Skalata Ventures is a new seed investment program and we’ve created this blog post to introduce ourselves and provide information for founders who may be interested in our program. Applications will soon open and all the details you’ll want to know as a founder are below.
Just a heads up that this is likely a 15-minute read so if you have the time now, perhaps best to grab a cup of tea and settle in. If not, come back to it later.
Why does Skalata Ventures exist?
Skalata Ventures’ vision is to see Australia transition to a knowledge economy. We believe that the biggest challenge facing early-stage companies is navigating the seed or angel stage where founders have trouble accessing the know-how, funding and networks required to progress.
Our mission is to advance remarkable founders by bringing together business leaders, universities, corporations and investors to create the companies of the future. Together with these stakeholders, we’re able to provide resources and assistance to the companies in our program beyond the traditional support provided.
What does Skalata Ventures do?
Skalata Ventures’ primary activity is our seed investment program. Let’s break that down:
1. “Seed” — companies that are post-start-up but pre-venture capital.
2. “Investment” — we will invest up to $250k in each company via our companion investment fund.
3. “Program” — we’ve designed a program to help early-stage companies:
a. Grow and obtain product market fit.
b. Develop a sustainable business model.
c. Put in place the frameworks required in order to scale.
There are a couple of things that I’m going to emphasise throughout this post as to what makes us different. One of those things is that through the program we do not just provide advice but also the resources to implement that advice. More on this below.
How does it all work?
Upon successful application to the Skalata Ventures seed investment program, every company receives:
· Entry to a 6-month customised program
· $100k investment funding; and
In return, Skalata Ventures receives 10% equity in that company.
At the conclusion of the six-month program, companies may elect to receive a further $150k in funding, if certain milestones are achieved (*).
(*) further information below.
What happens during the program?
We’re so glad you asked!
Firstly, it is worthwhile understanding how this program has been developed as it provides the context for why the program operates the way it does.
How has the program been designed?
There are three fundamental building blocks that have been used to design our program.
1. The management team’s experience.
2. International best practice.
3. Extensive local research.
First up, the management team’s experience.
Maxine and I have been developing early-stage programs for about as long as they have existed in Australia. Previously, we worked together at MAP (University of Melbourne) and over the years we’ve tried many things, made many mistakes but also learnt a great deal about how to run these programs. We are incorporating all of our learnings into a new program with a clean slate.
Secondly, international best practice.
Over the years our team has met with peers from the world’s leading accelerators, seed funds, universities and venture capital firms to learn and share global best practice. These organisations include Y-Combinator, Stanford, Accel Partners, Kleiner Perkins, TechStars, Oxford, Cambridge, Technion and Right Side Capital Management amongst others.
This knowledge has played a large part in the development of the program.
Thirdly, extensive local research.
When we started developing our program, we did three months of customer discovery in Australia. We conducted 50+ interviews with people including:
· Founders we thought were at the right stage for our program.
· Founders at a later stage than our program.
· People who invest in early-stage companies.
Through these interviews, we uncovered:
· What early-stage founders need (and know they need) help with.
· What later-stage founders wish they had done earlier to prevent obstacles down the line (but either didn’t know or didn’t realise was important at the time).
· What investors need to see in companies in order to invest in them.
What does all that mean?
Everything in the program has been designed to help founders overcome the known obstacles, help them avoid making mistakes down the line (the unknown unknowns) and ensure that if they want to raise money afterward, they’ll be in a strong position to do so.
Ok, so what actually happens during the program?
Once in the program, we conduct a diagnostic on your company. The objectives of the diagnostic are to help us:
· Understand the status of your business.
· Identify any key and pressing business risks that need to be mitigated.
· Identify what work you’ve already done and what else needs to be done.
· Detail the metrics that matter for your type of business.
· Identify who, within our network, is well placed to assist you in addressing these challenges.
Once the diagnostic has been completed, we create a customised six-month program for you.
What is a customised six-month program?
The six-month program focuses on 5 key business areas:
1. Customer Growth
Within these, are specific modules for companies to complete and deliverables for companies to create (with our support) over the course of 6 months. There are some things that every company in the world needs to develop like a 12-month cash flow forecast, operating plan, pricing strategy, sales and marketing strategy and so on. These items are included in our program as core modules.
