Speaker 1I think we've attached a lot of success to raising capital. Agreed. Right. So I think when we open the newspaper and it says such and such raised 25 million, we go, wow, that's amazing, right? And they've got a hundred million dollar valuation or whatever it would be. I think we need to caveat by saying that's not a marker of success.
Speaker 2Welcome to a special six-part miniseries. What I wish I knew about small business before I started. This special six-part series inside Media Magnet is brought to you by AMP Bank Go. And I'm your host, Liz Nabel. AMP Bank Go is backing Australia's small businesses to get a fairer go with tools and support that actually make day-to-day business life easier. In this new series, we're stepping back from just media and PR to talk about the real lessons of running a small business in Australia right now. The money. The systems. The visibility. The learnings. And the mindset shifts we usually only discover the hard way. Let's dive into today's episode. I didn't do a business degree. Mine was journalism and communications. So when I opened my first small business, a bricks and mortar location, my only business training was the school of hard knocks on the ground, starting and scaling something from scratch. I didn't know what I didn't know. And the idea of outside investment never. Even crossed my mind. I genuinely thought that was a big tech startup thing, something for the Facebooks and the Airbnbs of the world. Little old me just went to the bank and borrowed what I needed or used my own savings. Honestly, it took me a few years before I even had the courage to ask someone what the word bootstrapping actually meant. And here's the thing. So many small business owners are exactly like me. We don't start with a business degree. We start a business with an idea to fill a gap in the market, solve a problem. Or because we're passionate about a product or service. I wish I'd known about this whole outside investment world before I started, because it could have potentially changed the entire trajectory of my business journey. But bygones be bygones, I've moved on now. So here I am today with Carolyn Breeze to demystify all of that for you. Carolyn is CEO of Scolari Partners, a listed investment firm that's made over 30 investments and now supports a community. Of around 40,000 business owners through brands like TechReady Women, FishBurners and TankStream Labs. In this conversation, Carolyn breaks down what terms like equity, venture capital and safe notes actually mean in plain English, the biggest mistakes she sees founders make when raising money, and why she says the businesses with the best outcomes are often the ones who never took a cent of outside investment at all. We also get into the red flags that make investors walk away. Including one founder request that genuinely made Carolyn's jaw drop. If you've ever wondered whether bigger really is better, or feel completely lost the moment someone mentions a cap table, this one's for you. And even if you're sitting there going, no thanks Liz, I'm happy building slowly and surely, totally fine. But this information is gold if you're looking to have educated conversations at any point in your business journey. Whether you decide to sell, scale, acquire another business, partner with someone or invest in another business. Listen to this, and you can thank me later. Because no matter what age or stage your business journey is at, this applies to you. Trust me, you do not want to learn this one the hard way. Let's get into it. Hi Carolyn, thanks for being on the show. Pleasure, thank you for inviting me. This is a topic I think that will be a little bit over the heads of a lot of small business owners, but I think it's an important one to kind of explore. We're talking about investment in your small business and what that means for you. What those different kinds of investments could look like in terms of going from startup to scale and beyond. So thank you for being here to kind of demystify what all that means to small business owners. Yeah, sure. Tell us a little bit about what you do. You're the CEO at Scolari Partners and your background in this space and bring us up to speed with what you do.
Speaker 1Yeah, so I'm the CEO of a listed entity called Scolari Partners and Scolari Partners was founded six years ago. As an investment firm. So we invest in very early stage companies, typically tech companies that are scaling and getting capital on investment to grow. And typically they're looking for a partner with some know-how like that scaled businesses before and can help them, you know, open doors and expand and take their products to market. So we have, we've made 30 investments and everything from ag tech and fintech and reg tech, SaaS products and kind of everything in between. Most of those are in Australia and some are overseas. And then over the last few years, we've grown, we've built a lot of products and service offerings to help small business and startups grow and scale. So resources and accelerators and, you know, educational programs. And we've also acquired businesses that help the startup ecosystem. So some examples would be Tech Ready Women, which is a female focused accelerator program. Planet Startup, which is a kind of bookkeeping and virtual CFO service for small business and startups. Tankstream Labs, who offers co-working spaces and office spaces around Australia. And more recently, Fish Burners. So for anyone listening who's in the tech and startup space, they'll definitely recognize the Fish Burners brand. So they've become part of the Scolari family. And so altogether across all of the different businesses that we own, we have about 40,000 business owners. In our databases. Wow. Yeah, it's significant. And 100% of the profits that we generate is what we then use to invest back into businesses. And the way we invest is quite unique. So we'll probably get to this later in the chat. If you're a business that's looking for