The Halo Effect — with Alan Jones

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The Halo Effect — Alan Jones

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Alan has seen the rise and rise of Australia’s startup ecosystem and his involvement and support of founders at the earliest stages has been unwavering.

Tell me about your background. How does an aspiring chiropractor with a knack for the written word become an angel investor in tech startups?

Ha! As the eldest son of a chiropractor, I spent three years giving it my best shot to go into the family business. But it just wasn’t for me. I was completely lost for a while in my early 20s, doing all kinds of weird and wonderful work.

After a year spent selling kitchens door-to-door, I ended up studying journalism and comms and it was there that I found a real passion.

Dad had connected our home computer to the internet very early on and I’d developed a passion for online communities as an admin for early bulletin boards and more. As the editor of a computer magazine in 1993, it became increasingly clear to me that the web was going to slaughter my industry. So I made the jump from print to web at an early stage and I gradually turned short project-based contracts into full-time employment at Microsoft (working for your Partner, Daniel!).

There I worked on some crazy things in the early days of the web in Australia. I helped produce one of the world’s first online TV soaps at a time when most Australians couldn’t yet watch video online.

I was also the co-host of a weekly online chat show, with celebrity interview guests like Malcolm Turnbull, Andrew Denton and Mental As Anything. We had sponsors, we had prize giveaways, we had standup comedy, and a trivia quiz. We would regularly get an audience in the thousands, and this was way back in 1994. But by far the most amazing thing was that the whole show was text — people typing in chat rooms. But you tell the kids these days and they look at you like you’re crazy… A lot of my stories from those times end with that phrase!

In 1997, Yahoo was looking to expand into Australia. I took a job as the first product manager on that team, hired a software engineer (who turned out to be extraordinarily talented) and together with a couple of salespeople and a managing director, we launched the first localised products for Australia and New Zealand. Five years later I was Product Director for the region for Yahoo. But by this time, the company had grown into what felt like just another large corporation. And I knew myself well enough to know that I was not a big company person, I was a startup guy.

The five years at Yahoo changed my life financially, thanks to the dotcom boom, but I still had a lot to prove. I was still inexperienced enough to think that one successful journey from start to exit was all it took, to know how to be a successful tech startup founder. The next few years taught me how much I still had to learn!

What happened next? How did you transition into advisor/investor?

After Yahoo, I worked on a bunch of different projects. The most meaningful of which was a local Netflix-style startup called HomeScreen with ex-Yahoo colleagues Pete Everingham, Tony Faure and Stephen Steneker. Over a few years we got to about 15–20 people, raised $3.5M from the Packer family’s CPH. But it was tough. We had way too many local competitors, including Telstra’s Bigpond Movies, and the CAC was massive. When CPH didn’t want to follow-on and we couldn’t secure another lead, we sold to Quickflix, part cash, part equity.

Along the way, I figured out that I could find much more emotional reward from helping other tech startup founders succeed than by being the founder myself. The first time I felt it really click — really felt like I was a better coach than a founder — was when I first met 22 year old Ben Keighran who was at that time founder and CEO of Bluepulse. At the time (maybe 2006?) it was pivoting from a mobile social network and ad platform running over a Bluetooth network in a shopping mall, to a mobile app publishing platform and social media network on a phone. Friendster, MySpace and Facebook didn’t run on a phone at all back then, much less have a native app. Bluepulse was way ahead of the game. Ben is an amazing individual but also an incredible learner, and I was incredibly lucky to coach him on a range of stuff. I joined him on the first US roadshow in which he secured a Series A, and in 2008 I worked for them in SF for a while.

After BluePulse, I reluctantly became an angel investor in the hope that, at some point in the future, I’d get some kind of financial return for my effort. I say reluctantly because I come from a working-class family, and didn’t really know what investors do. I also have dyscalculia, so I’ve always shied away from any career path that might force me to do even basic arithmetic. Being able to do some of the basic valuation and dilution maths in your head while in conversation with other investors or a founder is a valuable skill, but one I’ve never had.

