"In Australia we don’t embrace failure the same way other countries do. Once we see that culture become more main-stream we will see more entrepreneurs giving it a go." Laura McKenzie CEO Scale Investors
Having worked in various areas of finance across three continents, including the Venture Capital (VC) investment market and microfinance, one of our newest Australian citizens, Laura McKenzie, became convinced it was time to challenge the unconscious bias inherent in the angel investment community.
“Unconscious bias is exactly that, ‘unconscious’. It is difficult to change something if you are unaware you’re suffering from it,” says Laura, describing the mindset of the investment space, a space, she notes, dominated by men.
This male bias is why Laura believes less than 5 per cent of the deals in the investment community are being led by women. And it’s why Laura joined Scale as inaugural CEO. Scale is a female focused angel investor network founded by company director Susan Oliver, EY’s Annette Kimmitt, and director, entrepreneur and investor Carol Schwartz. It launched in July 2013 in Melbourne with a view to grow to other cities once the model proves itself.
The overriding principle of Scale is the financial empowerment of women as investors and entrepreneurs.
“We wanted to shake things up a bit and focus on women,” says Laura, “because I think we tend to invest most strongly in the people we know, in the people we once were or we wish we were… by educating and training more women as investors in this space it will naturally flow that women looking for investors will feel comfortable approaching businesses such as Scale and that will bring more entrepreneurial ideas.”
The process is not something Scale pursues alone, as Laura notes.
“There are others in this space: female networking and online communities such as Ruby, business accelerators such as Springboard, and mentoring groups such as Head over Heels. We are all making a noise and helping develop an ecosystem within which women entrepreneurs and investors can flourish and grow. We have close relationships because we see them as natural places of deal flow. Scale’s role in this is as a new group of educated, active investors.”
Amidst the mid-morning traffic of Sydney’s Elizabeth Street, Laura is seated at the white-linened table of a CBD café. Up from Melbourne to speak at an EY lunchtime panel about being “investor ready”, she will fly back the same afternoon to judge a Melbourne Business School Entrepreneur competition.
Between sips of orange juice, she asserts that while this is not a typical day she is not at all sure what a typical day entails.
“My ideal day would start with a run or a cycle. I am training for a few events, or yoga,” says Laura, explaining the choice is dependent entirely on how she’s feeling but constitutes a positive beginning.
“I would then structure my meetings with potential Scale angels or female entrepreneurs or corporates interested on coming on board as part of Scale, in the mornings, leaving afternoons open to execute on the work I am committed to doing.”
That work includes developing the education element, the materials needed to inform and educate potential investors about Scale and the process of angel investing as well as material for entrepreneurs about the processes they will need to understand.
“Scale has been very lucky. A lot of the material we needed has been supplied to us by the US group Golden Seeds, which inspired the Scale idea. I also Tweet about additional resources I uncover,” says Laura, who admits to turning emails off occasionally - but that the action usually ends with an increase in phone calls.
“The one thing I make sure of is that there is no technology in my bedroom,” says Laura, acknowledging the ban has its celebrity business proponents, including Huffington Post founder Arianna Huffington.
“When Scale started, a lot of people said you’ll never find female investors,” says Laura, continuing on to explain that yet other people said, she’d never find female entrepreneurs.
“Our goal,” says Laura, “was to have 10 angel investors signed up by September 2013. We have 27 and we are in Melbourne only. We set a target of speaking to 20 entrepreneurs and I have more than 50, about half of which have formally applied to Scale. The other day a business presented to us and 12 Scale angels have expressed interest in investing.”
With those sorts of numbers it would seem there are opportunities for investors that have been overlooked, as well as for entrepreneurs, who haven’t been able to realise or articulate their business needs and prospects.
Laura points out that without the significant contributions of Scale’s board members and the forward thinking of Victorian Minister for Innovation, Services and Small Business, Louise Asher, whose department is partially funding Scale “dependent on meeting business milestones” across the next three years, getting the idea up and running may have proved much more difficult.
“Establishing Scale has been our Sheryl Sandberg ‘Lean-In’ style moment,” says Laura.
Now it is time for angels and entrepreneurs to do their own Leaning In.
Not an easy task, in Laura’s eyes, who believes we don’t in Australia embrace failure as well, or with the same confidence for its potential, as other countries, such as the US, do.
Getting a business idea to fly requires flexibility, believes Laura, and an understanding about where your expertise is lacking along with having a preparedness to reach out for help.
“If you can’t pivot your business to take advantage of changing needs or to find a new way in the market, for example, and if you don’t have the tenacity and ability to be adaptive and the fortitude to experience failure and learn from it, then you will have a very hard time forging a successful business. These are tough skills to acquire but they’re what most investors look for in an entrepreneur, the ability to execute on a plan but where the business owner comes across issues to adapt to their environment,” finishes Laura.
It’s why investors feel more comfortable backing someone who has tried or started a business before and who’ve experienced a few failures.
Top Tips for developing a business idea
Get talking and doing, says Scale’s CEO, Laura McKenzie.
Try initiatives such as:
Melbourne NEXT, a Google Australia backed start-up incubator program launched in late September 2013. The five-week program takes people from idea to thinking through the business, focussing on the customer and the need. Specifically created for pre-accelerator or early stage start-up, NEXT is running for the first time in Australia but has a successful history in 25 countries around the globe.
The Business Model Canvas is a strategic management and entrepreneurial tool. BMC allows you to describe, design, challenge, invent, and pivot your business model. It’s like a pin board for idea development. It’s a great way to start breaking things down to small tasks and decide where to do a bit of market research with potential customers, users, to see if an appetite exists for your idea.
Try Startup Weekends. There may be 100 participants and everyone pitches their idea, you then form teams around most popular ideas. That’s an acid test in itself. It can be a great way to recruit co-founders.
Get on The Fetch – Kate Kendal’s “Time-Out” style site for professionals in the city.
Speak to family and friends. They will often be your harshest critics.
Apply for grant funding such as the Victorian Government’s Technology Voucher program, to get a prototype developed, or Commercialisation Australia to do market research or a proof of concept to get you something solid to take to investors. You need something more concrete than an idea. Concrete works for investors and for you, it’s worth more.
What you should avoid doing
It is very easy to network and talk about what you’re doing. It is much harder to actually focus on executing but it’s what you must do before you seek investment or business advice.
What Scale offers – Opportunity, education, training
Angel investor fees provide investors with two key services:
1) Access to deal flow and filtering, curation and development of the entrepreneur and the idea before the investor is introduced to the proposition and the people/person.
2) A structured education program to demystify angel investing. Investing in something that is pre-revenue requires valuing a business in a different way and employs very different language. It’s an equity investment with commensurate risks attached.