Canva's AI buy, SAVCF report & BFF grant axed

0:00 Will Richards: You're listening to a Day One FM show.

0:04 Gemma Clancy: The Startup Retro is recorded on the lands of the Kabi Kabi and Wurundjeri people.

0:10 Will Richards: G'day and welcome to the Startup Retro, a weekly show brought to you by the team behind the Overnight Success newsletter, where we help you level up on the Australian startup ecosystem by giving you an insider's view on Aussie startups and venture capital.

0:21 Gemma Clancy: The Startup Retro is brought to you by Day One, the podcast network for founders, operators, and investors. I'm Gemma Clancy.

0:28 Will Richards: And I'm Will Richards. In today's episode, we'll dive into Canva's acquisition of the fast-growing Leonardo AI, plus an awesome interview with Ellie Hansen from Sidestage Ventures, who was one of the seed stage investors into Leonardo.

0:40 Gemma Clancy: And we'll look into the story behind the South Australian Venture Capital Fund and why the state government has decided to commission an independent report looking into its effectiveness.

0:48 Will Richards: We also cover the secret killing off of the federal government's Boosting Female Founders grant program and potentially why it got killed off.

0:55 Gemma Clancy: And we're gonna jump into a couple of our favorite raises from the week, including Monty Compost, who's looking at moving into industrial composting.

1:03 Will Richards: And Slice, a bootstrapped fintech business that focuses on the travel industry, and they've had an amazing story of how they survived through COVID.

1:10 Gemma Clancy: Let's get stuck in.

1:15 Will Richards: [MUSIC] Let's dive into the headlines. And, Jem, the first headline that really caught my eye this week was Canva's acquisition of Leonardo AI.

1:23 Gemma Clancy: Yeah, yeah. When I heard about that, I think my literal reaction was, what? Sorry if anyone's ear holds.

1:30 Will Richards: Yeah, they were, they were really, um, it's an interesting story because they were really like both Blackbird-funded, obviously startups, both playing in the design space. Um, Leonardo AI was sort of branded as this, I think, like Canva competitor and Canva, you know, potential killer, maybe. And what's basically happened is Leonardo raised, um, they last raised a Series A at a pretty monster valuation. It was a $45.9 million Series A in December 2023, and that included investors like Blackbird and SideStage Ventures and quite a few US and UK investors as well. And the valuation there was $320 million, and this acquisition is basically north of that. We don't know exactly what the valuation is.

2:12 Gemma Clancy: Yeah, it'd have to be north of that, wouldn't it? Which is pretty insane.

2:16 Will Richards: Yeah, and it's like, it's, it's a very young business, 2 years old. They, you know, within basically the first month of launching the product and their Discord server, they had over 20,000 users using the platform. So, yeah, just I think a phenomenal story in growth.

2:30 Gemma Clancy: Yeah, my reaction, I think when I first heard the news, it wasn't surprise because of Canva making the acquisition because it makes complete sense. It fits with their strategy, especially this like increased move into AI for them. But my surprise was probably because like they're so young and they've got this huge valuation. So, Yeah, I think it's just, I was just shocked at the fact that they're already being acquired so quickly. 'Cause it's gotta be one of the fastest turnarounds of a, you know, growth and then acquisition.

2:58 Elli Hanson: Yeah.

2:58 Gemma Clancy: In certainly in an Australian startup ecosystem is almost unheard of.

3:01 Will Richards: Yeah. And I'm really proud to say we've got an interview with one of the investors, Ellie Hansen from SideStage, who invested in their sort of the earliest funding rounds. And I'm really keen to go behind the scenes of how the deal came together and also just the founding story of the business and how they got involved. But I think what will be really interesting is understanding or trying to understand the complexity of the actual deal structure.

3:26 Gemma Clancy: Yeah.

3:26 Will Richards: There's some reporting coming out from Capital Brief that it sounds like it's a fair bit of scrip that the founders and the investors have secured. So basically that means Blackbird's got potentially more equity now in Canva than they had previously because this, the equity they had in this business is now just be turned, turning into Canva shares. And Sidestage Ventures, I think, have done the same thing too. So they've now got a nice chunk of Canva.

3:48 Gemma Clancy: Yeah, pretty cool. Um, well, I'm really looking forward to listening to that interview. It should be really good.

3:53 Will Richards: What grabs your attention this week?

3:55 Gemma Clancy: Well, the headline that was really interesting for me was, um, uh, about the South Australian Venture Capital Fund. I think first and foremost because I'm from Adelaide and kind of familiar with SAVCF and some of the team there. And the headline came out of The Australian and was talking about this report that the government has got an external consulting firm to develop the top of the article talks about the cost of that report, and I think that's probably one of the main pieces of public interest because the report costs about $240,000, which to the average person probably sounds like a lot of money. To most people who understand how much consulting firms charge for things, probably not surprised at all. Um, but they commissioned this report to look into how effective has the South Australian Venture Capital Fund been in kind of meeting its mandate, which the, the bar is so much higher for this fund because they're trying to obviously make really good investments and make a return on those investments, but they're also trying to drive kind of a broader agenda which is aligned with the government's goals to increase innovation, innovation in South Australia and kind of draw talent in and fuel that, that part of the economy. So this report looked into how successfully is it doing that, as well as how successfully is it actually generating returns for the investors. And really, the, the media hasn't really gone into what are the outcomes of the report because the headline is that that report hasn't been released yet and we're not sure whether actually ever will be released.

5:17 Elli Hanson: Yeah.

5:17 Gemma Clancy: Which is, I think, you know, implied in the media that that's, you know, maybe not okay and that it should be released. But the government is concerned about releasing it mainly around the financial information that's contained in the report to do with the performance of the different companies.

5:33 Will Richards: Sure. Um, in the portfolio, there's obviously a lot of scrutiny around these government funds right now, obviously headlined with Breakthrough Victoria's scrutiny.

