Startmate CEO Michael Batko discusses community-building and portfolio construction in early-stage investing.

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1:03 Michael Batko: And for our listeners, Vanta is offering 10% off.

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1:14 Cheryl Mack: Okay, 3, 2, 1. Hey, I'm Sheryl.

1:20 Michael Batko: I'm Maxine.

1:20 Maxine Minter: This is First Check, part of Day One, the network dedicated to founders, operators, and investors.

1:25 Michael Batko: If you want to be a better early-stage investor, this is the show for you.

1:28 Cheryl Mack: So TL;DR, if you don't want to suck at investing, listen up.

1:39 Michael Batko: So we've got Michael Backo on the podcast today. I am so excited to welcome him. He is a just output machine, you know, across investing and life. I just, I think it's going to be an incredible session.

1:52 Cheryl Mack: Yeah.

1:52 Michael Batko: I'm so excited to pick his brain about all things investing. I've also never had the conversation with him about angel investing, like himself. Obviously he runs Startmate, and so Or maybe not, obviously. He runs Startmate, uh, and also Puddle Pod, and I'm trying to remember the name of his run club.

2:08 Cheryl Mack: Any Run Club.

2:09 Michael Batko: Just prolific dude.

2:10 Cheryl Mack: Yeah, no, like, I, if I had to pick who might be the most productive person in Australia, I think I would pick Beko, just because he like is the epitome of productivity.

2:21 Michael Batko: Yeah, he just lives and breathes it. I mean, Puddle Pod has now produced an entire army of productivity geeks in Australia, so So I'm sure he'll have some really interesting stuff on like how he thinks about scaling his time, how he gets the kind of leverage across his time, both as an angel investor, but also kind of running a company, which will be super interesting.

2:38 Cheryl Mack: Yeah, for sure. He's also just like one of the most optimistic people. Like you ask him about any topic, you're like, hey, you know, what are your thoughts about AI? And he's like, love it. It's great. I can't wait for it all. It's going to happen. It's great. And you're like, oh, what do you think about like how 2024 is going to go? Oh, it's going to be fantastic. So like his just like ever optimism is one of my favorite things.

2:55 Michael Batko: Yeah, I think actually he has probably one of the best networks in Australia as well, because he is just like at the top of his game at Startmate. And so gets to see this incredible vantage point across the like early stage ecosystem in Australia, especially, you know, across First Believers, the accelerator they run, and then all fellowships. And I think you'll have some really exciting things to talk about when you're thinking about starting investing or finessing your investing. So, so excited to have him on the podcast. Welcome. Bakko, so, so excited to have you on the podcast today. And so excited to dive in. Also just from like a, you know, personal gratification perspective is I'm so excited to ask you all about like productivity and angel investing and investing in the intersection of those two things.

3:41 Speaker D: It's gonna be fun.

3:42 Michael Batko: Yeah. Yeah, I can't wait. But we always open with the same question, which is what is the first thing that you ever invested in?

3:50 Speaker D: It's probably a bit of an embarrassing story actually.

3:54 Michael Batko: Yes.

3:55 Speaker D: But my dad always told me to invest money, always. I was just like, oh my God, invest money, invest money. And I was like the ultimate super saver as a child. I was just like, I would never invest in anything. So then the first time that I ever invested was actually about 10, 15 years ago. I opened up an app to invest into Bitcoin and it was like $500. It was all my savings at the time. I was like, oh my God, I'm going to invest. The embarrassing part of the story is I was so scared about my $500 that I would check it like 5 times a day, been like, when is it going up? Is it going down? And then 3 months later I would sell the whole thing because I was just like, oh my God, this is driving me nuts.

4:31 Cheryl Mack: Oh no.

4:33 Speaker D: Obviously embarrassing story because like it did not work out for me. And now my philosophy is very different.

4:40 Cheryl Mack: Right. Have you done the math on like what that would have been worth? Do you torture yourself?

4:43 Speaker D: No, no, I don't even know. I'm not even gonna go there.

4:47 Michael Batko: No, no. There's just like the ecosystem abounds in terrible stories of people selling down their Bitcoin far too early. My partner had a full Bitcoin like really early, like early 2010s, and sold it when it went up 10x. Oh wow. Yeah. And he was like, great, what a great return, excellent, I'm gonna sell it. And he made like 3 grand or something. And then now if he still held it, it was like at the peak it would have been worth a very upsetting amount of money.

5:17 Cheryl Mack: A couple extra renovations on the house.

5:20 Michael Batko: Oh yeah, yeah. But that's actually a great thing that you invested in. Great story to start off with. I'm impressed that you were so risk-on for your first ever investment.

5:30 Cheryl Mack: Yeah. Rather than like, here's a stock, you're like, I'm gonna go for the most risky thing in the market right now. Let's try this like unproven crypto stuff.

5:39 Speaker D: Yeah, it definitely drove my parents nuts, but it was my first investment as well.

5:43 Michael Batko: Yes. I love it. I love it. But having said that, I feel like it's true to form for you. You see opportunity in places that, you know, other people aren't looking at the very, very earliest stage stuff, especially with your work at Startmate. You just get to like bet really early on stuff that could be totally amazing, which I think like crypto kind of fits into that bucket.

6:02 Speaker D: Yeah.

6:03 Michael Batko: I think maybe kind of where I'd love to start, as you're talking about and kind of we're learning from you about how you think about investing, is you obviously run Startmate, which is, you know, the best and preeminent accelerator in the Australia and New Zealand ecosystems now. How do you think about building a community as a lever for investing, both like sourcing and supporting companies you're investing in?

6:29 Speaker D: Yeah, I love it. Um, yes, of context, um, Startmate itself, it's been around for 12 years and we've invested in over 250 companies being worth over $2.5 billion. And it is, um, probably the most active seed stage investor in Australia. Um, we've written 49 checks just in 2023.

6:47 Michael Batko: Wow.

