Thought waves on seed venture

A new software era is here. It doesn’t just store your data, it does the work for you.

For decades, enterprise software was built around Systems of Record: authoritative databases where structured information lived. Think ERPs, CRMs, or EHRs. These systems were valuable because they democratised access to critical information. For startups, they were hard to displace. They became the default axis of influence in every organisation: inflexible, centralised, and (mostly) passive.

We believe AI is breaking that model.

We’re entering the age of the System of Work: software that doesn’t just manage data, it does the work. These AI-native systems generate the actual deliverables: the compliance document, the diagnosis summary, the customer reply, and the inspection report. They collapse the distance between insight and action.

This isn’t a UX upgrade. It’s a paradigm shift in how work happens.

What is a System of Work?

A System of Work will autonomously perform productive tasks. It’s not a place you go to see what needs doing, it’s the system that actually does it. That might look like:

• An AI agent that resolves a customer ticket end-to-end
• A generated legal contract tailored to a specific jurisdiction
• A clinical platform that drafts summaries and actions from messy encounter notes

Where legacy tools required human intervention to interpret and act, Systems of Work incorporate agentic behaviour: they act on their own, within guardrails. They represent a new kind of software stack: data, model, workflow and output, all in one loop.

These systems are defined by a few key traits.

• Agentic behaviour: They initiate actions rather than waiting for human prompts.
• Embedded actions: They do not just suggest what to do. They complete the task directly within the system.
• Workflow ownership: They become the go-to place where work is created, reviewed, and shipped.
• Outcome-based value: They are priced and evaluated based on the results they deliver, not just on features or access.

Why the record → work shift matters

In a world of Systems of Work, the traditional axis of influence in software is beginning to lose relevance. The classic “source of truth” may still exist somewhere in the stack. However, the source of productivity, the system where outcomes are created, will shift.

Once a system starts producing core business outputs, it becomes exponentially more valuable and much harder to displace. This creates a new kind of competitive advantage. Systems of Work do not only benefit from access to data. They generate new, proprietary data through use. They encode human expertise, automate repeatable decisions, and improve over time. These effects compound, and become self-reinforcing advantages that deepen with every interaction.

This shift also changes the economics of software adoption.

• From insight to execution: No more offline handoffs. Work gets done where the data lives and the value is immediate and obvious.
• From user-as-operator to user-as-editor: Humans go from clicking buttons and entering data to reviewing AI-generated output.
• From seat-based pricing to outcome-based monetisation: Business models shift toward per-task or per-output models, unlocking new budget lines tied to productivity.
• From “jobs to be done” to “roles to be done”: AI systems take over full professional roles, not just isolated tasks enabling full workflow ownership.
• From software tools to workflow axis of influence: These systems become the gravitational centre of daily operations. Frontline teams feel the value directly, not just IT buyers.

How Vertical AI is powering this shift

This transition is most visible in Vertical AI: AI products built specifically for the needs of one industry. These aren’t generic LLM wrappers. They embed into frontline workflows and solve the hard, boring, expensive problems unique to sectors like healthcare, logistics, construction, and financial services.

The most advanced Vertical AI systems:

• Combine deep domain knowledge with powerful models
• Build proprietary data moats by capturing interaction-specific context
• Deliver real-world value through actionable outputs, not just dashboards

And crucially, they don’t just make software smarter, they replace entire layers of human effort.

Industries will not just adopt AI. Industries will be restructured by AI

Systems of Work will drive the biggest changes in industries where work is still manual, complex, or repetitive.

Winning without replacing

Smart AI startups are using over-the-top (OTT) strategies to enter these workflows. Rather than attempting to displace existing systems of record, they adopt a wedge strategy to layer in value → starting with simple value-additive propositions like:

• A co-pilot layered on top of an EHR system
• A transcription layer that starts automating follow-up actions
• A reporting tool that gradually becomes the system of work for compliance

Once embedded, these tools don’t just assist, they absorb the workflow. Once the workflow is absorbed, the product has direct access to the tacit knowledge that the human uses to complete a task end-to-end. Access to this ‘grey’ data area helps feed and improve an autonomous neural network, which becomes an expert on the specific task required.

Final thought

The System of Record defined the last era of enterprise software. The System of Work will define the next. We don’t know what that means for Systems of Record, maybe some of them will be able to participate in the System of Work revolution as well. We are focused on finding the founders who are willing to tackle the ‘work’ problem from scratch. The pathways to achieving a System of Work are complex and multi-layered. The optimal way to build toward a System of Work will vary by use case, user archetype, and industry.

Join us from the leading edge of Vertical AI startups, as we publish our live thinking on building Systems of Work.

In the ever-evolving world of technology and investment, where timing can dictate destiny, a spur-of-the-moment encounter between Tidal Managing Partner Grant McCarthy and renowned tech evangelist Guy Kawasaki led to a fruitful dialogue. As Grant recalls, what began as an ambitious plan to host an event during Guy’s visit to Sydney soon faced logistical hurdles reminiscent of the challenges startups often encounter. Luckily, fate intervened, leading to a meeting in San Francisco where, sharing surfboards and experiences, a connection formed. Beyond their love for surfing, Guy and Grant share a keen eye for tech investment opportunities shaped by their respective journeys.

For Guy, it has been marked by his pivotal roles during the early Apple days and advising Canva during their early product development. Grant’s journey to becoming the technologist he is today is equally storied. Amidst the frenetic energy of the dot-com bubble, Grant dove headfirst into the tech scene, joining Yahoo as its 14th Australian employee. He played a pivotal role in shaping the company’s trajectory, working across some of its earliest investments, including industry leaders like Seek and Carsales. At Tidal, he’s backed ventures like Shippit, now valued at $300m and FrankieOne from their earliest stages.

These shared early tech experiences make for a good yarn filled with valuable insights into how to build and grow a tech company, offering a firsthand perspective on what it truly takes to succeed.