5:41 Gemma Clancy: Yes.

5:41 Will Richards: But I think the magnitude is just so different in these two funds. Like, Breakthrough is a $2 billion fund with essentially no mandate. And then I think, I think the South Australian VC fund is— I think it has a neater mandate, and potentially it's more justified in what it does and what it's trying to do. And it's made 10 investments, and some of them, you know, we can go through who they are, but some of them are performing pretty well. And I think it is following that power law dynamic that we, we want to see, and if we do see in venture funds. Yeah, but it does have a really interesting founding story, and I know you've done a bit of research on—

6:17 Elli Hanson: Yeah.

6:18 Will Richards: Where the fund basically came from.

6:18 Gemma Clancy: Let's get stuck into Yeah, so there's a much bigger story behind this headline that I think makes it much more interesting. And just for context, I think speaking to the size of the fund compared to the likes of Breakthrough Vic, it's only a $50 million fund and it's over, it's an 8-year investment period and then a 7-year exit period. So it was kind of born out of the previous Labor government before this current Labor government. In that meantime, there's been a Liberal state government. So it came out of Jay Weatherill's state government and they started up in 2017, I think, and they appointed Blue Sky Alternative Investments at the time to manage the venture fund. And they spun up Blue Sky Venture Capital, and that was managed by Elaine Stead at the time. And then Blue Sky Alternative Investments got itself into a bit of trouble, and they found themselves falling into administration. And I'm not going to go down the rabbit hole of that whole story because there's already— it's been covered significantly by the media. And if you're interested in learning about it, you can go do your own Googling.

7:20 Will Richards: Defamation cases, went to court. Yeah. Yeah, it's a rabbit hole.

7:24 Gemma Clancy: A serious rabbit hole. And Elaine was put through the absolute wringer on, on that one. And unfortunately, that was a really, really tough period of, of media coverage for her. Upside of the story is that she's now running Main Sequence, which is CSIRO's venture capital arm. But, uh, long story short, BlueSky got appointed, they fell into administration, so they need to appoint a new manager— appoint a new manager of SABCF, and they appointed Artesian Investments. And, um, the guy they chose to lead that was a guy called David Rorshime. And David Rorshime is super interesting. He has got a kind of a very interesting backstory and resume, but one of his most notable kind of things on his resume is that he brought Uber to Australia, and he was the founding team member of Uber in Australia. And he was appointed by Stephen Marshall, who was the premier at the time, or his, you know, the program was under his guidance at the time. And Stephen Marshall and him are actually kind of buddies from way back, way, way back, which is super interesting. They worked together. I think they met through Wok In A Box. Stephen Marshall used to own a Wok In A Box franchise.

8:32 Will Richards: This is very deep South Australian knowledge. Like, I have never heard of whatever that is. What's a Wok In A Box?

8:36 Gemma Clancy: You don't know what Wok In A Box is? I thought— I think Wok In A Box is national. I think it's kind of died now. But Wok In A Box is kind of like almost like sumo salad. You go and they've got pretty standard like things you can order and then they'd like chuck everything in the wok and, you know, it's like fast noodles.

8:49 Will Richards: And then it goes in a box?

8:51 Gemma Clancy: Yeah. And then it goes— surprise, surprise— goes in a box. Yeah, so, um, yeah, so Stephen Marshall appointed his buddy, um, David Rorsheim, who, you know, by obviously account of his, his resume, super well credentialed for the role, um, and he's been running it to this day. And like you said, Will, like the media is kind of insinuated in, in this latest reporting that there's something awry here, and maybe that's why they don't want to release the report around how is this fund gone. But you look at who they've invested in, and I don't imagine that it's doing that badly.

9:23 Will Richards: So yeah, the, the biggest one, The startup that probably most people have heard of is Fivecast, and that's been in a few, like, high-growth stories of, like, startups that are, you know, the fastest-growing startups in Australia and South Australia. So there's 10 startups in total, and we'll list all 10 of those, I think, in the newsletter so you can kind of come to your own conclusions. But I don't think there's been many exits up until now.

9:44 Gemma Clancy: No, no.

9:45 Will Richards: So it's hard, it's really hard to judge how it's going.

9:48 Gemma Clancy: It's only been, like, a bit over 6 years that the fund's been active. It's got this 8-year investment period, and then we're kind of, we've still got to wait to see how those investments go. The other Another one that I found that I believe that SABC have invested in is Fleet Space Technologies. And Fleet's like, it's huge. It's one of the biggest space success stories coming out of Australia at the moment. So yeah, so I guess, you know, don't just take the headline at face value. There's a really interesting story behind it. Yeah. And then I'm kind of really interested to see how the government kind of takes the insights from that report, whether they release it or not. I guess we'll be waiting to see whether they decide to continue the fund, continue investing in it. Into the future.

10:30 Will Richards: Yeah. Yeah, I hope they release it because it'll be interesting nevertheless.

10:33 Gemma Clancy: Super interesting. Yeah, yeah, yeah. To see the weighting as well into like, are they just looking at investment returns or they're looking at kind of impact on, um, the ecosystem more broadly? And to what extent do they weight each of those things to make their final decision?

10:48 Will Richards: Yeah, I think that's a great segue into the next really big headline, which is the axing of the Boosting Female Founders program.

10:55 Gemma Clancy: Yeah.

10:56 Will Richards: And this was reported in Startup Daily, um, and it follows— it happened in the budget, but it basically only came out due to a Freedom of Information Act. What essentially has happened is the grant program, um, had the budget of $52 million to give away to female founders, and they were really trying to support female-founded startups, um, you know, get off the ground and grow and that sort of thing. And they've deployed $35 million of their total budget and basically killed it off due to basically an internal review from the Department of Industry, Science and Resources saying it had no measurable impact. Yeah. With the ecosystem.

11:40 Gemma Clancy: Which really confuses me. I know there's a lot of people, you know, putting a lot of scrutiny on this and I try to give the government the benefit of the doubt in many ways that, you know, obviously the media doesn't know everything.

