In the lead up to the Australian Proptech Summit 2022, as part of the Proptech Investor Series, we interviewed Rachael Neumann, Founding Partner, Flying Fox Ventures. She has worked with thousands of early-stage start-ups on behalf of Amazon Web Services ANZ, Startmate, and the Federal Government. We wanted to know which specific innovations excite Rachael and why?
1. Tell us a bit about yourself. Your background, current role and how did you get started in venture capital?
I’m Rachael Neumann, half of the founding partnership of Flying Fox Ventures, an early-stage investment firm charged with finding and backing the best early-stage founders in Australia & New Zealand.
Kylie Frazer and I were founders and operators (respectively) — and then turned angel investors — in the start-up space for over a decade. We had been investing individually — and then joined forces to invest together — for the last few years. We launched Flying Fox because we saw there was a market failure around investing in early-stage start-ups: on one hand there were lots of people with resources and an appetite to invest in this space but didn’t know how to get started and yet there was still a chronic under-deployment of capital in the early-stages. For example, in Australia, we invest around $3 per capita in early-stage start-ups versus $25 per capita in the US.
Diving in a bit deeper, we discovered that investors first lacked the confidence and competence to invest (skills), then lacked connections to great deals (deal flow), and even if they found a great deal, weren’t always able to invest with a small cheque due to minimum cheque sizes (access). Flying Fox solves these issues for angel investors by pooling our capital, leveraging our network and relationships to access the best deals, and sharing our process and insights with our investors every step of the way.
Founders love it because we can give them cheque certainty, move quickly, and make decisions without typical fund dynamics limiting our decision making. We also have a network of over 100 investors behind us — successful founders, corporate leaders, and later stage investors — who are teed up to help them at any time.
We deploy around $10m per annum, 50% in the form of first cheques, into 10 companies, and the other half as follow-on cheques into our portfolio companies as they grow.
2. How different is it to build a proptech start-up today than 5 years ago?
Every day I say ‘it’s never been a better time to start or invest in a start-up’ and every day it gets to be more and more true. On the founding side, our Australian ecosystem is starting to hit critical mass, where we have amazing talent choosing to join a start-up over some more traditional career paths, we have the cost of starting something dropping dramatically every day with the use of cloud computing and pay-as-you-go SaaS tools, and there has never been more private funding available than there is now if you choose to be a venture capital backed business.
We’re seeing more awareness and an increased appetite from traditional players in the property space to experiment with new start-ups, try out partnerships, and in some instances, even acquire start-ups where they bring talent, tech, or customer experiences that would be otherwise too challenging for the acquirer to bring about on their own. Traditional companies are acknowledging some of their own limitations in being able to build tech quickly, capture and unleash the power of data and machine learning, acquire new customers, attract new talent...start-ups are often uniquely positioned and nimble to do these things from day dot, and companies are realizing it can be easier to partner or acquire rather than attempt these things internally.
The best part of starting a proptech business is that if this is your passion, and you deeply understand the customer problem you are trying to solve, there is no better feeling than waking up day in and day out to work on something you believe in — on your terms, in your own way. There’s no greater privilege, as an investor, than getting to support people in doing their life’s work.
3. A lot of innovation is coming from incubators and in-house labs, which have a lot of talent and resources. How can proptech start-ups compete?
I think that there are some great innovations happening internationally when there is alignment with leadership and resources and people are set up to deep dive on customer pain points, experiment boldly, and then take new ideas to market. But start-ups shouldn’t think they are automatically at a disadvantage because they lack the internal resources a big company might bring to their internal innovation agenda.
All too often, we see big companies buckle under the weight of their core strategy and structure — meaning the bigger you are, sometimes the harder it is to do something new and differently, especially if there isn’t alignment all the way up the chain. Some of the best innovation from big companies come to market not through internal building, but through a partnership with or acquisition of a start-up. My advice to proptech start-ups who want to partner with bigger corporates is to deeply understand the double-layer customer problem: what is their start-up solving on behalf of the end user and then also what internal corporate problem is the start-up able to solve. Being able to articulate and demonstrate those two points will go a very long way.
If you’re not looking to partner with a corporate but rather go up against them as a competitor, don’t fear the Goliaths. Speed boats are easier to re-steer than barges! Your ability to learn from your customers and quickly iterate on your product or offering will be your greatest advantage. Move quickly and obsess over delighting your customer.
4. Proptech saw an explosion of investment in 2015-18 (estimated US$30 billion worldwide) and then a loss in momentum. What does the future hold for proptech investment?
I think proptech — like all verticals — continues to be an exciting place for innovation and investment. There’s so much that proptech entails — everything from site management to safety to pre-build visualisation to fintech to smart contracting to commercial and resi discovery to maintenance... it covers such a wide range of opportunities and problems to be solved.
It’s a great space to be focused on because infrastructure needs will never go away, there are huge opportunities in both bull and bear markets, and the industry still has huge scope for digitalisation and improvement on transparency and customer experience. It’s ripe for new and improved ways of doing things.
As with any market, once some clear success stories and winners emerge, the investment pendulum will swing back to the proptech space. Investment flavours of the day can be a bit fickle, but I’m long term bullish on this space for sure.
5. What are new areas for commercial proptech that you are excited about as a venture investor?
For me, my areas of experience are where software is used to greatly improve a customer experience and drive more of what they already are or want to do — just bigger and faster. To that end, I’m more inclined, for example, to back a SaaS tool that improves communication and workflows between a commercial real estate agent and their tenant than I am to back a big, complex hardware solution that measures movement on a commercial build site (these are random examples I thought of off the top of my head).
This doesn’t mean that one space is better than another, just where my personal taste and experience come together. I am also drawn to the first type of company because COGS are virtually zero, users can get up and running in a self-service way which lowers the cost to acquire and cost to serve (not to mention if the user is overseas, the company can make money while they sleep in Australia!) and usually the revenue is recurring on a monthly basis rather than a lumpy one-time sale.
To distil that down, I’m interested in: software as a service with no physical inventory to distribute, ability to enter and sell in other global markets, and recurring revenue business models. I can think of plenty of opportunities in the commercial proptech space that companies like that could launch and thrive. If you’re working on one, please get in touch!
6. Any book you would recommend to aspiring proptech entrepreneurs?
I am hesitant to recommend a single book these days because the information and advice is changing faster than the publishing timeframe! Instead, seek out amazing founders you admire and listen to their podcasts, follow them on social media, and meet other founders in your area and form peer mentoring connections.
There is no one way to do this — this is your very own Choose Your Own Adventure story! — so be wary of anyone telling you ‘this is the way to do it’. Also, chances are you’re starting your own company because you don’t like people telling you what to do
The other side of this coin is on the investment side; if you think you want to be venture backed by someone like Flying Fox, spend time getting to know how our world works, how we think about opportunities, and how we invest (there are some general insights and then you’ll want to deep dive on particular investors of choice). Same advice applies: listen to our podcasts, follow us on twitter, understand our mindset. It will make it much easier for you to ‘speak our language’ and help us help you.
My final appeal is to JUST DO IT. If you have identified a real customer pain point, you understand it more acutely than anyone else, you have a great idea as to how you’ll tackle it with a solution that’s 10x better than what exists today, have a crack! You’ll never regret trying, but if you don’t try, you might always lie awake in bed at night and wonder what if...
Read the Proptech Investor Series Q&A with:
Carolyn Trickett from JLL Spark here.
Jonathan Hannam from Taronga Ventures here.
Shelli Trung from REACH Australia here.
Join us at Australian Proptech Summit 2022, to hear from more leaders in the proptech field and the trends to look out for.