As we enter a new economic cycle, founders are rightly nervous about the ongoing availability of early-stage capital. Much is made in the press about the role of VCs, and we at Airtree are writing cheques just as we always did (perhaps faster!). However, VC funding is just one part of the capital equation for young companies.

Indeed, the most important prerequisite for a startup ecosystem to flourish is investment from great founders who have had success in their own startups and are putting their capital and expertise to work to help the next generation follow in their footsteps.

With that in mind, I’m delighted to welcome Leigh Jasper to the Halo Effect. Leigh co-founded Aconex and, over the course of 18 years, built it into one of Australia’s greatest software companies. Headquartered in Melbourne, Aconex grew from nothing to a truly global business operating in 70 countries and generating over $160 million in revenue in FY2017. The business listed on the ASX in 2014 and was acquired by Oracle for $1.6bn in 2018.

Leigh is now actively involved in helping the next generation. He chairs LaunchVic, sits on various boards, actively invests and mentors upcoming founders. Aconex’s success benefits all of us in the Australian startup ecosystem and we’re lucky to have Leigh still so engaged and involved.

Leigh and I spent over 2 hours in wide-ranging conversation. We covered many topics. This post is focused on the financial side of the Aconex story as well as Leigh’s own investing philosophy. But I’m mindful that it ignores nearly two decades of hard grind and company building — fodder for a second post, perhaps!

Tell me about yourself and your background.

After a couple of years at McKinsey, I founded Aconex in 2000 with my long-time school friend, Rob Philpot.

Founded in 2000! So right in the middle of the dot com crash?

Yes, exactly. What a time to leave a safe job and go and try my hand at an internet business. And what a ride it was. Over 18 years, through many ups and downs, we built Aconex from a black and white business plan into a SaaS company (a term which was coined 5 years later) which would grow to list on the ASX in 2014 and eventually be acquired by Oracle in 2018.

Aside from growing a stunning beard, how are you spending your time post-Aconex?

Well, at the moment I’m in lockdown in Melbourne. The silver lining of which is that I’m getting some wonderful, quality family time. Professionally, I’ve taken some board roles including SEEK, Salta Properties and the Burnet Institute and am trying to help the Australian startup ecosystem flourish via my role as Chair of LaunchVic. To that end, I’m also investing in some startups where I think I can help.

At Aconex, we went through the full entrepreneurial roller coaster. We had many highs, even more lows, and more near-death experiences than I care to dwell on. I’m sharing my experiences with other founders via my blog and generally trying to offer help and advice as they navigate their own path.

Portfolio companies: AmazingCo, AoS, Big White Wall, Buildxact, Carry, Edrolo, Equiem, Fanplayr, Fresho, LendCollective, Oculo, Olistic, Palette, Plexus, Predictive Hire, Southern Innovation, Spriggy, VendorPanel, Versatile, Zenput.

Let’s start with the Aconex angel round. You guys raised $1.8m on a business plan in the pre-cloud era, which seems astonishing. Tell me about it.

It was a different time. We couldn’t get to market without a meaningful amount of money. One server alone cost $150k and we needed at least two of them! The first software we bought (an on-prem IBM suite) was $250k. So, that was half a million out the door before we could really do anything.

We managed to raise from our networks. A lot of the money came from McKinsey Partners who had worked with me and were willing to take a punt on me. I guess Rob and I presented as a somewhat credible team — in addition to me on strategy and business, Rob had previously worked at Multiplex, so brought deep industry knowledge.

Given that you had such steep up-front costs and that it was harder to get a business off the ground in the first place without AWS etc.?

Yes and no. Yes, it was harder to get a software business off the ground then than it is now. But the execution risk was largely the same as it would be today and I remember mapping out 200+ construction-tech startups when we were getting going — so it wasn’t exactly an undiscovered opportunity!

I think it’s important to note that we didn’t think of ourselves as a technology led company. We were applying technology to solve a problem, and so we were very much a business (or at least of a business mindset) from day one focused on solving our customers’ problems with technology. Rob and I didn’t look like the archetypal YC founders. And, in my view, you don’t need to look like a Silicon Valley stereotype to build a great company.

I think it would give early-stage founders great comfort to know that you pivoted early on. And that it wasn’t smooth sailing from there. Tell me about that.

We raised our first funding round to fund a B2B industry exchange. That was a very popular business model back then. As we spoke to customers, however, we realised that very few people were ready to buy that way. We spent as much time telling many people in the construction industry about the internet as we did about Aconex!

Intertwined in that disappointment was a message from customers about what they actually needed: document control solutions to manage drawings and related communication processes. This was a necessary building block for the industry exchange, so we’d started building it anyway. But when we heard from customers that this was a real pain point, we pivoted the company to focus completely on project collaboration tools for construction, which became the core of Aconex.

How does that pivot rate in terms of challenges you had along the way?

Laughably insignificant! Not achieving immediate product-market fit for our initial idea was just one of MANY challenges we had along the way. And we had challenges on EVERY step of the way, including after we became a public company.