11:51 Will Richards: Yeah.

11:51 Gemma Clancy: But it was only started in 2020. They've, you know, haven't even invested the entire amount of the budget allocated, and now they're saying that isn't measurable impact. And I really struggle to see how you could make a definitive call that this has not made a measurable impact in such a short space of time.

12:08 Will Richards: Yeah, I do agree with that, but I think this whole program has been marred by mistakes and delays along the way that just potentially the operation of the thing was just not great. And I, we don't, there's no clarity on basically who's received the grants and there's no clarity on what the measurable impact actually is that they're trying to get to. But what we can say is in 2021, basically the demand for this thing is massive. Like there's, they've done 3 rounds of this grant application process and pretty much every single one of them has had some sort of delay in the process. But the last, the last round, which was round 3, had about 700 applications for the program. Mm-hmm. And the round before that, everyone who applied for the program, which was about 1,000 female founders, there was delays in basically working out like when is this closing and when are they potentially finding out about are they going to be successful or not. 1,000 of those founders were told that they were successful in getting the grant, which was a notification that shouldn't have gone out. So, then they had to resend that notification within like, you know, 24 hours and all that sort of stuff. So, it's just been, I think— I think it's just been marred with like just not It just hasn't been very operationally successful.

13:28 Elli Hanson: Yeah.

13:28 Gemma Clancy: It kind of sounds like they got so much demand, they didn't know what to do with it. They weren't operationally set up to deal with the demand. And obviously this is complete speculation, but, you know, it kind of makes sense that they've looked at it and gone, Yeah. Jeebus, we're getting more negative press on this than we are positive press because of all the delays. And so, maybe it's just better to cut it loose and decide that this wasn't something that the government could really administrate properly.

13:55 Will Richards: Yeah, but I think it— you then look at maybe examples of groups who are doing it potentially well, and, um, you know, you've got the, the Launchfic, um, Alice Anderson Fund, who co-invest, um, at a bit of a discount, um, on equity for female-founded businesses. And they've just made their 36th investment, and that's a $10 million fund. And we know some of the founders who have been through that process, and they speak really highly of it.

14:20 Gemma Clancy: Yeah, it's just such a different model, isn't it? Because like, this is, this is like matched funding, but the government's not making kind of really, um, you know, uh, considered investment decisions in the same way that like the Alice Anderson Fund does. The Alice Anderson Fund kind of approaches things like a typical VC would, looks at, you know, I guess, are they, are they, um, you know, performing right?

14:41 Will Richards: Yeah, well, they actually, they put the onus on the venture investor basically to— because to get that funding, you need to be basically backed by a VC. And I, you know, they obviously have an idea of who those reputable players are in the market, and they, they don't put the onus on the founder to do the application. They put the onus on the, the VC investor to do the application on behalf of the startup. So the Alice Anthon Fund's basically doing it. I think they're, they're supporting startups in a really nice way that basically puts the onus on someone else who's got the right incentives as well. So it's just— I think it's a better way of doing it. But then you also look at what's happened in New South Wales, and they had a female founder venture fund as well that was worth $10 million, and that's basically been turned off as well. So, there's just a few different groups doing it different ways, and I think some are maybe better than others, and we're starting to see some perform better and things like this getting turned off.

15:34 Gemma Clancy: Yeah. Well, hopefully, given the federal government hasn't invested the full amount, they'll hopefully look at kind of starting up an alternative program to replace this one, and maybe it'll have a slightly better model, maybe taking some tips from, their friends at Launchvic and seeing if they can redesign it in a better way for the next iteration of it.

16:01 Will Richards: Let's get stuck into the startup raises section. And Gem, what was your pick of the startup of the week that raised capital?

16:07 Gemma Clancy: So my pick this week was, um, a company called Monty Compost. Uh, well, before we start, I'm just interested, have you ever tried to compost before?

16:14 Will Richards: I reckon I did in primary school, and, um, I think our class of you know, kids just threw so much like apple cores and banana skins into the worm bin that I think it just ended up becoming a rubbish bin. So not successfully.

16:28 Gemma Clancy: Not successfully. And I think that's probably the common story of a lot of people who try to compost. You know, it sounds like a really great idea and then you try to do it and then you realize it's actually kind of hard to create a really successful compost. I've had many a compost in my time, some successful, some a lot less successful. In the process of trying to become an expert composter, actually came across this company.

16:51 Will Richards: Oh, really?

16:52 Gemma Clancy: Monty Compost. Yeah, so they have an organic waste recycling or composting Internet of Things device. So that kind of looks like a, you know, those solar panel lights that you kind of put in your garden that, you know, stick into the ground and then they have the light on top. It kind of looks like one of those. Essentially what you do is you stick it in your compost and it provides you with data and like analysis of how, how your compost is going and provides you kind of like a little coach in a mobile app to tell you, you know, do this, do that to make your compost actually work and be successful and not just be a pile of, you know, essentially the same as what you'd put into a normal rubbish bin. So it's a really interesting startup because it, it was founded quite a while ago in 2019 by Ashley Baxter, and this is the first time that they've raised. So it's been around for a little while and they've kind of grown organically, pun intended. And they've raised $1 million from Scalata and Antler as part of Antler's QIC kind of mandate. And yeah, now they're looking at taking what they have developed as a direct-to-consumer product, so anyone can buy it kind of online as like on their e-commerce platform. And now they're moving into industrial applications with a new version of their Monty device called Monty OHM. Oh, And it's just like the founder said that she'd always kind of seen this as the track, I guess, that they would eventually end up on. But they've taken this little bit of time to kind of focus on developing the technology, selling it to direct-to-consumer, and now they're kind of pivoting into more of an industrial, you know, application.