You’ve been a huge advocate for, and involved in, a whole range of accelerators. Tell me about that.

At the beginning, I didn’t know whether accelerators were a model that actually worked, but I wanted to find angel investors I could learn from, preferably angel investors who’d been product or technical founders, like me.

Around the time I started to think about learning how to become an angel investor, Y Combinator and TechStars started growing fast. I could see that an accelerator program in Australia would help other first-time founders with the advice, connections and capital that I needed a decade before. And I could also see that both Y Combinator and TechStars also brought a lot of experienced angel investors together — the kind of angel investors I wasn’t connected to, and very much wanted to learn from.

When Niki Scevak asked who was prepared to give up some time and money to get involved with the launch of Startmate, I was quick to put my hand up, and when Mick Liubinskas and Phil Morle asked for some money and time to help get Pollenizer off the ground, I put my other hand up. With both my hands up, my wallet was exposed and defenceless!

Since then I’ve tried to work with as many different accelerators as I can, as a mentor, angel investor, and more recently as a professional entrepreneur-in-residence (which in accelerator programs is essentially an on-staff founder coach, working more closely with each team than the mentors generally do).

I love accelerator programs for many reasons but mainly for the amazing value a great accelerator program can bring to a startup team if they lack prior startup experience, a network and access to capital (which describes most Australian founders). There will always be some founders who already have years of startup experience, who will be able to lean on their ex-colleagues and industry friends for support and advice, who are already known by early-stage investors, but for everybody else, accelerators help level the playing field and increase the odds of success.

They’re also really hard! An accelerator is in many ways similar to a reality TV show: teams of people are brought together into the one space, and given a set of goals to achieve over the course of a program with a fixed beginning and end date. There are often stages in the program where all the teams will be expected to perform in a ‘challenge’ like a mentor speed date, lean canvas workshop, or sales week. It may not be broadcast on TV but all your family, friends and ex-workmates are following your progress, and the accelerator program is pushing you and your startup on all their social and media channels.

While there’s no single ‘winner’ at Demo Day, I think everyone soon realises that the bulk of the awareness and investor interest an accelerator offers will accrue to what the general opinion considers to be the best teams.

As a mentor or entrepreneur-in-residence it’s my responsibility to build trust in my founder relationships so that I can get deeper into the challenges and barriers they face. I won’t have an answer for some of the problems they’ll face, but maybe I know some of the people who do and might be able to ask a favour of them. Or maybe I’ll know of a way we can break a big problem into smaller, addressable chunks. Or maybe I’ll just be there as a sounding board and a good listener. So I’m a little bit coach, a little bit agony aunt, a little bit tiger mum. But I’m very grateful for the friendships I’ve formed with many of the founders I’ve worked with across the country. I love earning a living helping good people do important things.

Right now, I’m in my second year working with the disability and inclusion-focused Remarkable.org.au accelerator program, which will graduate a 2020 cohort of seven great startups in August, and later this year I’ll take on my first cohort of teams from Melbourne’s Monash University. I’ve worked with 11 programs so far, but I still haven’t worked with an accelerator in South Australia, Western Australia, Tasmania or the Northern Territory so I have more people to meet.

What makes a great mentor/advisor?

That’s a really good question because I think that’s one of the many things our industry is still figuring out. In the beginning, most of the mentors in the Australian tech industry were men (and they were almost all men) who could stand at the front of the room and tell you the story of their successful startup, and maybe tell you a couple of lessons they thought they’d learned on that journey, but that was about it. They were mostly self-taught through their own founder experiences, might have had only one startup journey to draw upon for lessons, and they hadn’t even read much, because there just weren’t books about startups yet. They couldn’t really listen to what you were working on and give you much advice if your startup wasn’t similar to theirs. They would almost always have a strong opinion on whether you’d be successful, and they’d often be destructively critical in giving you that opinion.

I’m sure you’ve met some of these men, seen them speak on stage, or seen them interrupt a founder to cut them down or pronounce them doomed before the coffees even hit the table. I’m ashamed to admit that I was one of them too, at the start.