We have also developed a list of items that many companies need help with but not necessarily all companies. These form the additional modules that may be required to be completed during the program depending on the specific company.
After the diagnostic, we’ll determine the level of priority for each core module (some may need to happen earlier in the program compared to others) and what additional modules should be included in the company’s plan.
We then set a plan for the company and allocate resources to them to help achieve the required modules during the program.
Could you clarify what kind of modules are included?
‘Customer Growth’ is one of the main business categories in our program. Within ‘Customer Growth’ are a set of modules and key deliverables to be completed with your coach over the course of 6 months.
For example, one of the core modules under ‘Customer Growth’ focuses on marketing and sales. A few examples of marketing deliverables include the development of your marketing plan, user experience map and CRM. Examples of sales deliverables include your sales funnel, dashboard, sales scripts and templates.
Aside from ‘customer growth’ there are also modules for strategy, management, fundraising and operations (accounting, legal, PR & brand).
How do I know if I have already completed these modules?
There are two considerations here:
1. We acknowledge that you may have already done some of these modules.
2. We acknowledge you may not know how to develop some of these modules.
For the modules that you have already done, we will review them to see if any further work is required.
For everything else, we will help you develop the required deliverables.
What kind of support is provided during the program?
One of Skalata Ventures’ advantages is that we do not just provide advice on what to do, we actually provide the resources and operational support you need to achieve program goals.
We are employing 3–5 part-time Program Coaches who will work closely with the companies and help them complete each program deliverable.
The Program Coaches are paid a salary and provided they meet certain KPIs, are also eligible for carry in Skalata Fund 1 (equity in the investment fund). Their number one KPI is that each company achieves all of the milestone deliverables during the program.
We’ve structured the program this way to ensure that the Program Coaches’ and the founders’ interests are aligned.
On top of this, we will also engage experts to help you perform specific tasks (for example, create a sales plan, improve your website copy or develop a PR strategy).
You mentioned some things earlier that you would explain further below, what were they again?
Yes, I did. Here is the first one.
“At the conclusion of the six-month program, companies may elect to receive a further $150k in funding, if certain milestones are achieved.”
As mentioned previously, access to the six-month program and the $100k investment is provided in exchange for 10% equity in each company.
At the end of the program, and provided the company meets the below, the company may take further funding at its discretion. This funding is provided as a convertible note.
Further funding is available to companies if founders meet these two conditions:
1. They must achieve all programmatic milestones (the program modules) within the 6-month program.
2. They must meet a traction target, which they have up to six months after the program to achieve.
See diagram below.
The traction milestone is agreed at the start of the program and there is a minimum traction figure that is required to be achieved in order to access the $150k funding in the first place.
The valuation or cap on the convertible note is determined by the traction target achieved. For example, if you hit revenue target B below then the valuation will be Y. Each company will receive their own version of the below table.
We value transparency so you will know at the start of the program exactly what is required of you in order to achieve the additional funding.
Some other things to note:
· All programmatic milestones are fully within the control of the founders. As an example, milestones can include systems to be developed, campaigns to be executed or customer interviews to be performed. None of the milestones are lagging indicators or outside your control (such as, obtain x% user growth by Month 3).
· Programmatic milestones are designed to help your company become significant and sustainable — they are in your best interest to complete. They are based on our experience, world’s best practice and our research and will stop you from making mistakes that come back to bite you down the line.
· The traction target is a lagging financial indicator designed to show that the potential in the business is being realised. This is why you have up to six months after the completion of the program to reach it.
· A company may pass all the program milestones with flying colours but fail to generate enough traction to show potential in the business. In this case they won’t be eligible for the follow-on funding (and may want to explore a pivot).
Not every business works out. We believe our program dramatically helps those who go on to create significant and sustainable businesses but also helps founders realise sooner rather than later if their company isn’t going to succeed.
Thanks for reading through and we hope that this has provided you with some answers to your questions about the program and Skalata Ventures. We’ve also included some FAQs that we’ve received from founders over the past few months.
Frequently Asked Questions
Can I do the program without the $100k funding?
Can I have the $100k funding without the program?
The program has been designed to significantly decrease the risk of the investment. The $100k and the program go hand-in-hand.