18:33 Will Richards: I've actually had a bit of interaction with Ashley. She pitched at one of the regional Angel Investor Network pitch events at Farm Fest in New South Wales. So this was very much on the pivot of going into the industry and trying trying to pitch to farmers who obviously deal with a lot of fertilizer, a lot of compost, and a lot of waste. And it was really interesting for me to get my head around, like, the current solutions in market for this sort of technology. And basically, the big differentiator is, for the industry and farming customers, these solutions are super expensive. Like, these monitors cost, you know, upwards of $1,000 each, and the Monty Compost solution is just a fraction of the price.

19:14 Gemma Clancy: Yeah, it's certainly like very affordable as a direct-to-consumer product. It's retailing at $200 AUD at the moment. It's 30% off if you're interested in getting one for yourself. It's $139. And when I first heard about this, I was reading the press releases and hearing that they were pivoting into this more industrial use case. I just imagined that like that the actual device itself would be like really big and kind of look quite different. And maybe there's just the kind of the inherent tech inside it and then the software to support it would be the same, but it actually looks really similar. So I guess they've been able to transfer a lot of learnings from the direct-to-consumer product into this commercial product, and they're obviously not going to incur a whole new lot of costs to develop this industrial version. What's different about it, I guess, is that they've got this software product in the background that the managers of facilities that are trying to manage this waste can view, and then they can better understand the data surrounding that waste, things like methane production, and, you know, help them meet certain compliance and regulatory requirements.

20:17 Will Richards: Yeah, and they've obviously got the physical thing and then the app as well. And I think they're changing the model of the pricing that they give to industry. And it's like a staggered approach. So depending on how big your farm is or how big your need is, it goes from $1 a day with one of these monitors all the way up to $5 a day. But then you get all these API integrations and you can really connect up your smart farm to trackers that you have elsewhere on the property or a big sort of central data hub to really monitor what's going on. And I think there's a lot of complexity in composting that that I had no idea about, which is like—

20:51 Elli Hanson: Totally.

20:51 Will Richards: Methane gas released and temperature of the actual pile of fertilizers or the pile of compost as well.

20:58 Gemma Clancy: Yeah, exactly. Yeah, and it was quite timely for the announcement of this raise actually, because the Climate Council released a report just this week about how big Australia is in terms of methane production on the world stage. And we're actually the 12th largest methane polluter ahead of other economies that are even bigger than us, like Germany and France, which is pretty crazy. And the majority of our, that methane comes from agriculture, which is 52%, and then it's fossil fuel mining is 25%, and then household and business waste is about 11% according to government data. So this is kind of one potential part of the solution. Something that also came to mind when I was doing some research into this one and reading about methane production and the impact of it was a conversation I had with the founder of a company called Blocksolve Infrastructure at Sunrise earlier this year. And he was talking about the fact that— so they were looking at developing kind of an energy-related business. And as part of their research and setting up that business, they wanted to understand the methane production of various waste facilities around Australia. And they realized that the data wasn't that great and that a lot of these facilities didn't actually know how much methane they were producing. And so they went away and produced a methane map. And you can actually go and have a look at that. And it's a map of Australia, and you can see all the different— Mm-hmm. Kind of facilities and how much methane they're producing. Um, so you can go to blocksolveinfrastructure.com and it's on their website. And I was like, that's so cool. But it's like, the most interesting thing about that conversation was just that kind of lack of awareness. Yeah. And, you know, clearly this is a product that now is going to help those facilities and also agricultural organizations, um, composters, councils, and all of those use cases better manage methane.

22:48 Will Richards: So we saw it because there's such a growing market of, um,, you know, carbon credits and, um, and biocredits and those sorts of things as well. And I feel like this is just one more data point that's going to go into that market as well. And yeah, potentially a way people can sort of offset or understand how much they're producing. So it's great to see and, um, awesome to see the product live.

23:08 Gemma Clancy: Yeah, very cool. What was your pick for this week, Will?

23:11 Will Richards: So my pick of the week was a company called Slice. Slice is a Sydney-based fintech business, um, that basically is helping people travel. It's a buy now, pay later for travel in particular. They raised a $7.5 million seed round, um, led by Peak XV Partners, which was formerly the Sequoia Capital India, um, fund. And they also raised a $10 million debt facility from Roadnight Capital, which is a Melbourne-based venture debt provider, which— this is probably one of their biggest investments that we've heard of so far. So it's good to see them getting active in the market as well.

23:48 Gemma Clancy: You said Peak XV was formerly Sequoia Capital India. Like, what, what's going on there?

23:53 Will Richards: Yeah, so they, they spun the fund out because, um, basically the fund was competing with— competing for deals with their global fund, which is also enormous. So they span this out as a new entity, um, a new fund manager. And basically PKSV now focuses on Southeast Asia, um, and the Indian market, um, in particular, in their, in their own right. So, um, this isn't their first investment in Australia, but but they're starting to get more and more active in Aus, and usually when they invest, it's a pretty big check size.

24:23 Gemma Clancy: All right, right. So, so it's Afterpay kind of for travel, right? Tell me, I'm going on overseas holiday in the not too distant future, so, so, and we're kind of looking at, you know, all of our bookings now. How would it work in the context of me booking my new holiday?

24:37 Will Richards: Yeah, so they, they operate two main products and two brands essentially under their main Slice banner, and one is a buy now, pay later for travel, and that's called PayLater Travel. And then essentially the other one is a travel agency solution which offers lay-bys for travel, so you can just pay for your travel bookings in installments over time.

24:59 Gemma Clancy: Hmm, makes sense. I'm surprised there hasn't been something like this before, like especially with all the buy now, pay later stuff that's out there. Yeah, it's interesting.