I don’t know exactly why I began to change, but I think it probably came from being wrong, a lot of the time. If you pronounce enough startups doomed, and give that enough time, sooner or later, some of them come back to prove you wrong. And in my startup mentoring I’ve learned to love being wrong, because that’s an opportunity to learn, to become a better mentor.

You can’t be a good mentor by telling and retelling your own founder story every time, because the ‘shelf life’ of anything you learn in startups is really short. Some of my coaching leans on crazy stories from my early days as a founder, but less often than before. The startup orthodoxy of “this is how you should do it” changes every 3–5 years as the industry changes in response to how customers behave, how tech platforms evolve, how distribution channels change, how tech titans behave, and how the macroeconomy changes. I have to be learning all the time, from observing founders and startups, from exposing myself to new tools, methodologies, and reading everything I can.

I have two easy ways to tell if I’m being a good mentor:

Who’s doing most of the talking, and who’s doing most of the listening? If the answer is you, and not the founder, you’re not mentoring, you’re performing.

What have you learned about the startup’s business, its founders, the product, the problem or the customer after your mentoring session? If you’re not learning, you’re not mentoring effectively.

Unlike some startup mentors, I just want to be a great mentor. It’s not a side gig, it’s not for my ego, or something I do to build my personal brand or develop investment deal flow. Investing is my side gig, mentoring is my dream job.

When should founders think about joining an accelerator? How to choose one? What are the benefits? Any downsides to consider?

Obviously I’m a massive fan of accelerators but deciding whether or not to accept an offer of a place in an accelerator program is a great problem to have. However, you never get to make that decision if you don’t apply.

I think the most common reason founders don’t apply to accelerators is they’re worried about what will happen once they’re in the accelerator — will the terms be equitable, will the program be as valuable as it’s advertised to be, will the extra effort be manageable, will you flunk out, will you bomb at Demo Day?

But you don’t have to worry about any of that before you apply. Worry about it if you get offered a place.

The initial online application might take you 30mins total, and if you get invited to attend an interview day, boot camp or pre-accelerator, you can come away from just applying to an accelerator with new contacts, new tools, new motivation and inspiration to try even harder.

You don’t have to worry about whether you’re ready to apply to an accelerator or not — let the accelerator program decide that. There’s no penalty for applying too early, indeed most programs like to see evidence of previous applications because it helps them gauge your organic execution speed — how well you perform without assistance.

Most programs have acceptance criteria but don’t strictly enforce them — most cohorts include one or more teams who don’t meet all the requirements of the program but are accepted because they’re exceptional in some other kind of way. The Remarkable program I’m working with currently has two such teams, Handi and Neurodiversity Media, who don’t have the working product prototype which is a requirement of the program, but both teams feature exceptional founder potential and are working on solutions to important societal problems that we care deeply about.

Tell me about your angel portfolio!

In alphabetical order, my angel portfolio has included the following, and where I’ve had exits or a closure, I’ve noted it: Ananas, Bugcrowd, Bugherd (exited), Buzzy, Biteable, Canva, Cardly, Elevio, GeoSnapshot, GiggedIn, HappyCo, HowAboutEat (closed), Muru Music, OtherLevels (exited), Propeller Aero, Splitrock Studio, Squirrel Street, TopMe, Tyde (closed), Tzukuri (closed), Workyard, UpGuard (exited) and Upperstory (closed).

Put it down to dyscalculia or humility, but I’m usually rather vague about my returns. It’s mostly paper valuations so far anyway and I don’t have any LPs to report to. But I’ve invested close to AUD1M now and have seen about AUD1.3M back in cash so far.

You sold out of UpGuard in a venture round rather than an exit. How do you think about holding periods and liquidity?

When UpGuard raised a Series B round there was a secondary offer from the incoming investor that I accepted. (For the folks at home, a ‘secondary’ or ‘secondary sale’ is usually the sale of shares held by founders, early team members and angel investors, to a third party — usually a new investor keen to buy more stock in the company.)