venture capital, so you're looking for investment from a venture firm to help you grow and scale your business. Most venture firms put you into like a 10 year fund. They raise $10 million. They spend the first couple of years deploying checks into companies like yours to help them grow. They work with them over the 10 years. And then at the end of the 10 year, they look for exits. So they'll sell some of the startups or they'll help them list on an exchange or whatever that may be. And so for investors who invest in those type of models, that money's locked up for 10 years until there's an exit. Right. And within that fund, they might. Make 20 investments and some will shoot the lights out and some will just go, OK, and some will die. And the model is that's OK, because we've got this diverse investment of portfolios. We don't view it like that. So we write our investment checks off our own balance sheet. We take a very small percentage of the company, usually less than 5%. We help them grow and scale, but the money's not locked up. So investors who invest on us on the ASX, they can put in a small. Amount and next year when they're renovating their house, they can pull it out. Right. It's not locked up. Right. Yeah. And we go on the journey with the founder. So we're not getting to that 10 year maturity and kind of forcing exits or, you know, relying on one or two to shoot the lights out. We think there's a journey and a great outcome for every founder in our portfolio. So that makes us really different. We're also one of we're really the only early stage tech investor on the exchange. So typically. Yeah. For a lot of your listeners, if they've ever been curious about investing in tech in Australia, you, in order to invest in some of these funds, you need to be a sophisticated investor, right? So your accountant needs to give you a letter that says, basically you've got enough assets and generate enough wealth that you can afford to take some risk and invest in this type of thing. Well, because we listed on the exchange, we're open to any, any investor or retail investors. You don't have to be sophisticated. Your money's not locked away. You can invest as little as 50. $50 whereas with a lot of those venture funds, you know, the minimum checks are 500 K to a mil. So, yeah. So we're trying to do something really different. We're trying to create a circular economy where we're servicing the ecosystem and helping companies grow. We're using those profits to invest in the best companies that we see. And we're trying to make that available to all investors, not just sophisticated.
Speaker 2That's so cool. And I have so many questions for you and you have to just pardon my complete ignorance. So I'm hoping that the listeners are the same as me going, Hey, what's that? Okay. So a venture capital firm, that's what you are. You're just doing it slightly differently. Correct? That's right. Right. And can you just explain in layman's terms what venture capital is?
Speaker 1Yeah. So venture capital is capital, a capital injection into your business to help your venture grow. Right. When you hear about Silicon Valley and you see all these things in the AFR, like, you know, Heidi raises 25 million from Airbus. Tree or Square Peg or whatever it may be Blackbird they're all venture capital firms so they all raise funds and they've got like vintages kind of like wine you know like fund one 2025 fund two 2025 so they raise all the money and get commitments up front then they deploy the checks into businesses to help them grow and then they mature them over 10 years and whatever you kind of end up is the return on your investment and that's venture capital in a nutshell so venture capital and that tech investment scene they're really looking for companies that, you know, the Atlassians and the Canvases of the world, they want to invest money and have it return, you know, 15, 25x.
Speaker 2Right. So they're looking for companies who are like dreaming big, going big, who's showing this massive potential and these big goals. That's right. Okay.
Speaker 1Scalable companies. So for
Speaker 2you guys to come into the market in Australia and list, you must see huge opportunities here.
Speaker 1Amazing opportunities. So Australia, there's some great stats actually flying around, but for every million dollars invested in Australia, the return, like our per unicorn return, which is like companies that are over, you know, a hundred mil, is higher than any other market in the world. It's higher than Israel. It's higher than the US. I think India's just starting to kind of sneak up and trump us, but our return on investment in the Australian innovation ecosystem is extremely high. So it's really attractive to international investors as well. And I think the reason for that is that Aussies are just really good at doing more with less, right? We've always had to punch well above our weight compared to our international counterparts. We've always had to scrappy and bootstrap, kind of do it the hard way. And we're really good at, you know, turning that around and turning that into money. And it's not as mature an ecosystem as say a Silicon Valley. No. Yeah. You know, they can burn some and lose some. We've never had that luxury.
Speaker 2No. And it's interesting, isn't it? And again, this tech space is something that I'm really just at the beginnings of learning about, but from what I see from a small business perspective, and I know with you, we're talking largely about tech companies here, but from a business or small business ecosystem in Australia, we do feel like the underdogs because we're not really geared towards this like incredible, we just have a different, I feel like we have this different culture here. It's not like the US. We're not really geared towards this like incredible, like the US where it's like, you go girl, you know, dream big kind of thing. We're like a little bit conservative maybe, but then obviously the stats show that our entrepreneurs are not.