25:07 Will Richards: Well, like there's credit cards. Yeah, true, true. Like I think this is just the there's a growing trend of, you know, sophistication in financial service products, and this is just an evolution of a very niche product that specializes in a particular market. Maybe another good example is like Butter Insurance, you know, a classic startup out of Startmate that really focuses on, you know, travel insurance and insurance for millennial travelers. And it's like just a very niche financial services product that's solving a problem for a particular type of person. And I think this is what they're doing as well. Um, but they've got a really interesting story because they actually launched in 2018, um, and have bootstrapped the business for the past 6 years. And they obviously have grown this travel business through COVID.

25:52 Gemma Clancy: Yeah, it's pretty hard.

25:54 Will Richards: And this is their first external funding that they've taken since launching the business. So they've, they've gone through some really turbulent times as, as founders. And yeah, so the founders, Yannick Darmalingam and Farouk Ismail, have posted a really nice recap of how they've basically gotten the business to where it is now. And I'll just share a little anecdote from, from that blog post, but it's a fantastic read and we'll put it in the show notes in the newsletter this week. Um, but basically in COVID, um, they're— they were primarily an Australian-based business and they were serving Australian customers. And obviously all the flights basically got grounded and no one was really leaving the country.

26:30 Gemma Clancy: Certainly no one was thinking about booking travel.

26:33 Will Richards: Yeah, yeah. And they They tell the story of going on to Flight Scanner and looking at the planes that were in the air across Australia, and they could count them on their hand.

26:45 Gemma Clancy: Wow.

26:45 Will Richards: And I remember there were times when I was in lockdown and I'd look up at the sky and it was kind of bizarre because you would never hear a plane or see a plane.

26:52 Gemma Clancy: It's nice and quiet.

26:54 Will Richards: Yeah.

26:54 Gemma Clancy: Sometimes I miss it.

26:56 Will Richards: And they basically scrolled across to Europe and the US to sort of see how they were tracking with just flights, just to get a sense of visualisation. And there were still quite a few planes flying around Europe and the US, and it was a bit of a do-or-die moment because they had run out of runway in Australia. And, you know, the product was— had customers up until then, but it completely died off in COVID. And then they looked at the US as basically the next— the opportunity, and it was very do-or-die. So one founder sold his car, and then the other one financed it on personal credit cards, and they launched the business in the US. Wow. With the same products that they they had in Australia, but they just moved their whole focus to the US and ran it from Australia.

27:40 Gemma Clancy: Wow.

27:42 Will Richards: In 2023, which, you know, they've come out of COVID but it was still, you know, people were tentatively travelling. But I think there was that desperation of, you know, I want to travel as much as possible and just sort of get out of, you know, where I've been locked down for a little while. They saw a 350% revenue increase in 2023.

27:59 Gemma Clancy: Wow.

28:00 Will Richards: And I think that story has just continued into into now. And obviously with the capital raise they're doing now, the world's opened up and they're just really well positioned to take advantage of it.

28:08 Gemma Clancy: Yeah, that's incredible resilience. They must have had a small sense that, okay, when this finishes, hopefully, you know, the lockdown, you know, and COVID-19 does end, that there would be an upswing. They must have somewhat felt like that was an inevitable, you know, outcome, and that if they were there for that and they could survive through to then, that it would work out. But it was a pretty big if because we didn't even know, like, like, how long is COVID going to be around? And yeah, how much more is it going to restrict our travel? So that's a pretty big punt to take, but, um, good on them, it's paying off.

28:39 Will Richards: I think they, they obviously had a sense that the product was loved in, in other markets, and, um, when they launched in the US, they definitely saw the word of mouth spread and people would tell their friends about the experience that they had, and it just grew and grew and grew, and it's continued to grow. So good on them, and congrats on the raise.

28:56 Gemma Clancy: Yeah, and they've shown that you can, um, launch in the US without having to move to the US, kind of like, very interesting. I'm sure it wasn't easy, but, um, it's an interesting use case.

29:10 Will Richards: So I'm super excited to be joined by Ellie Hansen, one of the principal investors at SideStage Ventures, who just had a significant exit with Canva acquiring Leonardo AI. But before we dive into that acquisition and what it means for everyone involved, I'd love to hear your story, Ellie, about how you got involved into the world of startups and your previous experience in the startup space, because I know this isn't your first acquisition that you've been a part of. So, I'd love for you to introduce yourself.

29:40 Elli Hanson: Thanks so much, Will. It's a pleasure to be here today and to chat with you. Yes, it's true. So, my background, actually my technical background is industrial design, product design, and then I cut my teeth in the States at Ogilvy in New York and spent some time doing corporate ad agency land. Left that to found my own startup. Actually, I'd founded an incubator in LA while I was doing my MBA, which was a wonderful experience to get to see across a number of different sectors and meet founders across working in many different industries, one of which I ended up joining after my MBA as a co-founder. And so, my company in the States was a consumer hardware electronics brand and built that, brought that to market. You know, consumer hardware is everything from production, manufacturing, supply chain, brand, packaging, D2C, go-to-market, and of course fundraising all along the way. So, you really get to pack your backpack full of a lot of that founder knowledge when you go kind of end-to-end. Took my exit from that last year and made my way over to the Australian ecosystem and spent some time getting to know everyone here and really fell in love with the SideStage team. Joined the team earlier this year, as you said, as principal investor, And one of the things I just love about SideStage and our team is that, you know, we really see this unique opportunity of this thin layer of really world-class founders that could be building anywhere in the world, and they're building here in Australia, world-class technology and world-class founders coming out of Australia. And we're sector-agnostic seed funds. So, we really are investing across a range of different industries. But we love to focus on that early, pre-seed and seed. We love to be the first check-in when we can, which in this case was one of, and lean in and back great founders and support them on their journey. That's really what we're here to do. And I've been lucky so far to get to start to do it with just an amazing team beside me.

31:38 Will Richards: It's so nice to meet a fellow industrial design graduate.

31:41 Elli Hanson: Ah, yes, great.

31:43 Will Richards: But let's get stuck into Leonardo AI. I think for everyone's understanding of the acquisition and maybe why Canva was, was so interested in the business. Would you be able to give us a quick summary of exactly what Leonardo AI does and what their product is?