So entrepreneurs should take solace from the fact that even founders who, from the outside, look like they’re flying, are in fact navigating between crises all the time?

Definitely! Fodder for our next, non-angel related conversation…

You raised $28m from HNWs before taking US venture money via a $57.5m round from Francisco Partners. This would be an unusual path today. Why did you take it?

That’s much more a reflection of the funding market in Australia at the time than specific intention on our part. That said, we were lucky to have a great group of HNWs around us from the early days including Martin Hosking, Simon Yencken, Adam Lewis (all three took on the role of Aconex chair throughout the journey)), Craig Winkler, Andrew Sypkes, Michael Robinson, and Ted Yencken. I call those folks out in particular because they were more than just investors; each of them were hugely supportive of the business and added value in their own way.

The other benefit of a bench of HNWs on our cap table was that we could do rights issues with relative ease. That mechanism seems to have vanished from startup funding today.

Good point. Why do you think that is?

I think many founders get too cute on raisings. They optimise too much for valuation and dilution at the expense of a quick process that lets you focus on the business. We did a number of rights issues where we set the price and existing investors got first shot. If we were reasonable, it was a fantastic way to raise money quickly.

After a bunch more company building, you went on to raise $57.5m from Francisco Partners in 2008. Any tips on raising growth capital from that experience.

Yes, 2 tips. 1) Raise before a financial crisis, and 2) don’t pitch Sequoia first!

I’m sort of kidding and sort of not kidding on both of these points. In 2008, our business was racing along. We were growing fast with $10s of millions of ARR. Sequoia got in touch with us and so we told them our story.

That was a mistake. Never go into a meeting with your dream investor relatively unprepared. In hindsight, we should have “warmed up” on other investors first.

In the end, we were lucky enough to receive 7 term sheets and were delighted to work with Francisco Partners, so it all worked out. We also completed the raise two weeks before Lehman Brother collapsed. Had we not done so, the Aconex story could have looked very different. Timing is everything!

And that was the last money you raised before the ASX listing six years later in 2014. Tell me about the pros and cons of being a public company.

We listed in December 2014. It was brutal to be honest. We almost didn’t get it away. A lot of people didn’t understand our model or our story (our bankers joked that we were the largest unprofitable business to have listed on the Australian stock market to that point). And the market itself got wobbly at the backend of 2014. That was a con.

I would say the biggest pro of being listed is your ability to quickly raise additional capital if you become a darling stock, which we were for a period (it never lasts forever). For example, we did an acquisition of a German competitor. We needed $120m and raised that amount in one day with over $800m of demand. You can’t do that in the private markets!

And then Oracle made you an offer you couldn’t refuse and the rest is history! So, having discussed your experiences raising money, let’s switch the conversation to your own investments. Tell me about the investments you’ve made and your plans from here.

So far I’ve invested in a few funds and a number of startups. On the fund side, I’m an investor and partner in SecondQuarter Ventures, a secondary fund alongside Ian Beatty, Andrew Sypkes and David Tarascio. We think that this is another important step for the Australian venture ecosystem, and we look forward to providing liquidity to staff and early investors to recycle their funds back into new ventures.

On the startup side, my portfolio is listed here.

What are you looking for when it comes to startup investing?

Up until a couple of years ago, it was very much gut feel. I didn’t really have the time for a rigorous process.

In the last 6–12 months, I’ve become much more focused on businesses in which I can lean in and add real value. So, for example, vertical SaaS solutions and anything in the construction sector. BuildXact, Equiem, Versatile and AOS are all examples of this. I’m looking to write larger cheques and may take a board role for the right opportunity.

At Airtree we often talk about battle scars and cognitive biases against investing in spaces we know really well. For example, I basically flat pass on anything in the summarisation or news space because I’ve lived the pain of that sector. The grass always looks greener when you don’t know an area. Do you experience the same in construction?

I actually go the opposite way. I feel like I see most businesses in the construction space so am better able to pattern match their quality. Plus, obviously I have deeper industry knowledge and a view on where the opportunities are.

You wrote a wonderful post on porpoising to breakeven. The basic concept was that, at Aconex, you were “within 12 months of breakeven … for 10 years”. What are you advising founders in the current climate and what are you looking for in your investments in this regard?

In a Covid world, this approach feels more relevant than ever. I shy away from business plans that require multiple capital injections to get to breakeven. This puts you at the mercy of the capital markets, and who knows what the world is going to look like in a year or two’s time. I’m advising all my investee companies to porpoise and it’s an attribute I’ll look for in future investments.

What are the attributes of a great investor in your experience?

Attribute number one is that they are supportive of the founder and the business. You can be the smartest guy in the world, but if you’re an arsehole, it doesn’t matter. Truly great investors can help the founder think strategically and scale up (both themselves and the business). The best investors create an environment of trust in which tough, constructive questions can be asked.

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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.