6:48 Speaker D: And Geez, there's so much I can actually tell you about community and how it actually plays into how we do that. And so I'll actually break it down into investing itself is around, you want to see the deal, you want to pick the right deal, and then you want to win the right deal. So in terms of seeing, what we have now is roughly 10 programs which run twice a year from investors to founders to operators. We've got about 1,200 to 1,300 people go through our programs every single year. So the first thing is actually in order to see the deals, everybody has to actually have a great experience in the program itself. So actually we track NPS religiously. We track the feedback that we get through our programs halfway through at the end because the most important thing is that people love Startmate when they are exposed to Startmate. That is almost like a precondition to everything else because step number 2 then is we actually get referrals out of our programs at the end of every single program actually, whether it's actually an investor program or a talent program. Our founder program, we always ask everyone, hey, who is the most ambitious founder in your sphere? Because so often when we actually get a new cohort in, it is surprising how connected the world is. There's hardly any founder in Australia, New Zealand that someone in Startmate wouldn't already know. And that's actually a pretty cool thing to see. And then it's also just a constant reminder that Startmate actually invests as a first check super, super early on. 'cause people just forget about you otherwise. So it's actually about like constantly reminding people, hey, actually introduce me to the best founder. So like that's kind of the seed stage. At a picket stage, Startmate is a mentor-driven seed fund. What that means that all of our mentors actually personally invest their money into Startmate. So they also get to pick the companies at Startmate. Every single mentor is part, if they want to, they can be part of the selection process, which— Yeah. And I won't go into too much detail unless you would like me to, but essentially we get 1,000 applications, they all jump on them, they all review them. Then we get the best 50 companies into a room. All of the mentors meet them 10 minutes back to back for 2 hours. And then we have a final stage of like a 1-hour selection stage again with the community. So we actually get the community to choose the companies for us. And the final one is actually the winning the deal where it's actually so simple for Startnet again, because I actually don't even do it. Like when we tell a startup, hey, you're in Startmate, we actually get our alumni to call that founder and to tell them, hey, you made it. And they can ask them everything and anything. And obviously they are the biggest supporters of Startmate because the reputation of UBC is really based on your portfolio founders.

9:22 Cheryl Mack: That's so cool. I think the really cool thing there is that both Maxine and I have been Startmate mentors for the program. And what amazed me was the level of engagement that each of those investors, uh, slash mentors had in the process. And it created this like community of just driven to help people. And each little touch was like this moment of delight. So I remember the first year that I did it, I was just like, each step of the way I was like, whoa, you guys do it this way. Whoa, you guys do it this way. Whoa, you do this. And then that like little delight factor of having the previous alumni call and having the founders like all find out exactly at the same time on the same night. I was like, who coordinated that? Because like that takes a lot of planning to be like, hey, everybody call at 6:02 tonight.

10:13 Speaker D: Yeah, so the extra step that we implemented was we recorded all of those calls and then it's hilarious because then when the alumni call the founder and they're like, no way, oh my God, I need to tell my mom I made it in. And it's like, It's the most beautiful moments.

10:29 Michael Batko: Oh, that's so lovely. I've got to say though, like the coordination efforts across your community and like the multiple touchpoints and the thoughtfulness and the way that you give it scale, right? At the outset, I was just like, whoa, this is so much, especially the kind of community evaluation, like how data-driven you guys are. But now that I've known you for a little bit longer, it makes total sense, right? Your DNA is all over it.

10:54 Speaker D: Yeah, it's a big process. It's because we do have essentially like 100 to 150 LPs every 6 months. Those are all investors and mentors who invest $10,000 every 6 months. And on top of that, we've got the 1,000 applications every year. So it's like, there's no way for us not to be coordinated. It's almost necessity.

11:14 Michael Batko: Right, yeah. How did you guys build that system over time? Did you like have a theory and then like iterate on it?

11:20 Cheryl Mack: You've made so many improvements.

11:21 Michael Batko: Yeah, I just feel like you're constantly iterating and constantly building in public, but would love to know how you think about it.

11:27 Speaker D: 100%. And that's probably like the most embarrassing part about Startmate as well, because you, both of you would've seen it evolve over time. And back in the day it was just me building a Google Sheet and trying to coordinate hundreds of people.

11:39 Cheryl Mack: We did get a lot of spreadsheets shared with us. True.

11:41 Speaker D: Yeah.

11:42 Cheryl Mack: I remember every second week it was like, here's a new spreadsheet.

11:46 Speaker D: Yes, absolutely. So like the system themselves were actually pretty basic at the beginning and then, And as I hired a more talented team than myself, and we upgraded it step by step with all of the feedback from the mentors and from founders as well. So like then we upgraded to Notion because it was a little bit of a better interface. Then we upgraded the voting forms. And now we actually have a full platform as well where it's, it's literally a selection portal itself. You see all of the founders, you can see all of the comments from all of the mentors and investors and people can chat on there. And yeah, it's, it's way better now than it used to be.

12:17 Cheryl Mack: Can confirm. Yes. Having used all versions, can confirm the new one is actually very impressive. I was impressed at how much you've been able to do with a couple no-code tools, but again, like totally tracks with your background and your passion.

12:31 Speaker D: Totally. Yeah. And that, that's the beauty actually. It's no-code tools. It's an Airtable on the backend and the frontend is Softr actually. And it does make it look like a full application.

12:39 Michael Batko: Yeah.

12:39 Speaker D: Can highly recommend.

12:40 Michael Batko: It's pretty amazing. I think you probably had like one of the best front row seats to like pushing no-code tools all the way to their limit. How do you go about finding your like favorite no-code tools? And do you invest in the no-code, low-code space as a result? Like, are you just like all in on low-code, no-code?

12:56 Cheryl Mack: Yeah. I haven't seen too many Startmate companies that have been low-code, no-code. Backhoe?

13:01 Speaker D: Yeah, no, actually that's true. Yeah, because as you asked me about like, did we invest in many? And no, we actually haven't invested in too many. The front row seat itself that I'm getting is because I do love productivity and I love trying out new tools. So that's like, it's almost like a love language of mine. Just personal interest mostly.