The role of luck and timing

Grant emphasises the importance of recognising the “corporate lotto cycle” in startups, where success often depends on fortuitous timing and circumstances. Reflecting on his journey, Guy candidly acknowledges, “Yeah, I worked for Apple. I worked for Canva. I was on the Wikipedia board of directors and a Mercedes Benz brand ambassador. I’m trying to paint this picture, but I really don’t know what the hell I’m doing all the time.” Guy believes that luck isn’t merely a matter of chance but a culmination of factors aligning at the right moment. “It’s not just because you have growth and grit,” he asserts. “It takes luck, and it takes, you know, some teacher in your past, some coach in your past, some mentor in your past. A lot of things have to line up to be remarkable.”

Guy’s journey with Canva mirrors the unpredictable nature of startup fortunes. Drawing parallels to his early days at Apple, he recalls the pivotal moment when Canva’s potential became apparent. His social media manager’s recommendation and personal experience led him to adopt the “Peter Lynch theory” of investing in products he uses. This mix of personal conviction and timing underscores the relationship between luck and strategic insight. Just as luck and timing played a role in Guy and Grant’s meeting in San Francisco, so too do they shape the trajectories of startups—highlighting the importance of seizing opportunities and cultivating meaningful connections.

Remarkable founders know how to “turn and burn”

Luck and timing aren’t the only things that matter; remarkable founders also know how to make good decisions and be flexible when things don’t go according to plan. Guy, the surfer he is, likens this process to the “turn and burn” manoeuvre, which requires founders to seize opportunities, adapt to evolving conditions, and navigate uncertainty with confidence and precision.

As Guy puts it, “As soon as you make your decision, you switch from, is this the right decision to making the decision right?” In the same vein, he elaborates on the intricacies of surfing, highlighting how “you’re trying to sit in the right place, you’re trying to turn at the right time, you’re trying to paddle in the right direction, you’re trying to pop up at the right time. There’s a lot of variables.” Guy emphasises, “That’s what makes surfing so hard... at some level, once you turn and burn and start paddling, it’s all about making the decision. You got to compensate. You got to change. You got to do whatever you got to do. It’s about making the decision right when push comes to shove.”

Grant highlights that unique early-stage challenges, like figuring out product-market fit and scalable go-to-market strategies, can often involve guesswork. “A lot of the time, particularly in the early stage, at the seed stage, you’re guessing a lot of the time,” Grant explains. Grant’s insight adds another dimension to the “turn and burn” approach, underscoring the delicate balance founders must have between intuition and strategy.

You’re trying to align yourself with people you think are quality, people you can work with who will make hard and fast decisions and have a cadence of speed in doing things.

Finding the balance in product development and sales efforts

Every successful startup’s heart lies in a dual focus: building a remarkable product and effectively selling it to the market. As Guy succinctly says, “100% of your focus should be on making and selling it.” Take, for example, the iconic partnership between Steve Jobs and Steve Wozniak, where their synergy in product innovation and sales acumen laid the foundation for Apple’s unprecedented success.

Grant echoes this sentiment, emphasising the need for startups to prioritise product excellence early on. He affirms that startups armed with a remarkable product, addressing a pressing problem across geographies, often find themselves ahead in the sales game. “With a great product that solves a really hard problem,” Grant advises, “you don’t have sales problems.” However, he highlights that the real challenge for startups with a great product lies in acquiring the right sales talent and capabilities to leverage this product advantage effectively. Grant’s insight sheds light on the pivotal role that sales capability plays in translating product potential into tangible business growth.

How Grant and Guy identify founders with promising potential

Having spoken to countless founders over the years, both seasoned investors pay close attention to the founder’s character—specifically their potential to grow and endure the challenges of the startup journey. Grant points out how important it is to understand the founder’s mindset early on, stating, “One of the things that we’ve always tried to do at Tidal is spend as much time with these founders early in their problem-solving product mindset of what and how they’re going to build something.” For Tidal, it’s not solely about assessing a founder’s technical skills or industry knowledge but also about predicting the founder’s evolution as they go on their journey.

Grant explains:

It’s not only how good they are at product or what knowledge they have about the problem, but also what kind of person they will be as they go through that process.

This is at the core of Tidal’s investment principles, primarily driven by our distinctive operator-led approach. Unlike conventional venture capital firms led by investors, being operator-led means your investors are individuals with firsthand experience as founders and builders of tech companies. Tidal is committed to working closely with founders, offering them insights and advice from practical experience rather than mere theoretical knowledge.

Being the right “asshole” leader

Drawing from four decades of frontline experience, Guy asserts his authority on a subject, saying, “I have become an expert in assholes.” He swiftly clarifies, not in the proctology sense, eliciting a chuckle from Grant. Guy distinguishes between two breeds of such leaders: the egocentric and the mission-driven. The former, he elaborates, is consumed by self-glorification, exemplified by an entourage and a penchant for ego gratification.

In contrast, the mission-driven “asshole” is driven by a singular purpose, unyielding in the pursuit of their vision. He cites Steve Jobs as a prime example of the latter, lauding his focus on creativity and productivity over self-aggrandisement. Grant concurs, emphasising the importance of tyrannical focus in realising one’s mission, a trait reminiscent of Jobs’ legendary dedication. Guy reflects on his time working with Jobs, acknowledging the fear he instilled while underscoring his genuine desire to revolutionise the computer business.

Navigating different mindsets and self-belief in leadership

The distinction between growth and fixed mindsets has profound implications for leadership. Guy believes that having a fixed mindset constrains personal advancement and leads to biases hindering company growth. He articulates, “The fixed mindset is the mindset that you believe that you cannot gain new skills, that, if you open yourself up to the vulnerability of learning new things, it may be at one level embarrassing or even worse, it’ll mark you as a failure.”

This mindset often permeates hiring practices, leading founders to favour candidates who mirror their own attributes, potentially limiting diversity and innovation within the team. Fostering a growth mindset empowers founders to embrace continual learning and adaptability. As Guy highlights, “The growth mindset, by contrast, says that you can grow, you can expand, you can learn, you can do things.”