Speaker 1Yeah, exactly. And I think, you know, a lot of the learnings and a lot of what I see around growing a business or taking capital for growth into your business translates equally to small to medium enterprise. I think the only caveat would be these big venture funds, right? They're really focused on scalable tech, but there's lots of other, ways to scale a business and lots of other funding mechanisms out there. And I think to your point, we are really good at doing more with less. And I think the other thing that's really interesting about the Australian market, regardless of whether you're a tech company or you're a bricks and mortar or you're a franchisee, whatever it may be, is those other nodes. So if you think like Tel Aviv, New York, San Francisco, those other areas, they've set up really strong foundations and well-trodden partnerships. And I think that's a really good thing to do. And I think that's a really good thing for growth. Yes. They've got really good trade agreements in place. They've got really good visa programs. They've got really good ecosystems and actual physical spaces where innovation thrives. They've got a more mature investment market. They've usually, unfortunately, got better tax reforms around building business and scaling business. And so we really do it the hard way. Oh my God, totally.
Speaker 2I mean, that's a whole nother episode, right? About the tax reforms and how hard it is here in that kind of ecosystem, because it's just not as progressive for whatever reason. So I agree with you wholeheartedly. So just before we go in, and I'd like to get you to explain like to me, like I'm a five-year-old, how different levels of investment work, because I feel like if for anyone who's like just starting a business, you know, a lot of tech companies, but also small business would be keen to know the answers too. But you've come from like a big, like fintech background and payments companies and those sorts of things. You're now servicing like thousands of small businesses. Like what, did you know that when you made that transition? Like what sort of drawn you to want to like go back the little guys?
Speaker 1Yeah. So I first started my career, if I kind of skip over sales roles in telco and whatever, my first kind of role that led me on the path to where I am now was actually at eBay. I was there for a few years when eBay was first launched in Australia. I then went across to a company called Braintree that was then acquired by PayPal. I ended up in PayPal for a few years. And when I was there, it was really interesting. Like I was really fortunate that I got to test and deliver new projects and new go-to markets and ways of doing things under this safety net of a big brand that people picked up, answered the phone for and a big budget, right. Where you could kind of fail safe and keep moving. So that was, and I learned a lot about payments. I learned a lot about tech and entrepreneurship because, you know, sellers using payments are ultimately entrepreneurs, right? They've been built out of eBay. And then I went into like straight into the payments thing. I loved Braintree, loved PayPal. And then I stepped into a couple of scale-ups that were launching in the Australian market. So they were quite well established businesses in the UK, for example. And I was first boots on the ground in Australia, helped build that team up, you know, and then would leave, you know, three years later and go on to the next project. And I did that a couple of times. And throughout those years of scaling, you know, I was in the business world a lot. And I was always the head of sales or chief commercial officer. I learned a lot about tech and I met a lot of great tech companies and I invested a little bit myself. And I jumped into a group called Startmate in Victoria, where they help small businesses come in and kind of get their ideas off the ground. And I was a mentor and I've just always played a little bit in that. And then that kind of led me then into Scolari because I felt like, well, now I've got the option to invest more on behalf of an entity, help them make those decisions, help lots of businesses scale and grow, not just one at a time. And that was, yeah, that was really attractive to me.
Speaker 2Yeah. Wow. It's so interesting that your history is obviously like almost like it's a perfect like formula for what you're doing now.
Speaker 1Yeah. Yeah. And I mean, I never would have thought I ended up here. And if I think back to when I was at school and post-school, there was no, there was nothing that would have given me this direction, not even getting payments and getting into scale-ups and start-ups. It just wasn't on the radar. I think it is a lot more now, you know, universities have the incubators and they've got entrepreneurial streams that run for different faculties. And, you know, we've kind of, we double down or we try to now on STEM in schools and kind of, you know, that whole, you cannot be what you cannot see. I think we're getting better at showing that there is, you know, more than one or two different career paths you can take. And one of them is you can be a business owner or an entrepreneur. And I think the other thing that's really driven that is these great platforms like influencer platforms and things that have allowed people to kind of take control of their own finances and side hustles. And so I think it's a different era, but back then I would never have envisioned that I would end up in this position and I love it.
Speaker 2Yeah. You're sort of pioneering that path. That's really cool. Okay. So educate me here. So we're talking to small business owners. Some will be tech, like, you know, startup sort of environment, a lot of maybe bricks and mortar business owners, those sorts of things. But speaking really simply about, I guess, taking your business from like the very beginnings financially and then growing it or scaling it. Can you give me the levels of investment that right from like mom and dad, borrowing money from mom and dad, right up the scale, just explain it to me.
