This month we speak to Michael Hayes, Investment Manager at Bailador Technology Investments about what makes Bailador different.
What’s your role at Bailador?
I’m an Investment Manager at Bailador and I’ve been at the company for almost a year and a half. My role has three key functions, the first is deal sourcing – essentially this involves finding and meeting exciting Australian tech companies. I typically find companies through introductions from Bailador’s network and attending start-up pitch events. I’ll also proactively reach out to companies I think are interesting and fit within our mandate.
The second part of my role involves deal evaluation and execution. After we find companies that fit within our mandate and we believe offer the potential to be a good investment, we draft an initial investment paper and begin the due diligence process. From a qualitative perspective, we evaluate things such as the product, market, team and competitive landscape. We also stress test the financial model and underlying economics of the business to ensure that if we were to provide the company with funding they would be able to scale profitably.
The final part, and arguably the most important aspect, is portfolio management. This is where the team and I lend our time and expertise to help our portfolio companies grow and reach their potential. Much of my time is spent helping our companies with strategic planning, ad-hoc analysis, financial forecasting and identification of corporate development opportunities.
How does your position at Bailador differ from that of a typical Analyst role?
I do all the deal sourcing, evaluation and execution work that a typical VC investor would do, but what makes my role at Bailador unique is how operationally involved I am with our portfolio companies. When we choose to invest in a company, we not only invest our capital but we also invest our time and energy into making sure the company has the best chance of reaching its potential.
The Bailador portfolio of companies are all at the expansion stage, and often these companies go through similar issues when trying to scale. As a result, we’re able to leverage our collective experiences and apply the best practices and lessons learned to any new issues that one of our companies face.
Our founders have great vision and have already built strong businesses. A lot of what I do is lend them some strategic planning and analytical support while they grow.
How did you come about joining Bailador?
I started my career in the U.S. working in corporate M&A and strategy, before moving over to public market investing. Essentially, I spent the previous six years before Bailador evaluating investment opportunities across different industries and developing strategic plans.
When I decided to move back to Australia for personal reasons, I knew I wanted to stay in investing and particularly in a role where I could add value to the companies that I invested in.
I was introduced to Bailador through a recruiter and was extremely impressed with the fund. The calibre of the team is incredible – there is a real variety of investing and operational experiences, as well as international experience which was important to me given my background. They also had a strong track record of investing and an impressive portfolio of companies, particularly SiteMinder, one of the leading tech companies in Australia.
I was also attracted to Bailador by the team’s rigorous and analytical approach to investing. We invest at the expansion stage, which not only provides the opportunity for 5-10x returns but also ensures companies have been operating long enough to generate quality data points that can be used to evaluate their future success.
The team made it clear they were really focused on the underlying unit economics of a business to enable it to scale profitably if given additional capital. This appealed to me as someone with a background of investing in later stage companies.
As you mentioned, you were previously based in the U.S., what’s the main difference between the U.S. and Australian VC market?
The biggest difference between the U.S. and Australia, regarding venture capital, is the amount of capital available for start-ups. Although the amount of VC funding in Australia has been growing in recent years, it pales in comparison to the U.S.
One of the consequences is that local Australian start-ups are typically more capital efficient and often have a clearer path to profitability. This is because they haven’t always been able to rely on external capital to fund their expansion.
The capital efficiency of local start-ups is great for us as investors because we get the opportunity to invest in businesses that are already profitable, or close to profitable. This means we can use our capital to accelerate growth, rather than fund losses for a company that may have an unsustainable business model.
What are you hoping to achieve in your role at Bailador over the coming years?
Last year my focus was primarily on evaluating and executing new deals, and I spent a lot of my time working on our investments in Instaclustr and DocsCorp – both really exciting businesses.
Going forward, although I’ll still be focused on finding great Australian and New Zealand tech companies, my emphasis will be on working with our existing portfolio companies to help them grow and hopefully achieve successful exits for both Bailador and the management teams.
Are there any other growth industries that you think would make a good investment?
Traditional industries such as healthcare, agriculture and insurance are yet to be disrupted to the extent media and retail have, and I think there’s a real opportunity for Australian start-ups to take a leading role here.
Within the industries I’ve mentioned, I’m focused on companies that are disrupting using the scalable business models we favour, such as Software-as-a-Service (SaaS) and marketplaces.
What are the challenges companies face regarding financial and strategic planning?
Strategic planning is crucial. You want to make sure you’re pointed in the right direction before you start sprinting.
Most senior management in early stage growth companies perform multiple roles with limited resources, and as a result are often extremely time poor. It’s easy to become solely focused on day-to-day execution and not have a long-term plan.
Even for an early stage company, it’s important to articulate a long-term vision along with specific goals that you want to achieve. It’s crucial the business’ internal processes are aligned with its goals and there are systems in place to measure and track KPIs.
What do you think will be the next big tech trend in the coming years?
There are a couple of broad trends I think will affect the B2B/enterprise software market in the coming years. At Bailador we focus a lot on Enterprise software, and it’ll be interesting to see how companies leverage Artificial Intelligence (AI) and Machine Learning to improve their software offerings and deliver even greater efficiencies to their end customers.
The Internet Of Things (IOT) is also an interesting space because of the enormous amount of data it will generate (Big Data) once more devices become connected. From my perspective, I’ll be focused on the enterprise software applications and databases that can effectively process, store and analyse all the new data, so that end customers can then use this data to drive meaningful business decisions.
My work with Instaclustr has also exposed me to the growing adoption and acceptance of open-source software amongst large companies. Open-source software is free to use and is maintained by an independent foundation. Its popularity is being driven by the improved quality of the software and large companies such as Atlassian using it in their day-to-day operations. Popular open-source projects like Apache Cassandra, Apache Spark or the recently IPO’d MongoDB are increasingly competing against traditional incumbents such as IBM and Oracle. I’ll be keeping an eye on how the competition between open-source and traditional enterprise software plays out over the next few years.