The three common founder mistakes to avoid in early-stage startups

Mistake 1: Hiring biases and lack of diversity

Guy highlights the detrimental impact of hiring biases, particularly when founders gravitate towards hiring individuals who mirror their personas or demographics. He argues that such bias reflects a need for a growth mindset, stifling innovation and progress within the startup ecosystem. Companies that embrace diversity show they’re fostering a mission-driven culture where the focus is on potential hires being part of a solution to a problem.

Mistake 2: Neglecting sales efforts

Another critical mistake is the tendency for early-stage founders to neglect sales efforts, leading to running out of funds. As Guy emphasises, “sales fixes everything.” He cautions against diverting excessive resources towards superficial “strategic” initiatives at the expense of core revenue-generating activities, stating, “When you start throwing around a strategic... you’re full of it. Because you know what? We don’t want strategic shit. We want money. We want sales.” Guy’s insight underscores the necessity of prioritising tangible sales outcomes over abstract strategic pursuits, highlighting the importance of generating revenue for sustaining business growth and viability.

Mistake 3: Underestimating time and effort in feature implementation

The final mistake is when founders don’t understand the complexity and effort required to build their technology. This tendency often leads to overpromising delivery timelines and revenue potential, resulting in disappointment among stakeholders. Guy stresses the necessity of realistic planning and diligent execution to avoid the pitfalls of overcommitment and subsequent under-delivery. Guy jokes, “Whenever a CEO tells me when something will ship and how much revenue will be generated, I add one year to the shipping date and divide it by 100.” Grant adds to this, suggesting, “I would say add a year, double the cost and half the revenue.”

How to win the AI race

To Guy, AI is a transformative force poised to revolutionise the world—a sentiment aligned with Tidal’s thesis. His belief in the transformative power of AI is unwavering, as he asserts, “I think that AI is a bigger deal than mobile phones, Internet, social media, personal computing.” This conviction stems from his extensive experience in the tech industry, where he has witnessed firsthand the profound impact of technological innovations. Amidst the growing impact of AI, Guy emphasises the importance of authenticity and substance, cautioning against the superficial use of AI as a buzzword. “Show me a company that isn’t using AI,” Guy challenges.

“If you’re saying you’re using AI, you better really be using AI in some significant way. You’re not just blowing smoke to increase the valuation of your company. I think when all the dust settles, you know, you cannot bullshit your way out of this.”

Grant, aligning with Guy’s perspective, recognises the increasing ubiquity of AI in everyday business operations. He acknowledges, “The really interesting thing is people are just generally starting to use it in their everyday business for everyday things.” This observation underscores the growing adoption of AI across various sectors, reflecting its expanding role in driving efficiency and innovation. However, Grant emphasises the importance of substance over rhetoric, echoing Guy’s sentiment that mere lip service to AI is insufficient. “You got to look at that and figure out that just saying the words AI is not going to buy you much longer,” Grant asserts. “Show what you’re actually doing with it as a product.”

Both Guy and Grant advocate for a pragmatic approach to AI adoption—one rooted in genuine innovation and tangible impact. Their insights highlight the need for founders and businesses to move beyond buzzwords and focus on delivering real value through AI-powered solutions. As the AI landscape continues to evolve, their guidance serves as a beacon for navigating the complexities of this transformative technology.

The key to navigating different market cycles

In navigating the ever-shifting market tides, seasoned tech veterans offer invaluable insights honed through weathering multiple market cycles, including the dot-com bubble, the global financial crisis (GFC), and the recent COVID-19 pandemic.

Grant talks about the enduring nature of successful journeys amidst fluctuating market cycles. Reflecting on the prolonged timelines inherent in building successful startups, Grant emphasises the futility of fixating on market cycles:

When you start businesses, you are often on potentially multi-decade journeys. So, worrying about where a market cycle is up is out of your control. What you do have control over is your product and your sales.

Guy agrees that market fluctuations are insignificant compared to the laser focus founders must maintain on their companies’ goals. “I don’t care if venture capital is up or down or startups are up or down. All an entrepreneur needs to care about is your company.” His perspective underscores the importance of prioritising your own company over external market forces, regardless of prevailing conditions.

Tips for founders pitching their startups

Guy’s mantra, the 10-20-30 rule, serves as a guiding light for startup pitches. It advocates for ten slides, twenty minutes, and a minimum font size of thirty points. Yet, beyond slide counts and font sizes, Guy addresses a common pitfall among founders: the tendency to ramble instead of delivering a concise pitch.

At the heart of Guy’s advice lies a sense of urgency. Founders, he insists, are not flying lumbering Airbus 380s with endless runways at their disposal; they’re strapped into F-16s hurtling off aircraft carriers, where every second counts. In this high-stakes environment, the opening moments of a pitch are make-or-break. “So that means in the first 15 seconds, explain what the hell you do,” Guy advises. “Because until you explain what the hell you do, nobody gives a shit about your world-class technology or world-class background”.

We’re passionate about backing founders who disrupt markets and build transformative products that shape the future. If you’re working on an ambitious product that has the potential to revolutionise industries, get in touch.

Being in the technology space for over 20+ years, I rarely get excited about the latest ‘tech’ cycle—I’ve found that they’re often more ‘novel-hype’ than substance. But the current wave of AI innovation is different.

I can’t overstate how quickly generative AI is materially changing the world around us and the way we interact with hardware and software. For those of us who witnessed the rise of the internet in the late ’90s or the ubiquity of mobile devices in the 2010s, you’ll likely agree that generative AI has accelerated with a much more meteoric ascent.

At Tidal Ventures, we use an ‘AI stack’ framework to structure our thinking and conversations. I’ll explain how we use it to frame our discussions around AI’s far-reaching investment implications, breaking down the layers that define this technology field and exploring their investment opportunities.

The AI stack

To effectively navigate the AI venture capital landscape, it’s crucial to understand the AI stack— which consists of three key layers: AI infrastructure, AI models, and AI applications.