I think secondaries are generally good for startup people and the growth of the startup ecosystem. Conclusive success metrics in startups are few and far between. A secondary allows those of us who are selling to convert some of our equity into cash, so we’re no longer just hypothetically successful. I can say to my wife and son that I have succeeded! (I may fail later on, but on the day of the secondary transaction, I am officially successful). For founders and early team members, a secondary may make up for some of the salary they’ve sacrificed while working in a startup, and it might be big enough to provide the all-important Australian cultural milestone of getting into your own home.

As a small angel investor I have no say over when and by what means I achieve an exit and I’m investing from a relatively small amount of capital, so I am happy to take an exit if one is offered to me. I’d hope to take some of that money off the table and invest the rest in several more early-stage tech startups — that’s good for the ecosystem, good for my diversification and good for me. Capital from my UpGuard exit funded investments in Workyard and Elevio, for instance.

Secondaries can also be a great hedge against the risk that even too-big-to-fail tech companies may one day fail. There’s no such thing as a tech startup too big to fail, and a partial secondary exit (where you sell part of your stake) is a chance to take some money off the table now, while the value of your shares is known.

How have you built your portfolio?

I started out investing in startups making products I’d use myself in my previous career as a product lead in tech startups, or the career before that in PR, advertising and journalism. Elevio is a classic example of a product solving a problem I had.

I’ve gradually broadened my investing to include startups doing things I love, like music, and things that I think are important, like better healthcare outcomes. I limit myself to Australia and New Zealand and I invest between pre-seed and seed, and follow on as far as Series A if I have the capacity to do so at the time.

I’ve always had a preference for investing in people I like, not just people who I think will build a successful company, because I believe I’ll work harder and take bigger reputational risks to help you, and multiply that by all the other people prepared to help you for the same reason, and it’s a powerful advantage.

Having been around for basically forever, and being available to lots of the startup community through accelerators and incubators, deal flow has always been abundant, and that’s an essential part of tech angel investing.

I’ve let a few go through to the keeper that I regret, such as Canva (it took me a few years and a lot more money to get in on Canva later), CarBar and Car Next Door.

If you invest in people you like, how do you avoid bias?

Angels have the most freedom to be the most biased investors of all. You’re only accountable to yourself, and maybe your family if you’re foolish enough to let them know what you’re doing with their inheritance. VCs get a lot of bad press for bias, but angel bias may be a much bigger problem, since it’s rare for VCs to invest in something that hasn’t already taken money from angels. Most angels I know want to be better people, and when we are made aware of our unconscious biases and given tools and strategies to help correct them, I believe most of us will. What we lack is the financial incentive to back that up. Most angels are active for a decade or less and I would say most make five or fewer investments. So the impact of bias on their portfolio is invisible. I don’t know how you give angels a financial incentive to correct their biases but I think it would be very helpful if there was a way to do that.

Do you have preferred sectors, business models or founder profiles?

I like all sectors but some (like renewables, med tech, fintech) I don’t have deep enough pockets to be a player in. I don’t have anything to do with business models that rely on developing addictive or destructive patterns of behaviour such as gambling, many platform and mobile games, and some forms of lending or trading platforms.

I have an appalling lack of gender and ethnicity diversity in the founders of the companies I’ve invested in so far and while I’m working hard to change that it’ll take a long time to show results as I typically invest in 1–2 companies a year at most, and some of that is follow-on. I give up time to mentor female founders and founders from marginalised ethnic backgrounds, push for better ethnicity and gender diversity in accelerator cohorts I work with, ‘panel hack’ the conferences I’m speaking at, and when we’re ready to bring M8 Ventures back out of hypersleep after this recession, half or more of the partners with carry will be women (as it was before we put it into hypersleep).

What are you most excited about right now?