Speaker 1Yeah. So I'll start with the caveat that I think we've attached a lot of success to raising capital. Agreed. Right. So I think when we opened the newspaper and it says such and such raised 25 million, we go, wow, that's amazing. Right. That's a, we've treated it like that, but it's not really right. That's a company that's doing well that said, Hey, I see an opportunity. I think I've worked out the pattern to scale this and do more. I need someone else's money to help me do that. Yeah. And I'm willing to give away a slice of my pizza for that. Yeah. And I think, I think we celebrate almost the wrong metrics.
Speaker 2I just want to start by saying that. Agreed. It's like profit versus revenue, right? I make a million dollars in revenue. I worked, took me five years to go, Oh, wait, that it doesn't actually matter. Cause if you're spending 5 million and you're making 5 million, you're not taking home any profit. And that profit number is the most important thing.
Speaker 1That's right. And if you've got a business that's doing a million dollars of revenue a year and someone invests, you know, $500,000 in your business to grow and you give them 15% of your business, when your business is a hundred million dollar business, they own 15% of your business. Right. So I think we just need to kind of keep that in mind and lots of different ways to get capital. But I just wanted to make sure I was really clear on that first. Some of the most successful businesses I've seen that have the best financial outcomes for the founders and for their employees are businesses that have bootstrapped, which means they've grown chicken and egg. They've made money. They've spent it on growth. They've been really particular about how they manage and deploy capital. They've been very lean and they've grown the business themselves to an exit without having to bring anyone externally onto their cap table, which is what it's called when you take external money from an investor, whether it be mum and dad, an angel investor, or a venture firm, right? They are now partners in your business. So they get a share of the pie as well. And so I think that's really important to know as a business. because that's what we call dilutive capital because you're diluting your share of the business where there are other ways to get money to help your business grow that is non-dilutive right so you can borrow money from a bank you can get a business loan you can work with organizations like lighter capital or tractor ventures who help you know tractor for example helps companies that are in manufacturing so let's say you're in manufacturing or you're in d2c you sell a product t-shirts whatever it may be and you've just been signed on as the supplier for the brisbane olympics yeah and you're like holy cow i need to make lots of t-shirts i need to make lots of t-shirts and i need to do it now but the money i'm not going to get paid until the olympics starts well how do i do this don't get an investor necessarily you can right but don't you don't have to go to the bank right take them that contract go and see you see lighter capital go and see tractor go and see someone else right there's other ways to fund a business that's not giving away a piece of your pie and i think that's really important to note and you know i see a lot of bootstrapped small businesses that are becoming larger businesses not necessarily in the tech space that in those early days maybe they did get some money from mom and dad and uncle whoever right and i think that's different if they're in the family and you get to a point where it's your family business and you're paying dividends and whatever you know i see that as as different as well but yeah and then i guess the other thing is we hear a lot of these terms around is it an angel investment round is it a pre-seed round is it a city ground is it a series a like one of the companies i worked for that was based in the u.s in the uk when i joined they'd just done their series b and when i left they'd done their series g like it can be never ending right okay yeah and at the end of the day and it depends what market you're in like a a series a raise in australia from a venture capital firm would be considered seed round in the u.s just because of the economies of scale and at the end of the day those terms don't really mean anything like i think we've all tried to kind of fit it into a box right so that we can think about what a seed or pre-seed round should look like but in a nutshell the way to think about it is when you're first starting out and you've got an idea and you're trying to validate it and get it to market and see if you're onto something and see it's something that's someone's willing to pay for you might take angel investment which is a sophisticated investor right or mom and dad or someone who says i'll i'll put 25k in right i'll help you get to that next stage once you get through that stage and you're like i'm onto something here i've got some paying customers i need to improve my product or i need to get you know the print right on my shirts or whatever it may be i actually need a little bit more money we'd call that like a pre-seed round and then you go into a seed round and then a series a round and it kind of goes from there but that you could lay out every seed round and series a round that happened in australia last year and there'd be nothing really that right that would identify it right it just depends on what they've raised before and where they're going and how much they
Speaker 2need so quick question on that so if you have got like a pre-idea or an idea and you borrow 25k off mom and dad or an investor is there a reward for someone who's taking more of a gamble on you now than there would be in the round the third round because you're taking less of a risk than you get into the product or the service right