13:20 Cheryl Mack: What's your love language? No-code tools.

13:25 Michael Batko: Yeah. So good. Yeah, I think, I mean, it's like what you're able to build with low-code, no-code these days and the pace at which it's, it's changed. Like I think about Aussie Angels started on low-code, no-code as well. Yep, we did. Were you on Bubble? Did you—

13:38 Cheryl Mack: No, no, we were on Softr and Pory and Airtable. We actually had a long conversation with the team around Softr and how I was using it and then they just like, scaled it outta the water, like took my basic skills and was like up here. Um, but like as a first version, I think that that is, is so useful for founders and investors. Like I still use Airtable for my own like portfolio tracking and, uh, like deal flow tracking. And it's, it's just one of those things that like, if you want to put some amount of like categorization around what you're doing, I think no-code tools are the way to go.

14:14 Michael Batko: Yeah, I think it's an incredible ecosystem. So you have all of these players, right? And actually some of the most impressive people, in my opinion, in the ecosystem are in your universe. And you just have so many stakeholders across all of your programs and your mentors and then your alumni. How do you think about activating them for the benefit of the companies that you work for and at kind of various stages in the process?

14:39 Speaker D: Yeah, I love the question. We've got two really core principles at Startmate, and they're literally like codified into our Startmate culture, which are giving the community a job and skin in the game. And the idea is essentially the one of accelerators and VCs, coworking spaces, whatever it is, actually any ecosystem company always has those mentors who just like fly in, fly out, give you a bit of advice and just never see them again. They are, there's no consequences of giving good advice, bad advice, and you will never actually know. At Southlake, we just so fundamentally are different because we are a mentor-driven seed fund and it is literally all about founders helping founders. But the key difference is that every single one of our mentors personally invests money into the fund, which then invests into that cohort. So you literally have skin in the game. You either, your $10,000 is going to be worth a hell of a lot more or nothing at all and you can go to zero. And it's actually the upside and the downside. Yeah. Which is really important. So that's the first thing of like actually getting buy-in from the community because they like, they care and they actually have something at stake as well. The second one is a bit of an unusual one, which is when I tell people, they actually don't care much, but, um, because it's not, it doesn't sound meaningful, but at the end of the cohort, every founder actually votes on who have been the top, top 10 mentors in that cohort who helped you. And we actually kick out any mentor who hasn't been voted into the top 10 of at least one of the companies because then we're like, well, you didn't actually provide enough value. We are about super high quality mentors. But on the other side, because to your question of like, how do you incentivize mentors? The top 5 mentors who have been voted across the entire cohort actually get carry in our fund. And this is the part where most people just nod their heads and be like, all right, cool, carry. Like it doesn't actually mean much to me. and it has actually really meaningful carry because the carry itself is essentially the profit on the fund. You actually get a meaningful stake in it as well. And we just returned 3 of our funds actually just this year, 9 times over, 3 times over, and 2 times over cash on cash.

16:43 Michael Batko: Wow.

16:44 Speaker D: And to the extent that, I mean, Alan Jones, who you might know in the ecosystem as well, he literally posted up publicly that he's, because of the money going around the world with his partner, flying around and staying in really beautiful resorts because it's actually a really meaningful chunk of money, which he never expected. 'cause when I tell people you're getting carry, they almost don't know what to make of it.

17:03 Michael Batko: Right.

17:04 Cheryl Mack: Yeah.

17:04 Michael Batko: I actually think that's a really interesting point. I have noticed in the Australian ecosystem, our like instinctual understanding of the value of equity and the value of carry is really low, right? For example, in the Australian ecosystem, startups pay significantly less equity than in like comping to the US ecosystem. And the number of people I've had the conversation with about carry and they're just like, they're just— that money doesn't have any value in their mind because they don't know the kind of math behind it. So I wonder, um, if it's useful to kind of actually highlight on this podcast, like, what is the math for carry and why is it so significant?

17:39 Speaker D: Absolutely. Yeah. So it's like, um, I mean, the really basic math of it is, um, our Startmate funds started at like as a $200,000 fund to be able to invest in 5 companies. That's literally what it started out as. Like, 2011 was like a $200 $5,000 fund to be exact.

17:55 Michael Batko: Amazing. I love it.

17:57 Speaker D: And now our fund size is roughly like the $3, $3.5 million stage. So at a $3 million fund, we are a micro fund. We invest super early at like $1.5 million valuations when the founder is by themselves MVP pre-product. But when that investment does go well, and that means like, yeah, we invest, for example, into 10 companies per fund itself. And if a company goes from a $1.5 million valuation to a $100 million valuation, just very rough maths here of like goes up by 50 times with a bit of dilution. So goes up by 30 times on a fund basis. Every other company dies, but that one company then makes up the entire fund 3 times over. So essentially you're looking at a $9 million fund out of a, or like fund return on a $3 million fund of $6 million of profit. And then from the $6 million profit, it's actually the 20%, which is the carry itself, which is $1.2 million essentially going out to mentors who have helped. Like, that's actually quite a bit of money.

18:56 Michael Batko: Right. It's so material.

18:57 Cheryl Mack: Yeah. Well, I'm excited for my payout. I was in the top 5 for one of those cohorts. So you let me know when that's coming in.

19:04 Speaker D: Yeah, absolutely.

19:05 Michael Batko: Checks in the mail, right?

19:06 Cheryl Mack: Yeah, checks in the mail, right? No, but it actually is something that I think you're right, Maxine. It's not, It's not as talked about, it's not as valued in Australia, and that translates into a number of people taking like cash over and not valuing carry or equity as much. But when we start to have more of these payouts, for example, Alan Jones posting on LinkedIn saying, hey, this is actually what's happened, I think that will start to shift. And it already has, like the number of people who have said, oh, like you got you got Kerry in that, in that vintage of Startmate and saying like, that was a good vintage. I'm like, yeah, it was.

