Experienced angel investors Rachael Neumann and Kylie Frazer have launched Flying Fox Ventures, offering a new model of investment syndicate in Australia, and deploying $5 million into early-stage startups each year.
Neumann is the founder of Working Theory Angels, as well as being a former chair of StartupAus, a managing director of Eventbrite and head of startups for Australia and New Zealand at AWS.
Frazer is a co-founder and partner of Eleanor Ventures, and a startup advisor, Startmate mentor and lawyer.
The pair have already clubbed together to deploy some $10 million of funds under management into between 20 and 30 deals, including backing the likes of Goterra, Mr Yum, Heaps Normal and Josef.
Now, Flying Fox will bring together a cohort of angel investors, each pre-committing $50,000 to the fund. That cash is then pooled and deployed across ten deals.
For startups, it offers transparency into the size of cheque they can expect from the syndicate. For the investors, it means a diverse and well-balanced portfolio, increasing their chances of great returns.
The idea is to increase the number of people investing in early-stage startups, Neumann explains.
Firstly, that’s “mission critical from an ecosystem perspective,” she says. But it’s also where investors can get the best returns.
And, perhaps most importantly, “it’s just the most fun place to play”, she explains.
“It’s an opportunity find people early in their journey when they’re super passionate, and really lean in to help them realise their success.”
An alternative model
The fund takes inspiration from the ‘rolling fund’ model that is gaining popularity in the US, Neumann explains.
Each year, a $5 million pool of capital will be replenished and deployed, and investors can choose to join each round, or sit out.
In typical funds, limited partners are invited in once every couple of year, and always with a very large cheque.
“In our mission to get as many people investing as possible, we want to create as many on-ramps as possible.”
The founders seeking investment interact only with Neumann and Frazer, and the investors don’t pick and choose where each chunk of their money goes.
“In traditional angel groups there’s a lot of herding of cats,” Neumann explains.
But the pair also manage the deal-flow, the paperwork and the due diligence, removing some of the barriers for investors.
Once the investment is finalised, the curtain is pulled back, and founders can reach out to anyone and everyone in the group for advice, guidance or introductions.
The “special sauce”
Having invested as a team for some time, Neumann and Frazer have a fairly strong sense of what makes a good investment for them.
They’re industry-agnostic, Neumann says.
“Especially right now, the opportunities in Australia are pretty wide and broad.”
What Flying Fox is really looking for is founders who “deeply understand a customer problem”.
That problem should apply to a large, growing and international market, she adds.
“We’re looking for folks to go global from day one.”
Beyond that, there’s a certain “special sauce” that will help founders get across the line, although Neumann admits it’s not easy to define exactly what it is.
It could be an innovative business model that hasn’t been possible until now, it could be cutting-edge technology or a new way to acquire customers more quickly and cheaply than anyone else.
It’s the thing that’s compelling beyond the great product and large market, she says.
“We’re looking for something really special.”
An ecosystem evolving
The launch of Flying Fox comes amid considerable activity in the early-stage investment space.
Within a matter of weeks we’ve seen Investible raise $35 million for its second fund focused on seed-stage investments, while a group of startup leaders and entrepreneurs have brought The Fund to Australia.
The latter sees participants of the local ecosystem pooling resources to back new ventures at the seed and pre-seed stage.
Neumann, who is originally from the US, says she’s watched the ecosystem evolving and improving ever since she arrived.
“I feel like for the last 10 years since I’ve been in Australia, every day I’ve said it’s never been a better day to either start or invest in a startup,” she says.
“Every day that becomes more true.”
The startup scene is “exponentially maturing”, in terms of the talent that’s here, the level of ambition shown and the volume of private capital flowing into the emerging tech sector.
That’s partly because people are starting to understand the opportunity startups represent.
Startups will be the companies that solve the most pressing of the world’s problems, Neumann notes. But before long they will also be the businesses topping the ASX.
We have enough success stories, and enough investors seeing strong returns that others are starting to better understand the high-risk, high-reward model.
As other asset classes shift in terms of the rewards available, startup investing becomes a viable part of any investors diverse portfolio, she explains.
But also, that same success in the ecosystem brings new investors into the market. We’re seeing more and more activity from successful entrepreneurs backing the next generation of founders.
“We love seeing them recycle their cash back in as investors,” Neumann says.
“Not only do they bring their capital, they bring their know-how and experience.”
This is an edited version of a piece that first appeared on SmartCompany and is republished here with permission. Read the original here.