What a wonderful time to still be alive! Really, this is not a future any Hollywood producer would have greenlit the treatment for. It would definitely star Gerard Butler if the movie ever got made. Some days I’m excited about just seeing the startup founders I know continue to make progress towards their commercialisation or product/customer fit goals. Some days it’s great to work with a founder for a couple of hours and see that we might be able to extend their runway by another six months with some creativity and good luck.

But from great disruption comes great opportunity and there will be some amazing companies come out of the ‘coronacession’ (it’s just that there will also be many potentially amazing companies that won’t).

The massive pressure on the travel, hospitality and healthcare industries provides a huge incentive to finally adopt better solutions for so many slightly-broken or not-really-good-enough processes. If you’ve had a no-visit consultation with your general practitioner and they’ve sent your prescription straight through to the pharmacy in the past few months, that’s a great example — we had the tech to do this for at least five years, but the traditional solution wasn’t quite broken enough, and the risk of deploying a better solution that didn’t work properly was too high.

I like to talk about the ‘fast moving machine’ problem. If you’ve got a busy dental practice, you may well already know that there are several tech startups with amazing practice management platforms that can run rings around the clunky Windows client/server-back-it-up-to-tape-each-night piece of shit you currently use, but you’re trapped in a fast-moving machine problem. How much is it going to cost to halt the practice for a week and see no patients while you transfer client data to the new platform, verify it, retrain staff, squish the inevitable unexpected glitch or two, and spin the practice back up? In the normal course of a year, that’s probably never going to happen. But when a pandemic makes the government shut your fast-moving machine down for a month and you can’t see anybody anyway, are you suddenly in a position to buy a better solution from a startup? That excites me. There’s heaps of opportunities out there to make conservative, cautious business owners take a risk with a startup right now.

What kind of diligence do you do? How long does it take?

Most of my deals have been with startups I’ve mentored in accelerator programs, so for me, if I don’t know somebody and their business after mentoring them for six months, I’m not doing my job. For startups that I haven’t mentored, I try to lean on everybody else looking at the deal as much as possible! ;-) I check the term sheet, I like to interview the team (not just the founders) because how well a team works together matters much more than how compelling the CEO can be in a meeting with me. I interview a few customers too if I can. If they’ve been through an accelerator I’ll speak to the managers and the mentors. But I’ll often break my own rules (not accountable to LPs, remember!). I have on only one occasion given a verbal yes to a founder on the first meeting (Nicc Johnson from Muru Music, FYI, he hasn’t made me regret it yet.)

Do you syndicate/lead/follow etc?

I don’t syndicate though I will join a syndicate round. I don’t have a particular preference for leading or following and have done both.

What would founders you’ve backed say about you?

In the process of raising for M8 Ventures I had to ask a bunch of founders I’d worked with what they’d say about me because I wanted it to be one of the primary themes of my pitch. The general consensus is that I have a big heart (maybe sometimes bigger than my brain but smaller than my stomach) and I’ve been able to be there for them for the personal stuff as well as the business stuff. I’m good at helping engineering brains understand how the illogical, irrational brains of consumers and business owners actually work, and how to take advantage of that in branding, growth marketing, sales and raising money. I used to have a strong network in the Bay Area but I’ve let it slip the last few years and I am not the guy for SF intros anymore. That matters much less these days, fortunately.

Are you actively involved after investing? What should founders expect of you pre and post investment?

I’m actively involved if they want to be, and I’m a NED or chair when I’ve been asked to be, but I’m low maintenance if they want to be left alone to run their company. When we check in I’ll offer my opinions, but won’t try to force anybody to comply. I’m OK with being proven wrong down the track. If you get to be this old and you still think you’re right every time, about products and business models the world has never tried before, you’re delusional and shouldn’t be allowed to invest in startups.

Has Covid19 changed anything about your approach?

Well, it’s brought my investing to a standstill, there’s that! Early-stage investing is super tough even in good times, I don’t need or want to try picking the winners in such unstable economic times.