19:44 Michael Batko: Yeah. I think it'll, like, as you said, it will happen. It will move through the ecosystem. I think it'll be so valuable for the ecosystem. Cause if you think of the, like every single, I think the stat in SF coming to you live from SF is that every time there is an IPO at a billion dollars, about 1,000 millionaires are minted. And a lot of them live in San Francisco because they own material positions in those companies on the employee level. That's not the investors that participated in it.

20:12 Cheryl Mack: A thousand?

20:13 Michael Batko: A thousand.

20:13 Cheryl Mack: Like, what do you think, what do you think it is in Australia? Like, do we have that same—

20:17 Michael Batko: I don't know.

20:19 Maxine Minter: Function?

20:19 Michael Batko: I'm not sure. I haven't found, I haven't found great data to compare like the US to the Australian ecosystem on how much more the US gives in terms of equity for folks. But I think one function of it is that a lot of Australian employees join startups and don't really have, as I said, that kind of like instinctual understanding of the opportunity around equity. And so they don't ask for equity, they don't know how to price it in their comp package. By far, you know, the US hasn't worked this out either. I've had many conversations with founders here and also employees where they just don't know how to price it, and so they round it to zero, which I think is a huge mistake.

20:57 Maxine Minter: Yeah.

20:58 Michael Batko: Right. I think actually, I think the best mental model is like, take off the table what you absolutely have to, to kind of live the life you need to and care for the people that you need to, and then everything else if you truly believe in the company, you should leave in, in order for it to be able to compound. I will have a minor soapbox moment in that as an investor, you get so much more information about a company than as an employee, even though an employee is an investor. An employee who is taking equity is also an investor in that company. And so I encourage people, founders, anyone who's listening to like actually disclose information to your employees so they can get as excited about it as you are.

21:34 Speaker D: Mm-hmm.

21:35 Michael Batko: It aligns incentives. It's a kind of wonderful way to pay it forward and produce wealth of the Australian ecosystem, like your equity is worth a lot. So please be thoughtful about who you give it to and give it generously.

21:46 Speaker D: Yeah, I love that accent.

21:48 Cheryl Mack: What about the opposite argument though? Like there are a lot of founders who convince people, not a lot, but we've seen situations where founders who have convinced employees to join on the premise that like, you know, take a low salary 'cause this is gonna be worth tons one day. Like, you know, the most recent example being Fast and how that plays out considering that like, the majority of startups fail. So how do you price that in? Like, do you discount it by like, if the equity could be worth this, but the risk that it doesn't is like 50%, so actually it's only worth this?

22:19 Speaker D: I think the best practice that I've seen is actually, um, getting— giving people 3 different salary and equity packages, and you kind of want to price high salary, low equity, and vice versa. And it almost like allows the person then to make a decision, how much actual cash do I need? Which is totally fair because people have different circumstances. A great primer for ESOP, by the way, because I agree, in Australia it's not as well understood. I think Eucalyptus actually has released a great, great document on, on ESOP.

22:46 Michael Batko: Yeah, shout out to Alexei, the man with the ESOP plan. He's just so great. He's done such a wonderful job there.

22:52 Cheryl Mack: Also, Cake, Cake have great equity—

22:54 Michael Batko: True.

22:55 Cheryl Mack: Uh, ESOP equity documents as well. So shout out for Cake.

22:58 Michael Batko: They've also got a calculator online, no? So they're like, people could play around with that. But I think my My perspective is that I think founders should have a robust conversation with people about the risks that they're taking, you know, and like, yes, it could go to zero and that's the risk that you're taking. And as a person joining one of those companies, or even as a founder, you know, thinking about what is the risk profile that this company has. Actually, Cheryl, I think in one of our previous conversations we were talking about the fact that actually every single employee in Australia is an investor. Yeah. But the number of people that I meet who are like, "Oh, I'm not an investor. I don't know anything about investing." And I'm like, "You invest 11% of your income every single month into an asset." Yeah, that was us.

23:42 Cheryl Mack: Whether you like it or not, you are an investor. And to not make a choice is making a choice. Like, just because you're not directing that money doesn't mean that it's like that was a choice and you chose to take a step back and take a backseat to that investment. It's still a choice. Mm, totally.

23:57 Michael Batko: Yeah, on that, Batko, are you personally angel investing on top of investing in Startmate, or do you just do all of your activity through Startmate?

24:06 Speaker D: Yeah, I don't personally angel invest because we've got a really strict policy at Startmate that we, we're not allowed to.

24:13 Cheryl Mack: I told you that was the case. Yes, of course. I was like, I'm pretty sure he doesn't because they don't have— they don't allow it. But you're allowed to invest in the fund, right? So like you invest invest into the Startmate fund.

24:23 Speaker D: Yeah, that's right. So I've invested every single cohort since I became CEO, essentially. It's just a bit too much conflict for us because if we see a great company, you've got this massive conflict, and if you're personally invested, you're gonna try to make arguments for the fund and you're really conflicted. So we are essentially saying, if you see a great company, it absolutely should go for the Startmate fund.

24:41 Cheryl Mack: And then what about on the other side? Like, if there's a particular company that does go through the fund and they graduate and you love them, like, are you allowed to double down or is it like just fund only.

24:51 Maxine Minter: Are you building a SaaS business and looking to achieve compliance with SOC 2 and ISO 27001 or other security and privacy frameworks?

25:00 Michael Batko: Compliance can unlock major growth and build essential customer trust, but let's face it, it's usually time-consuming and expensive.

25:05 Maxine Minter: And like really kind of a pain. That's where Vanta comes in. Vanta automates up to 90% of customer compliance tasks, making you audit-ready fast and saving you up to 85% of the associated costs. Plus, Vanta scales with your business, offering a market-leading trust management platform to continuously monitor compliance, unify risk management, and streamline security reviews. Join 7,000 global companies, including Atlassian and Dovetail, that trust Vanta to build and improve their security in real time.

25:31 Michael Batko: And for our listeners, Vanta is offering 10% off.

25:34 Maxine Minter: Just go to vanta.com/first. That's vanta.com/first.