AI infrastructure layer

At the base of the stack, you’ll find the infrastructure layer. This layer encompasses the essential hardware and cloud platforms that serve as the foundational building blocks upon which AI capabilities are constructed. It includes:

• Hardware infrastructure: Specialised accelerator chips optimised for model training and inference workloads.
• Cloud infrastructure: Comprising various cloud platforms that facilitate the large-scale computing required for AI-related operations.

AI models layer

The model layer plays a pivotal role in the AI landscape—these programs analyse datasets to find patterns and make predictions. The model layer encompasses:

1. Foundational models are large, pre-trained models that serve as the base. Technologies like Google’s Bard and Meta’s Llama are crucial in bridging the gap between raw computing power and practical AI applications.
2. Contextual models are trained on narrowed, industry-specific datasets. They are tailored to fulfil particular needs and act as the driving force behind various AI applications. Looks like BloombergGPT plans to do this for the finance world.
3. Local models are trained on localised, often proprietary datasets, further refining AI’s capabilities for specific applications. LifeLenz and PredictHQ are key proprietary data sets within our portfolio.

AI applications layer

The application layer is at the top of the AI stack, where companies develop AI products and services for end-users (think Chat-GPT). These applications utilise local, contextual, and/or foundational models to provide a wide range of AI-powered solutions.

Tidal Ventures’ AI investment mindset

Tidal believes that the expanding and ubiquitous nature of cloud computing has quietly propelled multiple waves of technological innovation. As cloud technology continues to gain widespread adoption and the cost of computing resources continues to decrease, a transformative shift will not only continue but is set to accelerate. This shift will fuel the rapid expansion of artificial intelligence across diverse industries and applications, impacting the products and systems we use today in our everyday lives, both at work and at home.

Our focus, like always, is to find the very best product, engineering and commercial operators who have identified globally significant problems to solve. We look to zero in on these opportunities, which we’ve seen within Australia’s vibrant, innovative environment and beyond.

At Tidal Ventures, we’ve been investing in predictive AI for the past eight years. Our current portfolio includes companies that are revolutionising various sectors through AI, including:

• BuildBetter: Automating and improving efficiency within workflows, providing insightful summaries, and enhancing product and customer operations.
• FrankieOne: Enabling contextual payment processing and real-time fraud monitoring crucial for regulatory compliance.
• Hone: Using their cloud-based Machine Learning and AI to enable farmers to make real-time decisions on grain segregation, optimising quality, and yield values.
• LifeLenz: Using their proprietary AI-powered forecasting model to establish a global benchmark in labour scheduling.
• PredictHQ: Leveraging proprietary data for improving economic value and enhancing services like Uber’s surge pricing.
• Search.io: Enhancing customer conversion through personalisation and transforming the e-commerce landscape.
• TheLoops: Providing SupportOps to improve customer experience and boost revenue, leading to customer delight.

LLMs

Today’s tech conversations seem to centre around large language models (LLMs). It looks like the obvious way an LLM would or wouldn’t win is by nailing their distribution model. Ultimately, we’re seeing the race to which LLM will be used at scale because the more an LLM is used, the more data it accumulates, which propels its self-learning cycle.

When viewing technology in terms of where we should be investing, new LLMs aren’t the clear choice due to their intense capital requirements and competitive environments. The LLM arms race has been underway for nearly a decade, and we don’t see a specific path to investing early-stage capital in this segment. The one area that may be compelling is the open-source LLM category, which, while early, is showing solid traction. In any case, we’re keeping a close eye on the downstream impacts of LLMs and how they may impact the other layers we are keen to invest in.

Contextual and local models

While LLMs seem to be in the spotlight, we’ve been focused on investment opportunities in contextual and local models. These models leverage rich, industry or topic-specific data and create value around that data while layering it on top of core LLMs. As you can imagine, the contextual relevance of these models is incredibly powerful within specific industries (like wealth management). Of course, you have to define the data set and then get the AI to learn from that data set to create a valuable output for an application or system.

When it comes to AI—primary data, while interesting, is just a ‘feed-source’ for the models. What actually matters is the value one creates around the primary data and then applies to specific situations. This can become incredibly valuable economically and productivity-wise for the end users, making it an intriguing investment area. Consider PredictHQ (from our Seed I fund); they own the world’s best predictive data models around how events impact certain businesses’ demand. These insights can then be used to power pricing systems, labour scheduling, stock ordering, etc. Prominent tech players such as Google, Facebook, and Amazon have built their entire organisation’s revenue models on collecting and optimising their systems to meet customers’ desired advertising outcomes. They have benefited enormously from this. These new contextual models have the potential to do that for all businesses, not just the ‘big tech’ platforms. All of a sudden, proprietary data sets are back in vogue.

Built-for-purpose applications

In the current landscape, the application layer of AI technology is a hotbed of activity. Many individuals and organisations are fervently exploring strategies to capture the attention of particular audiences and entice them to adopt applications that leverage the immense power of AI.

While there will always be a place for general-purpose applications like ChatGPT, StabilityAI, or Midjourney, the prevailing trajectory in the AI landscape is towards specialised solutions tailored to distinct sectors, categories, or teams. As such, we’re keeping a close eye on the emerging built-for-purpose products that utilise foundational models, potentially layer on their local or contextual data, and make them accessible through various applications.

AI in Australia

I recently sat down with Ryan Black, Head of Policy and Research at the Tech Council of Australia, to frame the local opportunity.

Ryan and I both agree that Australia’s power in the global AI ecosystem will undoubtedly lie in the application layer, particularly in generative AI. While it may not be at the forefront of developing foundational AI models or semiconductors, the country’s strengths in product and software development, cloud computing, and software as a service (SaaS) make it well-suited to harness AI’s potential for innovation and job creation—this emphasis on software-driven innovation positions Australia for success in the AI industry.

Companies like Atlassian and Canva have already begun leveraging AI, and Australia’s strengths in specific industries (like agriculture and hospitality) provide fertile ground for AI innovation. Australia’s journey in AI has the potential to entirely reshape the nation’s technology landscape and economy. The companies that are AI-first in their approach are particularly exciting, ushering in a promising era of innovation and growth in the Australian tech sector.