Speaker 1100 and it depends on how you want to structure it so there's obviously a loan right but then there's investment so if it's investment there are three mechanics that are really popular one is investing directly for equity so that would be like okay carolyn i'm going to invest in your company we haven't generated any revenue yet but i love your idea and i can see what you've got right how much do you think it's worth let's agree on that number and i go i think it's worth a million dollars right and you go okay well i'll give you 250 000 right so that means then you get x percentage of my company yeah now if my company goes for bonkers and i kill it and i'm amazing and i sell it for 50 million dollars in a couple of years your percentage remains like that's your percentage yeah right depending on how you set it up so that's called an equity round so someone's actually taking a piece of the pie and the other thing to keep in mind there is if you give someone a piece of the pie depending on the terms and conditions that you put in place like the agreement and how you work with that individual and what kind of investor they are are they a passive investor or are they a hands-on investor you've basically let someone into your business so it's going to be someone that you can work with right you need to be really clear on their level of involvement because that can go wrong later on yes that's the first mechanic and then there are two other mechanics one's called a safe note so you would do a safe note if you said look i'm not sure what this business is going to be worth but i'm pretty confident that with this investment i'll be able to get it to x point so what i'll do is i'll take your money now and either when we hit that revenue mark or when i do get more capital in i'll convert you to equity and i'll give you a discount for coming on the journey early
Speaker 2and what happens if the business doesn't succeed is the investor then when you invest in that way particularly early on is the investor essentially saying it's a bit of a gamble like if you tank they lose their money it's a yeah
Speaker 1hundred percent yes a safe note would mean that it was like it's safe as in if the business goes into insolvency outside of outside of salary and super and tax obligations it's the next thing to be paid right which is why it's called a safe note but it is a gamble because they might not have enough to even do that and then there's a third option which is a convertible note which works pretty much the same as a safe note except it's not the safest thing if something was to go wrong right it comes behind some other things and other bits and pieces so that's when you're right kind of raising from an investor or an investment firm or a venture capitalist they're kind of the three main
Speaker 2mechanics yeah so what's your what's probably the the main thing to me that stands out from what you're telling me is even from like the very beginning even if you are just at the baby steps of a business be it tech or bricks and mortar or product service whatever it's important if you're any sort of outside investment or even a loan like to do it properly right yeah and make sure you have
Speaker 1those agreements done up like it's a false economy to think oh it's only 25k i'll just chat gpt my agreement yeah because down the track if your business does turn into something or something goes wrong in that relationship or whatever it may be the way you've set up that agreement is so important so if you are going to take external capital then you need to make sure you've got that agreement set up right from the beginning and that also kind of sets the tone for all the future investments and if you then do grow your company and down the track you want to raise 10 million dollars to scale in the us those those investors will go right back on in all the term sheets and look to that first one as well and go oh i don't like that i don't like something about that agreement and it can stop things down the track so it's really important regardless of the amount you take that you spend the money and the time getting that agreement right yeah
Speaker 2and even i would imagine even more important if you're trying to save relationships if it's friends and family investing that it's really really clear from the outset that you've got the right accountant and the right lawyers setting things up and it's not just like hey mom can i have five grand yeah i'll pay you back later because you know as we know those relationships can deteriorate for different reasons if that company's worth 500 million you know like that's important that's all done properly yeah absolutely yeah what are some of the biggest mistakes you see founders make in this stage or it may be in the initial setup phases of going and getting some sort of investment be it informal or formal or whatever
Speaker 1yeah so there's a couple i think the first one would be not having the right agreements in place giving away too much like not getting their company valued properly so they end up giving away too much too early and it makes it hard for them to get investment down the track and to scale i think another thing would be really clear on what you're going the money that you're raising how you're going to deploy that and what it's going to turn into because i've seen a lot of people raise money early and i get excited they're like oh i've got you know 500 000 in the bank or 100 000 in the bank i've been doing this in my spare time i'm going to hire someone i'm going to do this i'm going to put some money out there i think they can burn through that really quickly so i think be really clear about what you're going to do with the money and how you're going to manage it because you know if you can't raise again down the track and you burn through it it's gone right really upset investor on your table i think the the other thing would be i meet a lot of companies who have like this beautiful vision very passionate people who are like i'm building a business and this is what the problem my business solves and this is how it's going to be and i think that this has to be that from day one and so they put all this money and time into a platform or a sass product or setting up their bricks and mortar store whatever it is and they have all the bells and whistles and all the features and all the whatever it doesn't have to be that from day one to generate revenue get the bare basics out start validating with customers start getting feedback start generating revenue so that you can start spending as you grow right even if you've got investment you've got money in the bank it doesn't mean that you need to basically build the whole thing before you go to market go to market
Speaker 2yeah and that's one of the biggest takeaways because i don't know if you know but i did the tech ready women course two years ago i think for a part of the business that i'm running now actually but that was one of the biggest takeaways for me because and my husband is a business partner and he kept getting ahead of ourselves going up but we can't do that because we've got to do this and that needs a hundred thousand dollars and that and i think the biggest takeaway for me was I just need to prove that something works, that there's demand for what I'm offering and that revenue is possible. Like $1, $5, $20, whatever.