25:42 Speaker D: Yeah, good question as well. Fund only again. So like we do have now, for example, a continuity fund, which is $12 million where we actually, it's quite an unusual fund in the sense of we always invest in our alumni. Our alumni, when they go out fundraising and it's an equity round, we always are in and no questions asked if somebody else leads round. So the beauty for alumni, it gives them actually a competitive advantage because they can go into the next round saying, hey, Startnet's already investing 8% of my round. So yeah, the Continuity Fund essentially always invests in our alumni in all of the future rounds.

26:17 Cheryl Mack: Oh, I love that. Interesting. I didn't know that before I invested in the Continuity Fund. I thought it was like cherry-picked, but thank you for teaching me about my own investment.

26:26 Michael Batko: I love that. How do you guys think about portfolio construction from that perspective?

26:31 Cheryl Mack: Yeah.

26:32 Michael Batko: Right? Especially maybe we can double-click on the Opportunity Fund because there is a range of opinions when it comes to opportunity funds. So kind of how did you decide on constructing an opportunity fund? Why did you decide to do that, like, we're always in model?

26:45 Speaker D: Yeah.

26:45 Michael Batko: Can you maybe educate us a little bit on how you got to that endpoint?

26:48 Speaker D: Absolutely. So like, on the accelerator fund itself, so we raise a fund every 6 months and that's roughly like $3 to $4 million. And the portfolio construction there is roughly that 70% of our money goes into the first check. We always invest $120,000 into all of them. And then we roughly reserve 30 or 40% for follow-on as well, because we actually want to double down on the best companies there as well. And usually that fund runs out of money pretty quickly. And this is kind of where the continuity fund kind of, well, where exactly where it slots in. Because over the last 12 years, we've invested in some incredible companies who've raised like hundreds of millions of dollars, like Morse Micro, UpGuard, Buckcrowd, Propeller. Like they literally raised hundreds of millions, if not billions of dollars. And the sad thing to me is always just looking at our own dilution and not being able to participate in those incredible companies who, like you said, you've got so much information on, way more than anyone else really. And this is when we started the Continuity Fund itself and the Continuity Fund from a portfolio construction perspective, it is quite interesting because it doesn't have necessarily the concentration of the accelerator fund or the traditional VC fund of Usually it's like the 20, 25 companies that people invest in and they double down on like the top 7, 8 or so. And the Continuity Fund, as I mentioned, is like that automatic fund where we always invest in the best companies. There's two reasons for that. Like the first one is because we get 1,000 applications every year for Startmate. We invest in roughly 30 companies, which means the top 3% of companies that we see. The Continuity Fund only invests in the companies which are the best of the best. So you're already only investing like the the top 1% of companies which are coming out of the entire StartupBed selection process. That's the first thing. And the second phases with the continuity fund is actually the one of the biggest mistake you can do in VC is not saying yes to the one company that is going to be massive. It's almost like the biggest mistake you can do is omitting that one company. So therefore we're actually always in because we believe in our companies. We've worked with them for such a long time. They've actually managed to raise more money and we will always be there with you on that journey.

28:59 Cheryl Mack: Very interesting. Interesting. And how do you like, do you have a selection on like what that lead investor is? Do they have to, like, do they, do you have a list of lead investors that you would accept or like would an angel putting a, like leading the round, would that be acceptable? And like, what about terms? Do you accept all terms?

29:18 Speaker D: Yeah, yeah, great questions.

29:19 Michael Batko: I think Cheryl's asking for a friend.

29:21 Speaker D: Yeah, yeah, asking for a friend. I'll send you the information memorandum again.

29:25 Michael Batko: Probably a good idea.

29:27 Speaker D: Yeah, yeah. No, no, we genuinely do have rules, yeah.

29:30 Cheryl Mack: But I mean, that just kind of shows that like it was, it was Batco. He's like, hey, we're doing this. And I'm like, cool, I'm a mentor, you know, continuity fund. Yep, sign me up.

29:38 Speaker D: Love it. No, but there definitely is a bunch of rules. So we do have a bit of leeway here as well of actually making the calls whether or not this is an eligible round itself. So like you said, it's kind of like it has to be a trustworthy VC as well. It can't be just a family and friends round. We only invest in equity rounds, which means we don't invest in SAFE rounds and bridge rounds and kind of save me rounds kind of thing. So we're only essentially saying like when things are trending up. And yeah, those are kind of, and therefore we have a bit of leeway there as a team to actually decide is this a round where we want to be backing it or not.

30:12 Michael Batko: Yeah. Okay. How do you work out whether it's a save me round? I'm particularly interested in this because there's some, interesting analysis on like follow-on decisions. And if you just evaluate the follow-on decisions actually as a performance and on IRR, it's much worse than your first check. Obviously valuation matters here, but the decision-making heuristics of kind of loss-chasing behavior and like consistency bias, I think, really can skew decision-making for a like follow-on decision. I imagine that's present there to some degree, although I think it's an elegant solution to just like always double down when a company kind of meets these criteria. So how do you think about that, like save me round? How do you determine a save me round versus like good traction and just a little bit more to get to the outcome that they need?

31:03 Speaker D: Yeah, yeah, totally. I mean, the luxury that we have is that we have so much information. One thing, 'cause we do get monthly updates from every single one of our companies pretty much. And the second one is probably like an easy heuristic here, which is we don't invest in down rounds as part of the Continuity Fund. And that is actually a pretty easy kind of determining factor itself.

31:25 Michael Batko: Right.

31:25 Speaker D: Yeah. So those are probably like the major two.

31:27 Maxine Minter: Got it.

31:28 Michael Batko: Yeah, that's, I mean, that makes sense. That's really easy, especially in the last, I don't know actually, when I was about to say that out loud, like over 2023, I think there was some pretty amazing companies that did down rounds because they raised at like astronomical valuations.

31:42 Speaker D: Yeah, which is also fair, yeah.

31:44 Cheryl Mack: And are we gonna discount them? Like, do we give them a hall pass on their down round and say, actually that one wasn't an official down round because of that situation?