So whether you are a technology founder developing a product or an investor seeking to allocate capital, it’s imperative to consider how AI can substantially enhance products, services, and customer experience. Drawing on an impressive track record of investing in AI-based venture opportunities, Tidal Ventures is well-positioned to consistently identify and champion innovative ventures at the forefront of the AI revolution. Our unwavering confidence in the burgeoning technology landscape means we’re continually uncovering compelling opportunities within both the model and application layers.

We love nothing more than engaging on these topics within the broader business, investment, and technology communities. We believe that these discussions, debates and collaborations lead to some of the most exciting opportunities, so if there is something you’d like to discuss, please don’t be shy and reach out.

Get to know Tidal's Grant McCarthy

Which experiences have shaped you as a venture capital investor today?

I think working in the technology and product-led operating teams at Yahoo really opened my eyes to how digital businesses could be built, scaled and developed into profitable businesses. There was such big target audience we needed to attract, engage and retain, and that was a key challenge. The technology sector might have changed since the early 2000s, but the principles for growing core customer segments remains the same. I think having a broad set of experiences and accumulating knowledge in different technology market conditions has shaped my approach to venture capital investment significantly. It not just about identifying opportunities and allocating capital, it’s about building audiences into products, and that’s how we think when we invest in companies at Tidal.

What do you know now that you wish you knew when you first started as an investor?

I now have over 20 years of experience investing in and advising early-stage companies, and one of my earliest learnings was to take extra time in making decisions around thematic investments. We know that the venture capital market is about velocity and 'fast decisions', but to get real conviction at an early stage it takes research, patience, and time. There’s not always much information available to you as an early stage investor, so during interactions with a founder you have to form assumptions.

And even if what you learn is very appealing, you need to keep acquiring more information. Waiting for a clearer picture to emerge about a sector, founders, products and customers means our investment decisions and formed from strong convictions rather than just enthusiastic assumptions.

A great example is one of our Tidal portfolio companies Upflowy. Their ability to find product-market-fit is what was initially appealing, but by also seeing how they built their low-code product and gained early validation with customers, gave us both enormous confidence in their team and more certainty in our investment decision. Read Upflowy Investment Notes - here.

As a ‘seed stage' investor you have to be willing to wait for signals that prospective companies are finding market-fit and growing product proof points. In saying this, sometimes it is also purely about the founder and the vision in the right segment, but that’s the exception to the rule.

What was your most memorable first meeting with a founder?

In my first meeting with PredictHQ's Campbell Brown, he was pitching his new company to me while simultaneously sending a fax to sell his current business. Great founders never wait to solve a problem they truly care about and Campbell was a perfect example of this in action. His passion and drive was right on his sleeve, and this kind of energy and hustle is something we really look for in our Tidal Wavemakers. It was also quite memorable to see him using an actual fax machine to do business - surely one of the most important innovations in human communication (at the time)!

Advice to live by

While there’s much wisdom in the world, my top piece of advice is don’t use the past as a point of reference for the future.

What are you interested in that might surprise other people?

I’m an avid reader of European history, from the late 1800s to 20th century events like WWI and WWII. The geopolitical dynamics that led to these turning points in history are fascinating to learn about. For example, the end of the Czar dynasty in Russia might have been precipitated by successive defeats to Germany during WWI, but underneath it was also a nation desperate for change. The build-up of war with Japan, constitutional reforms that were not delivered on, and systemic poverty, ended up pushing Russia over the edge in 1917.

What new technology do you wish you could experience again for the first time?

Oh that’s easy: Bose noise cancelling headphones. They’re essential for getting through long flights and noisy commutes. There are a variety of noise cancelling options on the market nowadays but I have found the Bose to be the most effective for my sanity.

What advice do you live by?

While there’s much wisdom in the world, my top piece of advice is don’t use the past as a point of reference for the future. If Steve Jobs had just replicated the functions of a traditional phone, we would not have the iPhone. At the time, a handheld device with internet, apps, photos and video capability was revolutionary. The first car was not invented by thinking about how to make “faster horses”. Innovation is always forward-looking.

Market sentiment has officially changed.

Use your microscope and your telescope simultaneously in times of market uncertainty!

This will be the fourth 'tech cycle' for the Partner team at Tidal. We have invested during the Dotcom era, the Global Financial Crisis, and the short downturn in 2012. This cycle will no doubt be different for a variety of reasons including Covid, the great talent reshuffle, global supply chain issues, and a US inflation rate at a forty-year high.

The underlying message from the various investor notes issued to founders in the past few weeks is clear: for a time, capital has been abundant and cheap. Now it will become expensive, and harder to get.

It is important to note that for Australian start-ups looking to raise a Seed to Series A round in the current market, there is still an abundance of capital that has been committed from LPs to Venture Capital funds in the past twelve months. However, we expect that these funds will be deployed more slowly and carefully than the past three years.

This is a good thing, for founders and for investors. Founders that take the time to get to know their investors will benefit in the long term. It will also focus the funds across Australia into pragmatic and visionary founders that build products for true customer problems, in sectors ripe for disruption.

Insights from the US market

I have just returned from a two week US trip, where I visited both the East and West Coast, meeting with founders and investors. Here are my expectations and insights from the trip:

• The current revaluing of multi billion dollar technology assets will flow down from public markets and later stage startups to the Seed-Stage investment space. This will impact valuations and capital allocation across the venture capital sector at some point during this next cycle
• Entry valuations for Seed investments will likely be revised downwards. Founders may need to adjust the amount of capital they raise in order to retain acceptable levels of dilution for their Seed round
• Companies may need to raise their Seed capital over a series of investment rounds in order to prove product market fit, reach solid levels of revenue traction and demonstrate unit economic profitability before raising a Series A.

Leadership and culture is always important, but in times of market uncertainty it gets put under the microscope.