31:58 Elli Hanson: Yeah, absolutely. Leonardo AI is one of the really leading image generation platforms, especially coming out of Australia, but pretty immediately on the world stage. Leo really garnered this incredible community around it from the early days, building on their Discord channel, and they have expanded across just a number of different platforms in the way that they are— the technology and their recent Phoenix release was, was pretty amazing. But just at its core, image generation AI platform. Keep it simple.

32:31 Will Richards: Yeah, image generation platform is definitely a very high-level summary of what Leonardo AI does. But I think it goes even more specific than that, doesn't it? Could you talk about like the absolute fidelity of how deep a designer can get into editing the images with a software like Leonardo Absolutely.

32:50 Elli Hanson: Like, the level of fidelity, I think, especially as a designer, you know, getting to see that, as you would know then, coming from industrial design, when you study 3D design and you study rendering these things from scratch, when you learn how they're built from scratch, when you kind of, you know, do it yourself back in the day in the different technologies you would've used would've been much different back then. And to see the model and the level of fidelity that it's able to create, and then the level of control you are able to have to go in and tweak it and adjust it get to whatever kind of photorealistic or illustration or 3D, whatever it might be that you want for your output. It's been pretty amazing. But really to see the team lean in and build and see the opportunity that they recognized from day one, and then how they went after it was just really inspiring and kind of, you know, why we do what we do.

33:38 Will Richards: Let's jump back to when SideStage got involved with the startup. And I know you were invested in the seed round back in April 2023., and then invested again in their Series A with a whole bunch of international investors. Um, and you invested alongside Blackbird back in the seed round and the Series A. I would love to get a sense of what you guys as a team were seeing in the startup, and did you have a feeling that it was going to be this explosive growth story?

34:06 Elli Hanson: Mm-hmm. So early on, you know, of course you're thinking about what the potential exits are, but that's not really our that's not how we kind of qualify in these early stages. When you're a seed investor, you're so looking at that founding team and the people behind the business and behind the product. And that's what we were so excited by and so impressed by was that just incredible team that's got some wins under their belt. They've built something big before. They have this vision, and it's what we kind of call an outlier founder. And we have built built, I will say, we're very proud of. We have a pretty proprietary deal flow to be able to find and uncover, you know, new technologies and founders that are building that maybe other funds aren't getting to see. And we're pretty proud of that and what we've built with that. And, you know, to get to have a look at Leonardo so early and find them was something we're really excited by. But then it's really seeing that opportunity and being willing to lean in and take the plunge and jump in to be a part of it. And, you know, to get to earn the right to be a part of it. And the way that we do that is because we've been founders ourselves, we're a team of investors who have built companies and who have exited and bring a certain operator knowledge to the table that we hope is really valuable to the founders that we back and that, you know, founders that we get to work with get to lean in as much or little as they want. But the Leonardo team early on, we could see that for us, it was really about that traction that we saw. They were building such an incredible community, and the community was really excited about what they were building. And there was this feedback loop of positive trend that we could just see it growth month after month, really early on from month 2. And I think what was really unique about it was just that it was kind of born alongside our fund, right? Right. Got things off the ground as, you know, the first investment as, as the fund. That was a pretty special time.

36:04 Will Richards: I'd love to now get stuck into the actual acquisition itself. And I remember writing about, um, the Series A round back in December 2023, and there was a lot of media attention around the round being a significant investment and how a lot of people were comparing Leonardo AI almost as a competitor, a direct competitor to Canva., and it was interesting to sort of hear that perspective. A few people were sort of talking about potentially how Leonardo could knock Canva off its perch, and maybe it was a startup that the likes of Canva should be worried about because it was growing so quickly. I would love to get a sense of the behind the scenes of how the acquisition came together. Was this something that was in the works for a while, or maybe something that just came out of the blue really recently?

36:48 Elli Hanson: Hmm. Well, in terms of how the acquisition came together, you know, I think at the end of the day, it's important for us as investors not to take too much credit. That these founders are building great products, and they have a vision for where they want to go. Obviously, we as investors try to be there whenever founders want to have these conversations about, you know, is it a raise? Is it an acquisition? What's the best way to grow? And so, I think in terms of how this comes together, we— We tried to be there for the Leo team to, you know, almost act as a mirror for them to decide what's the best next step for them. Them as they're building the product that they want to build and going to market in the way they want to go to market. You know, I don't think— it's funny, I think that there's a lot of— I think people like to create drama over whether something's a competitor or whether it's going to knock it off its perch or whether it's the next this or the next that. And I think, to be honest, at the end of the day, there is such amazing tech talent here in Australia and there's so much room to grow and to build. And I think that's what this acquisition actually illustrates is that what Leo can do and what Canva can do are both incredible pathways and they would be incredible pathways in their own right. What they can do together is probably even better combined. And I think that's what we're so excited about is really the potential of how the technology that Leonardo's built in such a short amount of time can be commercialized so globally and so quickly within that Canva ecosystem. And then for Canva, how the incredible AI technology that Leo's built in such a short amount of time can amplify the platform that they've already— that's already a juggernaut. So, you know, it's— for us, it's an exponential additive thing. And of course, there's different pathways that each could go on. And of course, there'd be some competitive, you know, areas. But I personally didn't see it that way. And I think that people who like to talk about it like that, you know, just, just like to drum up some drama, some, just some gossip, some good tea.

38:55 Will Richards: Yeah, we're definitely guilty of getting involved in the tea at times around startup drama. But I'd love to put some numbers around that comment, though. So Leonardo AI right now has 19 million users, and that's only— it's a massive number, but it's only 10% of the 190 million users that Canva has. So it's going to be really cool to see that this tech and this platform, um, now get distributed amongst a really huge range of users across the world. Could I ask what the acquisition means actually for, for you and your team as a, as a group of seed investors?