31:52 Michael Batko: We all did it. We're all doing down rounds.

31:56 Speaker D: Yeah. Which is totally fair. I mean, the beauty is with the Continuity Fund that we're actually already investors in all of those companies. So we already have a stake.

32:03 Michael Batko: Right.

32:03 Speaker D: And so whether or not, like we actually would've participated in every round up. So we actually have already a meaningful amount of money in the company itself.

32:11 Michael Batko: Mm, got it, got it.

32:13 Maxine Minter: True.

32:13 Michael Batko: And do you make those decisions with the community as well? Or have you, do you like trend more towards a more traditional VC decision-making process, like consensus or conviction-based?

32:23 Speaker D: Yeah, so in the Continuity Fund itself, it is actually pretty much programmatic, as in like, what I mean by that is it's like 90 to 95% of our investments themselves, they very much follow the rules as I've just described them. And there's actually very few of those edge cases. When I talk about down rounds, et cetera, like it's definitely not the norm. Like we honestly, since the existence of the Continuity Fund, we haven't even had a single one yet. So we haven't even had to make the decision yet. And we are not even at the final close of the Continuity Fund yet. We've got yet another 6 months to actually close it. And we've already made, I think, 12 investments in that fund over the last 12 months.

33:00 Michael Batko: Wow, incredible.

33:01 Cheryl Mack: Well, there you go. Opportunity. If anyone else wants to get in, you can.

33:04 Michael Batko: Yeah. How long will the fund be for? Will it be like a traditional fund lifecycle? You'll do just as many investments out of that fund as you can fit in, in that 12, in that time period? Is that the idea?

33:17 Speaker D: Yeah, so, love the questions, 'cause it's all the questions that we actually had to consider for information memorandum as well. One of the problems that we had was our alumni are so successful often that our pro rata actually explodes into millions of dollars. And I can't just deploy $12 million out of a $12 million fund into one company. So actually one other rule we had to implement is no single investment can be larger than 5% of the fund itself, because we do want to have at least like 20 investments in the fund itself. So that's, that's one caveat here. And the other one is, um, oh yeah, the lifetime of the fund. Two interesting things here. Like the first one is the Continuity Fund is a traditional VC fund. It's the 10 years, 2 one-year extensions, like any other VC fund. The other one, which is probably more interesting though, is our accelerator funds. Don't have those time horizons because we do invest so early on. And the Startmate fund started all the way back in 2010 when investors actually probably didn't even know or care. Obviously now it's a changed kind of landscape, but the Startmate funds actually are open-ended funds, which means in theory we never have to give back the money. And obviously we don't do that. Like as soon as we've got an acquisition and exit an IPO and a dividend actually even in some cases, we always return the money straight away. Um, so yeah, that's quite an interesting quirk about the StartMid funds.

34:36 Michael Batko: That's really interesting. Have you worked out an effective way to manage dividends? Because I have a hypothesis we're stepping into an ecosystem where we are now going to start seeing companies getting to profitability like way faster, right? Like cost to build, time to build, time to get to profitability, plus the ecosystem is focusing on profitability. It seems to me obvious that we're gonna see more and more, and I'm definitely seeing it in my deal sourcing. I think you guys have probably navigated something that most VCs haven't yet navigated, but might over the course of their 10 to 12 years. And maybe angel investors, well, I guess angel investors don't care about it as much 'cause it just distributes back to them. But if you're running a micro fund or thinking about running a, a fund, like how do you think about distributing dividends?

35:18 Speaker D: Yeah. Yeah. Um, depends on the fund itself and depends if do we still have investment opportunities left. Um, in the Continuity Fund, Actually, I think even the fund, the fund, I don't think is even, well, the fund isn't even closed yet. And actually one of our investments is already gonna make money back. And in that case, it's actually kind of like, well, we still have another 3 years of an investment period left. We're not gonna actually return money before we even like close the fund down. So that's an interesting quirk. The norm though is that usually their returns, if a company gets sold and it's kind of more an asset sale, that can actually be retained for almost like expenses sometimes, because it's actually just not like, it's 10, 20 grand kind of thing and it's not meaningful money. If it's anything in the realm of like returning 10 or 20% of the fund, we always give it back to the investors. The interesting one which we had around the dividend is one of our companies paid us a dividend 2 years ago and it was like 30% of the fund itself. And we're just like, all right, well, it's actually quite a nice return. It's not a huge one either, but like, all right, let's return it to investors. And now we're actually getting the third or fourth dividend of that company in that fund, and the entire fund has actually been returned through dividends and is almost like up by 1.5x or 2x or something. I would actually double-check that one, but that's just literally a company just being super profitable and paying us every year. We're the only investor on the cap table and it's like going really well.

36:41 Michael Batko: Wow. Wow. Yeah. Well, I mean, that's the cool thing about your model, right? Going in super early is like you back some really amazing companies, also some companies in the kind of a wide spectrum of business types as well. Yes. That's the cool thing about Startmate is that you're not B2B SaaS.

36:55 Cheryl Mack: The whole spectrum.

36:57 Michael Batko: The whole spectrum. Yeah.

36:58 Cheryl Mack: Yeah. Like robotics to like satellites to B2B SaaS to anything in between. Like I've always been, I always learn something every time we do Startmate. A lot of somethings actually.

37:13 Speaker D: I told Cheryl yesterday that we invested in a powder that makes everything taste like bacon and she almost wanted to withdraw her investment.

37:21 Cheryl Mack: Actually, I do remember that. I was like, what? In what world was that a startup company? But I'm into it. I love that.

37:30 Speaker D: But yeah, so like we do invest across all different spaces. 'Cause like for us, because we invest so early on, it is literally all about the person. And if I believe that person loves that customer and I will essentially give them $120 grand to figure out how they're going to actually solve that problem. And there's lots of different theories around hardware, software, aerospace, and so on. I can talk about many, many of them. But yeah, I'm essentially just bullish on people who just love the customer.

37:57 Michael Batko: I think there's a lot to be said for that.