Takeaways for Seed Stage founders

• Live your values. Leadership and culture is always important, but in times of market uncertainty it gets put under the microscope. Your team is the lifeblood of your business. Lead with authenticity and empathy, hear the voice of your organisation and communicate effectively with your team. The mission and ethos of your product-building organisation lives on regardless of the ‘noise’ in the market.
• Get scrappy to fund growth. You can fund your business growth with capital or you can fund it with revenue. The cost of capital is going up, so act accordingly. In times like these, over-index on the growth drivers that generate cash in your business (pricing, packaging, growth hacks, product features).
• Unit Economics are key. One day, the value that your company creates for shareholders and your ability to fund further innovation will depend on your profit margin. The choices that you make today in the way you build your team, your product and your customer acquisition methods, will shape this future. Profitability is not a can to be kicked down the road, it is a key driver for startup success and now is the time to nail it. Hint: this is not about pinching costs, it’s about stealing market share from your competitors by building the best product and then cracking a low cost path to customer acquisition.
• Build the best product. Talk to your customers. They will tell you what they will or won’t spend money on. Make sure your product is a must-have for their business to thrive in a downturn. Make it easy for them to try your product, to integrate it into their daily usage, to share it with their colleagues. Create the feature that they can’t live without and entice them to upgrade. Stay true to your core and build with empathy for the user.
• Know your investors. Whether you are a venture backed startup already or are seeking your first round of funding - the quality of the relationship you have with your investors during this current market, and the collaboration you can share both ways - is critical. Don’t assume the next round of funding is just around the corner, be master of your own destiny.

Tidal looks through the lens of a telescope

Tidal is a Seed-Stage venture fund with long investment horizons. We remain excited about the opportunity to back founders that are in the earliest stages of building their product for global markets, with a view to profitable, sustainable growth.

We can’t profess to have a crystal ball and know what the next cycle will entail, but we do know that the greatest companies in history were created during a market downturn. Capital-constrained environments can produce the most innovative and transformative companies. Our investment team is actively seeking Australia’s best founders and we have ready capital to deploy from our Seed Fund II to support your Seed Phase.

If you're a visionary founder who is ready to make waves, please reach out via our website.

When you’re sitting on some really smart technology with loads of potential applications, what do you do? You choose one market vertical first, and focus on it. For Hone, it’s Agtech.

According to government and industry sources, Australia’s Agtech sector is predicted to be worth $100 billion by 2030, and companies like Hone are at the bleeding edge of this rapid growth.

We recently spoke to one of Hone’s founders, Antony Martin, and he revealed the team’s journey from necessity, through invention, to market identification. Here’s their story and how Tidal got involved.

Starting with the problem

Hone co-founders and scientists Antony Martin, Will Palmer and Jamie Flynn have known each other for years, and worked together at the Hunter Medical Research Institute (HMRI). It was while working together on a research project about biofuels, they found themselves out in a blistering hot field of sorghum, wishing there was an easier way to get the data they needed.

With months of sample processing and analysis ahead of them, including hundreds of lab hours, they came up with a part of the answer: let’s analyze the samples faster using spectroscopy.

A simple definition of spectroscopy is that it measures the interaction of light with the chemical make-up of samples. In practical terms, a spectrometer can quickly tell the difference in quality between different sorghum varieties. So the team hacked together a solution using off-the-shelf components, mathematics, and a unique methodology, and began processing their samples in record time.

It occurred to them that if it could do that for sorghum, it could do that for other crops as well. And so Hone started.

From faster labs to field tech

One of their early customers was a rice breeding institute in the Philippines. In two weeks, the team had processed 60,000 test results and provided data that would have taken years for the institute to get processed manually. Not satisfied with just fast processing, the team set about making a device to collect data on the spot, from the crop, soil and grain, cutting out the lab altogether.

That’s where things really changed for Hone. From scientists using technology, they became technology builders themselves and sought backing for their ideas.

Tidal entered the picture after a few smaller and one larger angel investor had already taken the lead. It was through one of the angel contacts at the HMRI, that Grant McCarthy was introduced to Hone and the relationship began.

From tech builders to company builders

While not an inexperienced team by the time Tidal came on board as investors, Hone was ready to go from a science tech business to a growth company. “They came in and worked with us on the foundations of the business, particularly on the commercial side and the go to market strategy”. Both Grant and Wendell Keuneman were involved in the early days, “getting their hands dirty and helping out with pricing, identifying customers and really working out who we were trying to serve.”

Hone’s technology can be adapted for use in multiple industries, and they started out with a wide testing field. “I think that there was definitely a sort of aha moment there where it was like, this is not scalable to try and develop every application under the sun.”

Knowing they had to focus, Tidal helped them narrow in on the AgTech vertical before scaling into others. “Wendell, especially, helped us set up our processes around software teams and how we deliver products.”

They called him the “whiteboard warrior” and many sessions were held to discuss “how we were structuring things, how we were thinking about the business, and how to scale the team up.”

The learning and commercial curve

“People tell you stories about VCs”, Antony says. “They say be careful who you bring on. But we have always found Tidal very supportive. They really understand what we're going through. They've seen it all before and have the best intentions to help us get to the next level.”

Hone is currently emerging from what Antony describes as an engineering and R&D  phase, to a new commercial phase. And Grant is a “wealth of knowledge when it comes to that.” Apart from sitting on the board, he has been “pulled into offsite planning sessions, advising on the business roadmap, the org structure, capabilities, and culture.”

“Learning and doing well at the same time is hard”, Antony remarks. “We’ve got to learn fast while building up the commercial side of the business.” Since coming on board, Grant and Wendell have “always been there to advise on the strategic direction of the business.”

When asked about the learning curve, Antony responded, “we thrive on the process of learning. We want to operate in a mode of constant reflection and constant learning, so that we constantly improve.”

No limit to scale

The selection of Agtech as the focus vertical is meaningful to Antony and his team. And the focus on primary crop data is significant. “Primary data inputs are a rare commodity in agriculture and really help the farmer maximize the productivity of their crop and their land.”

