor myself his insights were very relevant. One topic discussed I felt was extremely relevant to Angel investors was understanding your ‘Goldilocks Zone’.

The Goldilocks Zone, in line with the fairy tale, is to understand for you as an Angel “What is too hot, too cold, and most importantly what is just right”. This allows you to carve out your niche and focus in on your strengths. The strength of the Black Sheep model is that we have sufficient capital to be investing regularly but are not constrained by having to deploy capital. As such we can be selective about the opportunities we invest in and are constantly reflecting on our strategy and investment model, making changes as we feel appropriate. This is important to ensure we stay within our Goldilocks zone.

Every Angel investors Goldilocks Zone will be different, so it is important for founders to do some research on investors before making contact. Continuously defining and reshaping our Goldilocks zone is going to be an important function for Black Sheep Capital moving forward, even more important will be the internal processes we will develop and use to keep the ecosystem aware of where we are at.

A natural first step is to let people know more about Black Sheep’s Goldilocks Zone, below I have done just that. This list is not exhaustive; but should be used as an initial guide on Black Sheep’s investment focus.

Zone Category: The ‘Just Right’..

Investing with other sophisticated investors — Angel, VC, corporate or private

• We want to invest with like-minded investors who believe the mantra “Angel investing is a competition to see who can be the most helpful”
• Get your lead investor to reach out

Warm introductions

• Cliché but realistic, the numbers don’t lie — our investment rate for cold contact is likely in line with the extremely low industry average

Businesses that make other businesses better

• Business that drive efficiency, time and cost savings for others

Investment stage

• Seed & Series A

Investment Opportunities:

• Tech Type: SAAS, Marketplaces, B2B, B2C
• Customer Type: Enterprise and SME focus
• Industry: FinTech, Logistics, eCommerce
• Development Stage: Product Market fit
• Required Traction: Customer & Revenue traction

Great founders

• Opportunities need to be more than just a good business
• We believe in this so much we have developed a due diligence process to ensure we know as much about the founders as we do their business
• Founders remain the one constant in a business so need to be rock solid

Zone Category: The ‘Too Cold’..

Investment opportunities

• Cloud Services, Payment technology, hardware
• No proven market fit
• Saturated business strategies — one minor differentiator isn’t enough, you need to be 10X better

Founders lacking an understanding of core business metrics

Early stage investors causing death by 1,000 cuts

• Advisers with over the top engagement, doing more harm than good

Investment Stage

• Pre-Seed — we prefer to wait for the business idea to evolve further

Extremely capital intensive businesses and business strategies

Zone Category: The ‘Too Hot’..

Hyped up investment categories

• Cryptocurrency
• AI without a real use case, also where the AI is road mapped/developed

ICO & Token Sales

US Investments post Seed/Series A

Runaway and unrealistic valuations in early stage opportunities

Misapplied new investment structures, largely due to misunderstanding of their intended use

As the factors affecting our investment strategy changes, so will our Goldilocks zone, we are committing to projecting these changes in a range of ways moving forward.

Daniel Gavel is a General Partner at Black Sheep Capital / Full Circle VC, an independant Angel investor and is committed to helping build Australia’s early stage tech landscape by investing in and working with upcoming Australian businesses.