37:59 Cheryl Mack: I wonder who the customer was for that founder on the seasoning that makes everything taste like bacon. Like, is that the whole world or just bacon lovers or just not vegans?

38:09 Speaker D: The initial one was actually vegans. And then The founder was so successful that they almost like reached all of the vegans in the world and there was almost not enough vegans left. So yeah.

38:19 Cheryl Mack: Is that the company that's returning dividends?

38:21 Michael Batko: No. Just making bacon?

38:23 Speaker D: Yes.

38:24 Michael Batko: Had to do it, had to do it. One of the things that I have found truly incredible, and maybe this is the kind of community power that you have, is the ability for the Startmate funds to find really exciting opportunities in very non-obvious corners of the Australian market. I'm wondering if you can kind of tell me a little bit, how do you foster that in your team and foster that in the mentors so that, you know, kind of you increase the probability that they are seeing that kind of non-consensus, non-usual company, but where, you know, theoretically there are outsized returns?

39:05 Maxine Minter: Yeah, totally.

39:05 Speaker D: It's definitely been an evolution at Startmate because traditionally in 2011 until 2016, roughly, we were very much focused just on software. Like it was very much the software play. It was, um, Startmate was founded by Nicky Ševák, the founder of Blackbird, and that was the initial thesis. And, and even, and then back in 2016 was actually the first time where we had to change that investment thesis itself, where we just, um, Nick Crocker at the time was leading Startmate and he came across an investment opportunity which was like, we cannot not invest. And that was actually Michael O'Donnell from Morse Micro. which were building essentially like low energy, high range Wi-Fi chips. And they just raised a $100 million round like last year. And obviously the company is doing really, really well. And that was actually our first ever hardware investment. And that was actually quite a challenging time at Startmate. We're like, well, are we doing hardware now? Is that investment opportunity?

39:59 Michael Batko: Cool.

39:59 Speaker D: And so to your question of absolutely, we've expanded the investment thesis a lot around essentially always doubling down on people. And what they care about. Like, it is all about that. And we actually have a couple of thesis around the spaces that we want to play in. But to your point of how do we foster the kind of culture within our team and within our mentors as well, one of my favorite questions is, and I always keep coming back to it whenever I critically assess a company for myself, is rather than what is probable, because the company probably actually won't go anywhere. Yeah. Is like the complete flip side of it. Like, what is possible? Like, if it does work, like, what is the incredible thing that could actually happen? And, and what could the world look like? And that curiosity itself and that kind of way of thinking, that's, that, that's the one which we're trying to instill in all of our mentors because the initial instinct is always like, all right, those are the 5 problems and there's never going to— they're never going to be able to make it. And maybe another killer concept that I like is is every company needs a couple of miracles to have, whether it's like customers or go-to-market or a market actually coming into existence and so on. And if it's only 1 or 2 miracles, that's actually exciting to me. If there's like 15 miracles, well then it's actually pretty unlikely in a sense. But that's probably like, that's another way to actually assess it.

41:24 Cheryl Mack: It reminds me of some of the times when you asked me, Maxine, you're always like, Well, what needs to be true in order for that to be possible? And just doing that as an exercise, I feel like, is so valuable because it makes you think, how many seriously miracle things need to happen? And how much of a miracle are they? Or are they actually totally doable? Like, at what level do we need to look at this? And I think that that question really resonates with me as well when you think about, well, what does need to be true in order for this to be a huge breakout success?

41:55 Speaker D: I love that question. Yeah. Yeah.

41:57 Michael Batko: I also think that it's pretty rare from what I've seen in the Australian ecosystem for the especially early stage investors to like truly think about what's possible as opposed to what's probable. I mean, I think if you did a poll of most founders raising pre-seed and seed in the Australian ecosystem and you ask them what kind of questions they get, a lot of them would say like, it's all about, you know, tell me what's probable.

42:18 Speaker D: Yeah.

42:19 Michael Batko: And, but you don't actually make the outsized returns by investing what's probable, like investing what's possible. And then those miracles— between 1 and 15 miracles occur to make it, you know, come into reality. And that's where the outsized, like, incredible outcomes are unlocked. I think it's pretty hard to create, you know, multi-billion through to kind of $65 billion asset value businesses where it's like obvious there's like 2 or 3 inflection points. And at that point, like, you're going to create something. And I think it's such a wonderful DNA to infuse into, like, the footprint that Startmate has, like, across the ecosystem to just, like, hammer home this idea of, like, early stage investing is all about what's possible. It's not about what's probable. I think that's a beautiful mantra. I also, I think it's— Like, the cool thing about early stage investing is your downside is limited relative to your upside.

43:15 Cheryl Mack: Yep.

43:16 Michael Batko: Right? You might like invest a small amount.

43:18 Cheryl Mack: Yeah, you can't lose any more than what you've invested.

43:21 Michael Batko: Right? Yeah, yeah. But you can gain so much more.

43:24 Cheryl Mack: Yep.

43:25 Michael Batko: Right? The like asymmetrical upside is extreme. It's kind of like penny stocks in the '90s.

43:29 Speaker D: Yeah, absolutely.

43:31 Cheryl Mack: Although not, except without the fraud.

43:34 Speaker D: No, it's actually like why I love being a micro fund because we only invest $120,000 into companies. But at that stage, it actually makes such a massive difference. Whereas, um, like you said, the downside itself is like, all right, cool, we lose $120,000. The upside itself is the company gets to a couple of hundred million dollar valuation, and that itself is like, well, like I said, we literally returned one of our funds 9 times over cash on cash, which is like, like top whatever, like 5% of VC fund in the entire world.

44:03 Michael Batko: Yeah, yeah, that's nuts. Yeah, that is like a way out performance. I will say, was it your first one or your first 3? One of your first 3 funds.

44:10 Speaker D: Yeah, one of them. Yeah. Yeah. Yeah. And yeah, that was a very small fund.

44:14 Cheryl Mack: Yeah. It's a very good time to be investing as well. Right.