We’ve put the raising we were doing for M8 Ventures into sleep mode and I expect that we’ll probably have to start again from square one when the coronacession is over, not just because the investors will be in a different position but because I expect the whole world to have dramatically changed. I’m a bear when it comes to the pandemic’s effect on the Australian and world economies — I don’t think most individuals and organisations fully appreciate just how deep this recession is going to go, and how many tough decisions most of us will have to make. I’m not old enough to remember the Great Depression but I remember paying interest rates of 15% pa on my first home purchase in the 1980s. Yeah.

How can founders best reach you? When should they approach you?

Apply to one of the accelerators I work with! Reach out to me on Twitter if you are wondering whether to apply to an accelerator, or how to answer one of the application questions. Come along to an AMA (Ask Me Anything) session. Do not on any account ask to connect to me on LinkedIn (I’ve written extensively about why, on Medium).

What mistakes have you made?

Most of the mistakes I’ve made have been to not totally back myself, the idea, or the team. Sometimes it has been to procrastinate about the need to have a difficult conversation that needed to be had with someone. In fact, if I had to rank all the things I’ve learned about how to be a successful tech startup founder, the number one observation would be this: “The most successful founders are good at having uncomfortable conversations with people, as soon as necessary.”

That applies to everything — cofounders not pulling their weight, team members working against each other, knowing you have to have a frank discussion with your board, knowing you have to go out and sell to customers, or to raise a round. The moment you know it’s necessary, every day you don’t do it, you’re tying one more sea anchor on the back of your boat and letting it slow you down. And speed is the only sustainable competitive advantage startups have.

What have you seen other angels do well/badly? Who do you admire?

Noga Edelstein’s board experience, Adeline Chu’s research commercialisation experience, Rebekah Campbell’s strength of character, Matt Allen’s ability to grok engineers and engineering, Rayn Ong’s ability to hear what’s not being said, Alfred Lo’s ability to zoom way in and way out, Kylie Frazer’s ability to give care and attention to many relationships at once, Emily Rich’s ability to kick arse and build shit, Andrea and Ian Gardiner’s ability to build network and deal flow.

What advice would you give to founders seeking their first angel investment?

Be certain that’s what you really want to do. Most angel investment fails or leads to venture investment, and building VC backed companies is no place for the half-committed. Once you commit to raising, fully commit. If you decide to go bootstrapped, be fully committed to that too. Startups that can’t make up their mind whether they’re bootstrapped or raising will fall down the gap between the two.

Build something to the point that you can prove customers will pay to use it, and be different or be way better than the startups that are just like you. Make sure investors have read about you and heard about you at least once before when you reach out to them — be active on socials, write blog posts, enter pitch comps, work for other startups, volunteer at hackathons, in incubators and coworking spaces. Build your personal brand as well as your company brand and make sure your cofounders do too. Do your research and due diligence on potential investors and only pitch those for whom you are a good match.

What advice would you give to a first time angel investor?

It doesn’t matter how much of your money you’ve invested, this startup isn’t your company.

Being able to invest doesn’t magically raise your IQ and the little you learned making the money you’re about to invest will be applicable to the startups you’re about to invest in, so don’t make accepting your advice a condition of receiving your investment.

Everything is about your reputation as an angel investor and nothing is about your success in anything you did before angel investing, so nobody cares about that.

Invest in your personal brand and network or you won’t hear about the best deals or get to invest alongside the best people.

Everything you need to learn in order to succeed at this is available in blog and podcast form, so reading and listening is much more important than meeting founders or other investors early on.

Start out by shadowing other investors on deals, if they’re OK with that — attend their meetings with founders, read their deal terms, listen to how they negotiate. Then join some of their rounds and see how that goes.

What do you know now that you wish you knew when you started angel investing?

I wish I’d known how emotionally fulfilling this would be, how many great friends I’d make, that this isn’t only about making money. I wish I’d fully committed earlier. I wish I’d said yes to Cliff and Melanie at Canva when I first met them!

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The views expressed in this post are not professional financial or investment advice. They are views based on the interviewee's personal opinions and experience and are intended for informational purposes only. We encourage everyone to consider their personal circumstances and seek independent financial advice from a professional before investing.

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