It’s the same with VCs. Choose one that helps you achieve your primary goal. Or in Antony’s words, “if you’re going to get in bed with a VC, choose someone who's there to support you and the business, and help you through all the difficult things. Find one focused on founders, rather than just providing money.”

By honing in on their primary market, Hone is on track to develop countless other applications for their tech. Starting with the whole farming lifecycle and encompassing soil health, regenerative agriculture, carbon offset measurements, and moving into food and beverage testing, environmental monitoring, medical testing and more. Antony is excited about the possibilities, “I think if we can just nail it with one key vertical, the sky's the limit.”

When I talked with Drive Yello co-founder and CEO Steve Fanale for this interview, he was in a car, driving towards Canberra. I mean, he was the passenger, but it still somehow seemed appropriate to be talking about his company while he was on the move.

Drive Yello is a bit different to other startups. They are a platform connecting retailers to a gig driver network. Their network of drivers delivers to consumers on behalf of their customer base of major retailers, connected through Drive Yello's intelligent product layer. The Australian economy was protected somewhat during the pandemic because of a strong supply chain, so Drive Yello did well, delivering grocery and convenience items to locked down retail consumers.

More than just a convenience service business, however, Steve describes changing customer behaviour in the last few years. “Retailers like Amazon are innovating in this area, and Australia is still a bit behind. But we’re catching up, now that consumer behaviour has changed and retailers are finally getting systems in place to meet the demand.”

Solving a simple problem is a great start

The business value proposition is simple: help retailers get products to their customers. Starting with restaurant delivery through Menulog and then later cracking the retail sector with major players Woolworths and BWS, Drive Yello has always had its sights on national market presence. But the road was sometimes rocky.

Like many startups, building on a central idea or technology is one thing, but building a business requires scale and market reach, which is a whole other thing. With Steve Fanale at the helm, Drive Yello was always going to get the best shot possible.

“I'm a problem-solver and a product guy,” says Steve. “I’ve got a business background and I studied commerce and marketing at Uni, and I have worn many hats.” Versatility has been a key driver of business growth and for weathering the many challenges of being a gig economy-reliant business.

The solution is not always simple

Gig-economy businesses have challenges that are unique. Steve notes that one of the biggest ones is a lack of “real clarity around a gig economy worker from a legal perspective.” It’s hard, he says, to “come up with a model that is valid”, but adds that “the gig economy is not going anywhere and it’s a matter of making it work in terms of the legislation and policies around work models. To get the network effect, you also need scale and critical mass.”

The challenges don’t stop there, with the capital intensive nature of gig-economy businesses and historical scarcity of funding in Australia. “You can grow organically with most businesses to a point of profitability, whereas in a gig economy business, it's all about scale and you can't achieve that scale without funding.” At times just scraping by, Steve says Tidal’s support has been invaluable to gaining the momentum to to turn the corner and scale.

When an investment injection came at around the same time as securing some major new retail clients and the arrival of the pandemic, Drive Yello was poised to boom.

A long history and a more recent connection

Steve has known Tidal’s Grant McCarthy for over 20 years, through Steve’s previous businesses and around the once relatively small Australian startup sector. But back in 2016, Grant reached out to Steve and suggested an investment partnership. He saw the potential in Drive Yello and Steve’s vision, and wanted to invest.

“We're pretty good at separating our friendship and commercial relationship. We’re quite open with each other, and pretty direct, which means we are transparent on both levels.” He goes on to say that “Grant's been a sounding board and a personal support, as well as a funding support.” Through some tough times in late 2019, Steve explains how Grant was there through some of the hardest business decisions.

“He's probably the main person I go to when making a decision on strategy and direction. Whether we're considering mergers or being acquired or acquiring, or thinking about new product opportunities.” Grant is there, even as Steve is looking ahead to the next move.

The calm voice in the storm

Among a number of anecdotes about working with Tidal, Steve mentioned the “calm voice” and solid support of Wendell Keuneman when it comes to product strategy, senior hiring and technology decisions.

Wendell has been “a great sounding board from a product strategy perspective, offering advice and helping to hire a VP of engineering.” Accustomed to wearing multiple hats and juggling strategic, tactical and technical problems, Steve welcomed the expertise on product direction and building technical teams. “I know that our CTO has reached out [to Wendell] and I know he's always there if we need to help enhance from that perspective.”

Being a CEO can be a lonely gig. “If you haven't done it, it's hard to relate to how tough it is, particularly when you're dealing with people.  It's not just about the numbers, it’s people's lives and when there's tough times and you have to let people go, or when there's a conflict on a human resource level, that affects you personally as well." External support can be critical at these times.

Not just cash, but connections

When I asked Steve what he looked for in an investor, he said “cash is good, but it's really important that you get along, and you feel that they are going to contribute to your business beyond just the money.”

The relationship between co-founders, he says, “is like being in a marriage and so is the relationship with an investor and an entrepreneur. You’ve got to think about what the relationship looks like in one year, two years, three years time, because you're going to be hanging out together pretty closely.”

The other thing to look for is connections and a strong network. You want your investor to connect you to people who can help your business beyond what it does now. “Grant's been heavily involved in introducing us to a range of people that can assist us and also support what we need to do next."

Tidal has also got “good experience across the board that they can bring to the table and any situation; whether that be a funding scenario, a growth scenario, or going international. There’s plenty of things that they can get involved in beyond just funding.”

When it comes to investors, Steve says, it’s part of his due diligence to check out the nature of the investor. “You don't want everyone to be hands-on and you don't want everyone to be passive. It's good to have an investor that can actually assist in the business and help us grow, and luckily I’ve got that with Tidal.”

Growing with greater clarity

Steve describes the business as having a clear north star. A clarity of mission that has really only solidified in recent times. “The maturity of the business around our values and our mission has evolved over the last 12 months. That’s been the ‘aha’ moment if I had to sum it up. We’re more confident now in what we’ve achieved. We know what we offer the market and having that real clarity will enable us to grow to another level.”