39:30 Elli Hanson: Yeah, I think for us as a fund, obviously it's, um, I think it's worth noting that it's a huge win to have, um, an early exit on the books. I think, you know, there's— the truth is that there are tons of funds out that invest for a few years and don't get that exit. And it's nice to be able to say we know that we can exit companies. There is no doubt about it. But for us, it's not necessarily about that. It's about leaning into build. And I think that we know that there's a ton of value that's going to be added to Canva, and we see a lot of compounding value ahead. And we're obviously incredibly excited about what that means, bringing the Leonardo technology into the Canva ecosystem and what that growth is going to look like. So, you know, we're building a fund for the next 10, 20, 30 years. And so it's a long road ahead. This is obviously a really exciting quick win to have on the books here for us, but it's really about the founders who, who built the business and, and we're just leaning into kind of that next step. Yeah, I think at the end of the day, I think it's a huge win for the Australian tech ecosystem. I think these are obviously we all know We all know Canva's story. It's incredible. It's a global story. And we, as an Australian venture ecosystem, are just tremendously proud of Canva on the global stage and can't wait to see it continue to grow and, you know, reach its potential and what that really means for the Australian ecosystem. But I also think this, you know, Leonardo coming to fruition, yes, very quickly, but a lot of work to be done. Yeah. That, you know, the last 18 months for that team, they've just put in so much creative and technical and fundraising and hard yards work to get here. And they deserve every minute of this. And I think that for Australia to be on that global stage to see an AI acquisition, you know, this early in the AI ecosystem globally is great. and I think that it's additive. Seeing these two coming together is just exponentially additive to what each— the potential of each technology, but then also really what the Australian tech ecosystem can be. And of course, I'm, you know, Canadian via the US. So I come at this with a very different perspective and having built my company in the States. So I, of course, come at this with a global perspective. And I'm just tremendously excited, excited for what the the next, uh, 5, 10 years of this tech ecosystem has to offer.

41:58 Will Richards: Very well said. Well, thank you so much, Ellie, for joining us and shedding a bit of light of what's happened behind the scenes with Leonardo building so quickly and the acquisition that's just happened. Where can founders find you and reach out to you?

42:12 Elli Hanson: You can find me on LinkedIn. My name is Ellie Hansen. I'm a principal at SideStage Ventures, and it's been such a pleasure chatting with you. Thanks for having me, Will.

42:18 Gemma Clancy: Thank you So each episode of the podcast, we finish up in the same way that we finish up our weekly newsletter, which is with a section called Knowledge as a Service, or we like to call it KaaS. And we share our favorite thing that we've watched or listened to or read during the week that's startup relevant, and therefore we think will be interesting to our readers and our listeners. Will, what was your KaaS this week?

42:46 Will Richards: This is a cast that, um, I saw shared by Nikki Skibat from Blackbird on Twitter, and it's called The Big Guide to Fusion by Ben James. And it's just a really, really nice written and easy to understand and easy to follow blog post, um, on what's happening in fusion and where humanity is at in sort of the fusion nuclear-powered debate and conversation. And I think we're starting to see more and more conversation around nuclear power and fusion here in Australia, and I think just in the world generally. Um, you know, Peter Dutton's coming out at the moment and really talking about nuclear power as something that the Liberal government is making a focus moving forward. And it's interesting to see how that's going to, I think, land on voters. But I think more broadly, we're also seeing, you know, the likes of people in the All In podcast sort of asking questions about fusion being the solution to rising demands of power needs in AI and compute and electric cars more generally. So I think it's a topic that is going to continue to be discussed. So, Gemma, what was your cast of the week?

43:50 Gemma Clancy: Yeah, my cast this week was a recent episode from The Journal, which is The Wall Street Journal's podcast, and it's about Amazon's rollout of Alexa. Quiz for you, because I love to quiz you mid-podcast without warning. So, Will, there have been 500 million devices enabled with Amazon's voice assistant Alexa distributed around the world. How much money do you think Amazon has made? Made from them since 2016.

44:16 Will Richards: From Alexa?

44:17 Gemma Clancy: Yeah, from devices with Alexa in them.

44:19 Will Richards: As in profit, or just like—

44:21 Gemma Clancy: Sure, let's go with that.

44:23 Will Richards: I don't think it'd be much at all. Like, surely, surely it's got to be a loss-making thing, because I don't know, like, I don't think I've ever looked at, you know, a device and been like, I'm going to purchase this over that because it's got Alexa.

44:35 Gemma Clancy: Yeah.

44:36 Will Richards: Or another Siri or Google.

44:38 Gemma Clancy: We are pretty much on the money, because between 2016 and 2021 They've lost $25 billion.

44:46 Will Richards: That's way more than I thought it was going to be. I thought it was going to be like a minor loss.

44:50 Gemma Clancy: Yeah, no, $25 billion is what they've lost on those, on kind of rolling out these products. So, largely, you know, the main one is the kind of the Echo that's similar to the Google Homes that's got the Amazon voice assistant in them. And pretty much the podcast goes through kind of how on earth has this even happened in the first place. And pretty much it just talks about the But their main focus with this was that they just wanted to get them in the homes and then figure out how they were gonna monetize that later. And they had a rough idea that maybe they would monetize it by kind of having their Alexa interact with various other Amazon products, obviously mainly through the shopping experience on Amazon, saying, hey Alexa, please order me new washing detergent.

45:33 Will Richards: Mm-hmm.

45:34 Gemma Clancy: And then she would kind of make that purchase more seamless for the customer. And then other kind of ways they were looking at it were with advertising. I mean, I was, you know, working in advertising at the time when all of these new voice assistants were coming out and everyone was like, "Voice is the new thing. There's going to be advertising, you know, in everyone's homes through their voice assistants." But when you think about it, it's not a very natural experience. When you ask a voice assistant to give you something, an answer on something, you're not expecting an ad back and you certainly don't want the results skewed by ads because the voice assistant isn't like a normal kind of Google search where you can see which ones are sponsored and which ones aren't.