Speaker 1Before you go spending all that money creating things that you think people need, find out if they need them.
Speaker 2Yeah. And I think founders and entrepreneurs tend to be probably similar to me and you, like you get so excited about your idea and you've got this entrepreneurial brain like burying away at three o'clock in the morning. You get really distracted by the bright sparkly lights instead of just saying, just prove this basic thing that's not perfect. It's got heaps of flaws in it. Prove it works and then put money behind it. And bit by bit, you can grow it. It doesn't need to be overnight. And maybe that's social media. Maybe that's what we read in the papers. We want that a hundred million dollar like dream. But for the most of us, it doesn't, it's not like that.
Speaker 1Yeah. Yeah. Yeah, exactly. Exactly. And I think, yeah. And that's, I've seen a lot of companies that have done that. And I think, yeah, and that's, I've seen a lot of companies that have done that. And I think, yeah. And that's, I've seen a lot of companies build the big thing and go to market and people either don't want to pay for it or they need to change it. They don't see the value. And they're like, oh, I just spent $150,000 building my platform and now I need to change it.
Speaker 2Yeah. Yeah. Yeah. Definitely learning that the hard way. And it's a very expensive way to learn as well. I guess this is a broad question. I don't know how detailed you can answer me, but how do you kind of know when it's time to take on external investment? Like flags, green flags you're looking for or certain, what parts of the business are like, if you can prove a certain like forecast in revenue or like demand, like you said, like the Brisbane Olympics, that's just one contract though, right? For one lot of t-shirts. Yeah. What are you looking for? I guess, from your point of view, from Scolari Partners.
Speaker 1Yeah. That's a really good way to frame it. That's probably the best way for me to answer it is what we look for. And every investor, every individual investor, every firm, everyone has different approaches, but what we look for when, when we're investing is that the product's been validated and by validated, we mean there's been value exchange. People are paying for it, right? So they're already generating some revenue, which means there's customers out there that want that problem solved in that way. And they're willing to pay for that, right? That's, that seems like validation that it's a scalable product. And so if you, to put myself in the small business owner or founder seat for me, that would mean, okay, I know now that if I spend a dollar here in my business, it generates $3, right? And now if I can just have more money to do that, I know that I can generate revenue. So I'm not guessing anymore. I've proven what the go-to market is. And I know now that commercially, if I had more money to invest, I would be able to return more money. Yeah. No good taking capital if you can't, if you don't know how you're going to deploy it and what it's going to turn into, because investors are going to ask you, what do you use the money for and what revenue will that generate? And therefore what valuation will the company be if you execute correctly?
Speaker 2Yeah. I remember having a conversation, we were in the fitness business before I started this business with another, a guy actually who was in a, he'd started a franchise and he had got all these external investment and grown really quickly. And he was saying to us a couple of years ago, I'm going to go back to these investors and get more money. And we were like, oh, what are you getting more money for? And he was like, well, like it was essentially to pay him and his partner more. And we were like, I don't think that I'm pretty sure investors won't approve that. So that, that business has since gone bust. No surprises there, but it's interesting how I guess naive, I'm not sure if that's the right word. People can be about what they think that money is for. It's really like, I see external investment as me now having to prove to an investor that I can show them what I'm spending my money. I'm now reporting to them essentially in some ways. Yeah.
Speaker 1Yeah. It's interesting. I've seen some really funny stuff come across the desk for investment. Like there was this one investment opportunity where, well, cause we also look at what the founder and the team are being paid, right? Yeah. Founders or business owners, like, and I'm sure there'll be lots of people laughing when I say this, we're not starting our own business because we want to earn a million dollars a year. Oh my God.
Speaker 2I say to people on the podcast all the time, it's not a get rich quick scheme. Like no one starts their own business because there's easier ways to make a lot of money. That's probably illegal, but small business is a slow burn for sure. It's a slow burn.
Speaker 1It's a slow burn. And when you're building your own business, you're your own boss, right? Whether it be a tech company or whatever it is, you're building value in an entity, an asset that you own. So there's one component, which is the salary that you need to be doing the job to be done. Yeah. You need to live. Yeah. Right. And the other is the value that you're building in this asset that you own, if not all of, you know, if you've got investors, you'll still own a meaningful amount. And that that's the asset that you own. And in the future, when you're successful, whether you want to sell that business, you want to list it, or you might just want to take dividends and let it grow and scale, or you might want to borrow against it. You're building that that's your asset. And I remember a founder putting in his forecast for how the money would be deployed in his business for growth. And he'd given himself a ridiculous pay increase.
Speaker 2Oh my God.