44:17 Michael Batko: I will also say that a little known fact in Australia is that like funds 1 to 3, so emerging managers outperform, they are 80% of the top performing funds every single year, or between 40 and 80% of the top performing funds every single year according to Cambridge. And so it's just like, you know, that, that early insight, that early structure. Like, you guys were the only ones out there really evangelizing that early stage investing at the time.

44:42 Speaker D: Yeah.

44:43 Michael Batko: And the only real accelerator, which is super cool.

44:45 Speaker D: And also, like, to double down on that point, actually, it's because I definitely agree with that. It's, it is almost like the concept, because you are out there for the first time, you're building a reputation, you are incredibly hungry. So that's actually one of our Startmate values as well, which is like literally backing the hungry, not the proven, which goes into that VC kind of lens as well, as well as into our founder. And when I'm hiring somebody for our team lens as well, like literally backing the people as early as possible because they're hungry to prove themselves rather than actually being proven with like so many medals and so many great names on the CVs, etc.

45:19 Cheryl Mack: Yeah, what's really cool I think too is that you— it's not just your investment team, you basically mobilize the entire mentor network to be part of your investment team. So I'm like, I'm curious, some of those, the way that you described that you've instilled in your team, like you have to, you have to distill it down to like something smaller for all of the mentors. Like, are there any mental models or like strategies that you use to, um, get to pick the founders and to make sure that you're getting that point across all of the mentor network?

45:51 Speaker D: Yeah. Uh, that's actually one of the hardest parts for sure. Because we have, like I mentioned, 100, 150 mentors every 6 months. And mentors are traditionally time poor and don't want to read things on Notion, et cetera. So even though we've got it like literally like now distilled it into one page of an investment thesis, this is what we look for. Even then people unfortunately don't read it. So now it's an internal struggle, but it's essentially like coming, getting across a couple of those concepts. One of them being the one I just talked about around, the possibility rather than probability of it. And the second one being around like literally going about that ambition. The third one actually being around the customer obsession itself and how much does the person truly understand who they're going after. And I think a final one is one which I love as well, is like literally just looking for good people. And a great question to ask yourself at that stage is, would I want, would I want to work for that person? And even just asking yourself that question actually often reveals a lot about the founder.

46:51 Michael Batko: 100%. Yeah. I think it's such a powerful question to ask yourself. I love that you guys are evangelizing that, 'cause I think especially if you're investing out of a fund or if you're investing, you know, as an angel, I think it's a really powerful question that cuts across all of them.

47:08 Cheryl Mack: Especially 'cause sometimes it happens, you have to jump in and start to work for them.

47:13 Michael Batko: Right. True. I would actually say, like, especially as a VC and ideally as a value-add angel, like, you do work for them. Yeah, the whole idea is that, you know, you invest your capital and you go to work for them, and they— you are there as a resource for them. So ultimately, it's true. Yeah, you will work for them for a period of time, whether depending on the success.

47:34 Speaker D: And you only ever get pulled in in the toughest times as well, which is like the most stressed and the— yeah. So it's—

47:41 Michael Batko: Yeah, code red.

47:42 Speaker D: Yes. Yeah.

47:44 Michael Batko: I feel like we could talk about this all day, every day, and I have realized we have been nattering on for a very long time now, and I feel like I've learned so much. The question that we always ask everyone at the end, very sadly in this circumstance that we're at the end, um, at the end of our conversation with them, is what is your biggest big cojones moment? A moment that you felt really brave?

48:08 Speaker D: Um, it's probably like so many things every week that I need to kind of do, like, either be contradicting somebody or like going against somebody's opinion. One which I actually, um, remember, and this goes back to the conversation which we just had around, um, investment thesis, because we went from software to hardware. And another kind of like key moment that I remember almost my VC career was, and we had essentially 100 mentors on this email chain arguing for X company to get in, Y company to not make it into the Startup Med Accelerator, etc. And I remember this entire thread coming up and everybody discussing whether or not we should invest in that non-alcoholic beer company. And it was like the whole argument of like, but we don't do hardware, we don't do D2C, like the sales cycles are too long, it's refrigeration, etc., etc. Yeah. And it was at that time when I like jumped in as Startmate CEO and actually had to be like, hey, we can't just rest on our laurels and do things the way we've always done them. Like the team is so incredible. The trend here in terms of market is so clear. Like they are absolutely backable with a $120K check, even though they don't have a brewery yet and they're just getting started that I just had to jump in. And there was actually that one moment where— Yeah. I think it also unlocked mentors to think a little bit outside of that box that we were in. And I mean, that company is Heaps Normal, which is now pretty much in every restaurant and bar in Australia. And it was actually a pretty proud moment for me as a CEO as well, because I was actually fairly young into my CEO journey as well to actually stand up to everybody, be like, hey, let's actually not do things the way we've always done them.

49:48 Michael Batko: That's awesome. I love that. I love that. And what a great investment. They, you're right, they're like literally everywhere.

49:54 Cheryl Mack: Yeah. Great story.

49:56 Speaker D: Yeah, so like I still remember having a call with Andy before he actually made it into the accelerator, actually chatting to him whether it was even the right move and whether they can even raise venture and so on and whether it will ever be a company which is worth more than $1 million, et cetera. And I was like, no, no, come on, let's do this together. And let's actually like go really hard after it.

50:15 Cheryl Mack: Yeah, and now they're going to the US and just taking over the world in the non-alcoholic category.

50:19 Michael Batko: Are they?

50:19 Speaker D: So good.

50:20 Michael Batko: Yeah, well, yeah, I mean like the beverage, the food and beverage market, but beverage market in the US is just like a wild, wild west. I've had a couple of friends who built in that space and it's, it's wild. So yeah, good luck to them. Yeah. I'm excited to see them over here in every single bar and every single restaurant.

50:36 Cheryl Mack: You gotta evangelize for them.

50:37 Michael Batko: Well, thank you so much, Batko. That was absolutely the best.

50:41 Cheryl Mack: We dug into so many great things there.

50:43 Speaker D: No, thanks so much for having me. This was a great conversation.