46:08 Will Richards: Yeah.

46:08 Gemma Clancy: Anyway, so, So safe to say they haven't really successfully figured out how to monetize Alexa and the devices that it sits in. And obviously there's been a changeover in CEO over the last couple of years at Amazon, and the new CEO's come in and is like, "Okay, we've gotta figure out how to make this thing profitable." And so the podcast talks about the different routes that they might take to get there. And yeah, it's really fascinating to hear about some of the creative accounting methodology that they they, they used to somewhat hide, like, you know, intentionally or not intentionally, who knows. Um, but you know, there was kind of all these very creative ways that they were looking at attributing, yeah, uh, profit and revenue to, to this product line that really hasn't been making the money since the get-go. It's pretty crazy.

46:56 Will Richards: I'd like to give you some kudos on not using the latest Acquired episode as your cast as well. Oh yeah, because I always think that's a given when we— when as soon as they drop a podcast episode, that's always straight into the ass. But I have to imagine, though, that they're going to release some language model and smarten up what Alexa is doing right now because they've got the distribution rights. So, like, why wouldn't they leverage this new wave of tech?

47:20 Gemma Clancy: So— Well, exactly. That's the conundrum that they have. They have all these Echos and all these Amazon, like, products enabled with Alexa in all these homes, and they've got to— like, you can't exactly just disable them, say, sorry, your product no longer works. And the podcast does go into the fact that they've kind of I've got what this semi-secret project going on in Amazon at the moment, trying to figure out how to make what they're calling the Remarkable Alexa, which would just be like hopefully a better, more AI-enabled version of Alexa with the latest technology rather than just only giving you, you know, the weather and how long you've got left on your pasta cooking.

47:57 Will Richards: One of my favourite things is watching my mum use Siri when she's cooking. She's like yells at her phone to like start the timers and it's like several timers going at once and one goes off and she doesn't know which one, like which pot she's taking out of the thingo.

48:11 Gemma Clancy: It's not as intuitive as you would sometimes like. Well, we have Googles in our home and Google really likes to interrupt a lot of conversations and she certainly can't answer most simple questions. Her favourite thing at the moment I've noticed is that you ask Google a question and she'll say, "Sorry, I don't know the answer to that." And then she'll say, "But I found something similar." And that something similar will be the exact answer that I wanted, but she just took 30 seconds longer to provide it to you.

48:36 Will Richards: I've had my TV. Activate the smart Google speaker that it's like outputting from. So, you'll just be sitting there in silence watching TV and then it will just like the audio will cut out, the TV will stop and it'll be like, "Sorry, I didn't quite hear that." And it's like you're talking to yourself.

48:51 Gemma Clancy: Oh, God, it's scary. I mean, I want these things to be better so that they can, you know, do a better job of helping us in our day-to-day. But got to say, it is also still a little bit ominous having your speakers listening into everything that you do. But I think it's probably an inevitability, hey.

49:07 Will Richards: Have you chatted with the voice thing on OpenAI yet?

49:11 Elli Hanson: No.

49:12 Will Richards: Oh, download it on your phone app and have a conversation with it. It's pretty good. And what you notice as well is it's so, it's really fast and it quite hasn't nailed the like amount of time potentially it takes a human to actually think about what the next question or the next follow-up question to the last point that they made is. And it always gets like, Oh, we're done with this conversation because you haven't answered or you followed up to my last answer within like a second or two. But you're still processing like this massive information dump that it's given you. But it's really cool to use.

49:44 Gemma Clancy: Yeah. What have you asked it?

49:46 Will Richards: I've had a few, almost like having a conversation with like a Wikipedia page. So, like asking about— I'm in a book club and I was walking, I read the book and then it had been a few weeks since I'd finished the book.

50:00 Gemma Clancy: So, I just— If people are listening from Will's book club, he's been cheating by asking AI about You can't rock up to a book club and pretend that you've read the book, Will.

50:10 Will Richards: No, I'd read the book, but I was— It was 1984, and I was actually asking questions about George Orwell and his life and where he'd come from and his whole story because he's a very interesting individual. And it was just a really fascinating conversation. But like, it gives you so much information and then you're like processing it. Then it's like, cool, thanks. Speak later.

50:31 Gemma Clancy: Everyone in your book club now is like, the penny's dropped for them why you sounded so smart in your last book club session because you knew all this from random stuff about George Orwell from a quick AI search.

50:42 Elli Hanson: Hilarious.

50:42 Will Richards: What do you think I do before the podcast?

50:44 Gemma Clancy: Oh, I know.

50:46 Will Richards: I've had this conversation with an AI for about 4 hours before we jump on, so.

50:50 Gemma Clancy: I'd expect your answers to be better then.

50:52 Will Richards: Yeah, yeah. All right, you're out. I'm getting the AI in.

50:59 Gemma Clancy: Oh, well, that makes my life easier, so that's good. Thanks for joining us for this episode of The Startup Retro. We would love to hear what you thought of the show, so feel free to reach out to us directly on LinkedIn, or even better, you can follow us on your favorite podcast player and leave us a review so that more people can find us. And if you enjoy the podcast, you'll probably also really enjoy our weekly newsletter, Overnight Success, which goes into even more detail on the news headlines and startup raises raises and much, much more. You can subscribe to the newsletter at overnightsuccess.vc. Catch you next week.

51:36 Will Richards: Catch you next week. Listen to the Unfunded Podcast, brought to you by the Day One Network and hosted by me, tech writer Joan Weston We're sharing the no-holds-barred untold stories from entrepreneurs who have decided to build a business on their terms.

52:02 Gemma Clancy: I'll be interviewing successful founders and operators on the grit and ingenuity it takes to build and scale independent startups without the support of traditional venture capital funding. Subscribe to the Unfunded Podcast now, wherever you get your podcasts.