Speaker 1Yeah. And, oh, and it had one of the things he was going to use the money for was to, for a founder loan, director's loan. So he'd looked at what he thought he should have got paid over the two years he was building the company and basically wanted to lump some up front for that. And I said, it's your company. Like you own over 50% of it. That is your value. That is your asset. No, one's going to invest in you to pay yourself. That's not a thing.
Speaker 2Audacity of that. I could tell you some stories. Probably I shouldn't tell you them to you on the podcast. So we'll save that for another time of again, in the fitness industry, those kinds of things happening. It's really delusional to think that an outside investor would want to pay for that. That was actually going to be my next question to you when you are considering investment or, you know, someone comes to you and says, can you invest in our company? Are there any red flags that you're looking for in founders that turn you off? Obviously that's a good example. And I know that they have to show, you know, they need to show you obviously their revenue, their projections, their vision, blah, blah, blah. What is like a red flag for you?
Speaker 1Yeah. So if you take out, let's assume they've managed their P&L well, let's assume their forecast is solid. They can prove to me that they can generate revenue with capital injection. Let's assume the tech or the product itself is something that I believe I can back and that I believe is scalable, right? So assuming all those things are there, I want to make sure this is someone that I can work with, right? So how do they handle adversity, objections, feedback? Are they coachable? Are they passionate for the long haul? You know, no one wants to invest their money in a company. And then six months later, the founder goes, I don't want to do this anymore. It's too hard, right? So you're really looking at that person. Is this someone that I can work with? And then secondary to that is, can I open doors? Is this a product or something that I believe I can add value to? So at Scolari, that's a big thing for us. Can we open a door? Is this a product that I believe I can add value to? So at Scolari, is this an industry we know? Can we offer value to help them scale and sell? Like, is this something we believe we can have a positive impact on? If not, we're better off investing somewhere where we can, because obviously our return is more. So we're very strategic about investing in companies where we know we can help them grow.
Speaker 2Yeah. And on the flip side of that, and you just brought up a really good point, is as a small business, be it startup, bricks and mortar, whatever, when you're looking to external whether it be mum and dad, friends or family, whatever, official avenues, are you just looking for someone to give you money? Or are you looking for someone who can complement what you don't know? Like, so for example, someone who's done it all before and can give you advice on scaling, or someone who is great at numbers and maybe that's not your strength. So would that be the advice you would give?
Speaker 1Yeah, a hundred percent. And companies are always looking for different types of investors. So that would be like a passive investor versus a strategic investor. So a passive investor is, hey, I just need some capital. I really don't need any advice or help. I kind of know what I'm doing. And hopefully you find an investor that wants that. I'm not that person, but maybe they're out there. And then on the other hand, if you're looking for investment, and it's always hard because a lot of people I meet who are looking for investment, they might've been told no 50 times. And then someone says yes. And it's hard for them to take the feedback and to say, okay, well, excellent. Like, sounds like we're close to getting a deal. I'm just wondering, like, what are the other investments in your portfolio? Do you see any synergies or partnerships? What's your experience in my vertical? Are there any doors that you could open? Like, how will you be adding value to my business too? Right? Because it's really important. These are, whether it's 5% of the cap table or 40% of the cap table, you're going to be doing business with this person for a long time. And if you can, if you have the luxury, try and find someone who they put in the money, but then they also open a door and open several doors, or they have, they have a skill where, you know, you're lacking, you know, maybe it is that they can help you more with the financials. Maybe they're a lawyer and they've got a legal background and you're heading in to do your first RFP response. Find people that compliment you and can help you grow in addition to just the money is always my advice, but there are founders out there and investors who just want to be passive.