Is there any flexibility on the 10% equity for the program and $100k funding?
We strongly believe that through the program and funding we will deliver more than 10% value.
What if I’ve already raised money?
A lot of the companies who are interested in our program have already raised money.
A few founders have asked us how they should approach their existing investors in regard to the investment component of our program. Specifically, if they’ve raised at a higher valuation, how can they make the case to their existing investors?
There are two things I’d like to say here…
Firstly, angel / seed investing is incredibly risky. As an investor, anything you can do to de-risk your investments will have a positive material impact on your portfolio returns.
Secondly, this is not the same as a direct investment. This is more like bringing on an experienced team of advisors to work on the business for six months. AND that team pays you $100k. To help founders manage these conversations we’re preparing a document for you to send your investors that explains this in more detail. If you’d like a copy, just ask us.
When do applications open?
Monday 1 April 2019.
What is the selection process?
There are three stages to the selection process:
1. Online application
2. Additional screening / due diligence / interviews
3. Investment committee approval
If you’re successful in progressing from the online application stage, we’ll ask you more detailed questions and most likely ask you to come in for a few meetings with our team.
The team will then provide our top recommendations to our investment committee.
How many companies are you selecting in 2019?
When do applications close?
Monday 22 April 2019.
Should I wait until the end of the application period to submit my application?
We’ll start reviewing applications as soon as we receive them. As soon as we have 10 that meet the bar we have set for 2019, we will stop reviewing applications. At the same time, if we don’t receive 10 that meet our bar we will only accept the number that do.
What are the pre-requisites to apply for the program?
· Have a full-time founding team working on the business.
· Have validation, primarily in terms of revenue but it could be current pilots, trials or growing user numbers etc.
· Be able to commit to being in Melbourne for the six-month program (June — November 2019).
How much equity do you take for your investment?
10% in exchange for access to our seed program AND $100k AUD funding.
So does that mean you value my company at $1m?
Absolutely not. We are not valuing your company at all. What we are doing is providing you with a customised program and $100K and receiving 10% equity in return. If you hired a COO and gave them 10% equity in your business, that doesn’t value your business.
Instead, you should consider whether the seed investment program is a good deal for your company (that is, will it help you create value for the shareholders?). In completing the program (and receiving $100K) our goal is to double the value of your business. As long as you believe the program and money add more than 10% of value, it’s a good deal. We aim to add 100%+++.
Is the $100k for 10% pre or post-money?
It is neither pre- nor post-money. It just is. Moreover, it is not just $100K for 10%.
In exchange for being accepted into the program, accessing coaching and operational resources and $100K, Skalata receives 10%. The terms pre- and post-money refer to a valuation. We are not valuing the business. Refer to above.
Do you provide office space?
Yes, and while it’s not mandatory to, we do encourage you to set up a base here if possible. We’ve observed that co-location tends to create a positive cohort effect due to close proximity to other founders and the coaches. More time with your Program Coach and other founders will only be more beneficial to you.
Who are the Program Coaches?
The Program Coaches all have experience as a founder or an early employee at companies that have progressed through the seed stage. They are familiar with the challenges facing these sorts of businesses and have strong empathy with founders having done it themselves.
How much time do I have to commit to the program?
Everything you do during the program is being done because it substantially increases your likelihood of building a significant and sustainable company. The program is customised, so there shouldn’t be any distractions.
Keep in mind that the modules have been developed with your long-term best interests in mind.
In saying that, we certainly do not expect you to ‘clock in’ or be in our office space full-time — go out and speak to your customers!
What do you look for in a company?
We are interested in innovative and capital lean/efficient businesses. We don’t have a sector specific focus and will accept any industry as long as it satisfies those requirements.
The more traction a company has, the better, whether that’s in the form of revenue or successful trials or pilots.
FYI — some companies who wish to join the program have $20k+ MRR but don’t be put off by this. There are companies that are earlier on with less traction that are still going to be competitive. The reason the program is customised is so that it provides value to companies at various stages.
When will the next program run?
We are investing in 10 companies in 2019 and 20 companies in 2020.
As soon as we have 10 appropriate companies for 2019 we will not be making any additional investments until 2020.
If you’d like to get in contact with us or find out more about Skalata Ventures, head to our website.