Speaker 2Yeah. And I think again, when you've had a small business, for so long, you've been working on a project for so long or, and you finally get that. Yes. It's very difficult. It's to not just get really impulsive and say yep i'll take the money you kind of got to be a bit more strategic about that decision even if you do feel a bit desperate to kind of think of that long-term vision you've got to work with this person you're essentially reporting to them or you're working together and potentially for a long time it's got to be also how
Speaker 1you take the money like there's a program in australia i won't mention their name that's very common amongst startups it's usually one of the first accelerators they go through and part of the proposition from this company is we'll give you x amount of dollars and take a percentage of the company regardless of the kind of valuation it's kind of a set in stone amount which is fine if you think your company's worth that and you want the help that they can provide the accelerator is going to grow your business go for it but i part of the terms and conditions in the agreement means that with any future investment regardless of how big the company gets or the size of the company it's going to be a good idea to or where the investment comes from overseas whatever that that little company that invested in them at the start has to approve it and so there's a company that i know that you know now does over 10 million in revenue and they were getting investment from a firm in the u.s to expand into the u.s and it was for millions of dollars and they were waiting over a month for this entity in australia to go yeah you can or no you
Speaker 2can't wow so it's another layer of complexity
Speaker 1isn't it yeah so you just got to really it's going back to what we spoke about at the start like it's false economy not to pay a lawyer to do don't get overexcited 25k investment as they would have five million investment you want to make sure that there's nothing in there around you know be careful with preferential shares and all these things there there are investment agreements that say well if i own 15 of the pie today and in the future you need to raise money you dilute but i don't i still hold my 15 there's all these things that you need to watch apple yeah you've
Speaker 2got to be smart and i guess it's the whole premise of this podcast is as business owners we get ahead of ourselves we get excited we're like oh my god this is such a massive opportunity we jump in without thinking and then down the track we get caught up in the detail and the t's and c's and we're trying to advise people i guess on this podcast help people see that so and steady be considered get the right advice do you think from your work like being immersed in this kind of this i guess this exciting entrepreneurial landscape in australia are we should we be more risk should we be taking more risks as australian entrepreneurs would you like to see more people coming to you pitching for investment or do you think we're kind of growing at a steady pace
Speaker 1i think we're growing at a steady pace if there was something to change in the ecosystem so look at it like this there's founders and entrepreneurs there's investors regardless of the type of investment and then there's government and infrastructure and i think the two things that need to change really is the government and the infrastructure and also the reforms to allow investors to feel more secure about investing in early stage tech companies so everything from the tax reforms to the way we do our self-managed super funds to accessibility to early stage tech companies to matching grants all those bits and pieces and then from a government infrastructure layer i think there's a lot more to be done
Speaker 2yeah i couldn't agree with you more we lived in the states for six years and the difference in the culture in terms of like the structures around like that the potential in small businesses and tech startups and those sorts of things is like just worlds apart it just feels like a really exciting place to be with you know and you're encouraged all the time to like go for it dream big take risks fail have another crack and it just seems a bit not like that here and that's also
Speaker 1why we lose so many founders to the states and to other parts of the world
Speaker 2it's like we're scared of someone else you know and entrepreneurs are we've all got skin in the game right so i find generally speaking we're like there for each other and saying you know go for it take the risk or giving each other advice you know supporting each other but if you're not from that mindset it can feel a bit like and i've seen a lot of this on my socials recently when i've talked about those tax reforms is well you shouldn't get special comp you know dispensations you know you shouldn't get special treatment like you should be taxed like we're all taxed and i just disagree with that because i just think collectively when you know rising tide lifts all boats and like it's only good if we're creating an environment where businesses are encouraged to grow and take risks and evolve and like be world leaders we're so innovative and smart and we're doing so many cool things i just wish the culture matched
Speaker 1that yeah i think we'll get there i like yeah i think the last few months we've seen a couple of setbacks the cgt stuff like even though in the startup ecosystem it technology companies it didn't quite land the way they were talking about it was enough of a shock to the system that a lot of investors just put their hands back in their pockets
Speaker 2yeah i know and that must be so frustrating for me as well last question tell us a little bit about the programs you run because i've obviously know a little bit about tech ready women if anyone's listening is there you know a way they can sort of start to like get to know a little bit more about what's possible for their business if they think they might like to grow or if they're the early stages tell us a little bit about those
Speaker 1opportunities the best way to understand the scolari ecosystem and all the brands that we have and all the accelerators and resources and things that we offer is to jump onto the founders union so it's thefoundersunion.com it's free for small business and for founders and it's basically it's like a library of resources and access to different perks and information and grant information and accelerators and programs and lunch and learns free any events we're having so if it's a fish burners pitch night or we've got the s2s summit coming up on the 1st of september in sydney like come along to that and listen to all the speakers and what it does as well the founders union is if you're facing a challenge or a problem in your business it connects you with different service providers or tech platforms or resources that can help you with that issue so if you need a lawyer or you're hiring your first employee or you need to know you know how to better manage your cloud spend or whatever it is it'll help you connect with the right people so that would be the best way to get
Speaker 2involved amazing i will pop all those details in the show notes as well i've still got a lot to learn but we only have a certain amount of time you've got a job to do thank you carolyn it's awesome to chat with you thanks for being a guest on the show thank you for having me i've loved it thanks for listening to what i wish i knew about small business before i started a special six-part mini-series from inside the media magnet podcast and brought to you by amp bank go if this episode helped you follow media magnet wherever you get your podcasts and go back to catch the other episodes in this series and if you know a small business owner who's learning everything the hard way right now please share this episode with them it might be exactly what they need today i'm liz nabel and i'll see you in the next episode
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