The next step for Drive Yello is to partner internationally and break into new markets. With the confidence in decision making and the strategic steers provided by Tidal and other investors, Steve is looking to the future. When I ask if he would do anything differently, he thinks for a moment and then answers that it's very easy to look back in hindsight, but “if I look at every decision that we made, we thought we made the best decision at the time.” Words that are true for all of us.

Renewtrak is a platform for lifting the conversion rate of renewals for technology providers. It digitally automates the end-to-end logistics of renewals from quote to payment, including sales, pricing, billing, and commission constructs.

The Tidal team recently made an investment into Renewtrak, and we're publishing our investment notes below. We invest across a range of markets, models, and products. There are core principles that we live and die by in our investment decisions. For more information on the pillars that make a great Tidal Seed Investment, see how we invest here.

Markets with tailwinds

The market for technology is enormous - there is US$5.2T (yes, trillion) in global indirect technology spend per year. It is also growing rapidly. As technology investors, we have deep conviction that technology will continue to 'eat the world' and take a larger share of organisational spend globally.

Renewals are a significant component of this revenue pool, estimated at US$260B per year, across ~3,500 software and hardware vendors and ~140,000 channel partners and resellers globally. This revenue pool is expected to rapidly accelerate, as technology businesses continue to transition away from one-time sales, towards annualised recurring 'as-a-service' business models, which are highly valued for their predictability and customer loyalty.

Recurring renewal revenues

While renewals from existing customers are critical to margins, profitability, and customer retention, they are poorly served.

Hardware and software vendors can expect to lose between 15-50% of their renewal opportunities because the end customer is not even aware their product or service is due for renewal

Renewals often do not receive the same degree of organisational focus, talent, and resources as new sales, and renewal processes are plagued by manual processes, legacy technology, disparate and low-quality data, complex pricing structures, and poor transactional experiences. The intermediated relationships between technology vendors (OEM's), resellers (channel partners), and end customers make this challenge even more acute, creating a lack of ownership and responsibility for the renewal experience.

Products that change the game

Enter Renewtrak - a workflow automation solution for renewal transactions, with a vision to help the global technology industry to move towards a subscription revenue model. Renewtrak's platform does the heavy lifting of ingesting and consolidating data across the vendor, channel partner, and customer, and managing the renewal process from end to end. The product digitally automates the logistics of renewals from quote to payment, including sales, pricing, billing, and commission constructs.

For technology vendors and distributors, this is game-changing - driving additional recurring revenues by quoting and converting more renewal opportunities, reducing the time and expense involved in renewals, adding organisational control and oversight of transactions, and deepening customer relationships through improved data and payments experiences.

A team that hustles

The Renewtrak team has a strong pedigree in financial services, with payments and workflow simplification embedded in their DNA. The team is led by CEO Mathew Cagney, supported by CTO Andrew Duckworth, CPO Alex Wood, and CCO Paul Dunn, and with active involvement from Chairman Michael Twaits. We have engaged closely with the leadership team closely over the past 12 months as they have driven Renewtrak towards the strong position it is in today, and we are confident that they are fully equipped to scale.

A compelling business model

Renewtrak is focused on accessing a vendor's 'renewals under management' (RUM) to quote and automate. Renewtrak earns subscription revenues for consolidating the customer data and managing the renewals workflows, and consumption revenues through fees applied for success in improving customers' renewal conversion rates.

The model provides for a strong 'land and expand' story. For a given vendor, the RUM accessible to Renewtrak depends on the geography, product type, renewal channel, and value of the renewal. If Renewtrak can demonstrate value by improving renewals revenues, vendors may then choose to apply Renewtrak to additional pools of RUM by expanding product use across more geographies, product types, and renewal thresholds. By connecting both vendors and distributors to customers, there is also the potential for vendors to roll out Renewtrak across additional distributor relationships, and for distributors to recommend Renewtrak to their broader stable of vendors.

Our thesis: Renewtrak has the potential to enjoy powerful network effects by demonstrating value through its core renewals product, then enabling core services to be offered through its 'platform' connecting vendors, distributors and customers, and then opening up that platform to third-party service providers across the technology category, creating an ecosystem.

The Seed Phase

The team at Renewtrak is squarely in its Seed Phase. They have built a powerful platform for renewals automation, landed major technology customers including HP, Lenovo, VMWare, and rolled out the product in over 40 countries. Near-term, the focus is on demonstrating continuing improvement in customers' renewal conversion rates while accessing a growing pool of RUM from customers as the platform is rolled out across additional geographies, product lines, and renewal thresholds.

A note on the workflow automation thematic

Tidal is actively investing behind businesses that help automate important organisational workflows, spanning customer engagement (Upflowy), and transactional processes (FrankieOne) to date. With technology driving continued improvements in customer experience, businesses are being challenged to leverage automation technology to improve workforce productivity, data and analytics capabilities, customer engagement processes, and payments offerings. This can unlock more personalised and better supported product offerings, and deeper customer relationships. Renewtrak is one of many tools we see emerging in this space.

We look forward to continuing to support the Renewtrak team as they build out the product, grow the team, and support their customers to generate more recurring revenues. If you're a visionary founder who is ready to make waves, please reach out via our website.

Thanks to Max Kausman and Evelyn Zhang for help in drafting this post.

FrankieOne provides customers with a single API to better manage KYC/AML and Fraud. Its integrated platform delivers a unified view of end customers and unlocks data-led decision-making and workflow automation for compliance, operations, audit, and risk.

FrankieOne (or just "Frankie") recently announced a A$20 million Series A round co-led by US VC fund Greycroft and Sydney-based Airtree Ventures, with participation from Harry Stebbing's 20VC in the UK, Reinventure, Mantis Ventures in the US, high profile executives from global Fintechs such as Robinhood and Public, and follow-on investment from Tidal and other existing investors. This brings the company's total funding to just under $23 million.

Frankie's announcement comes one week after one of its competitors, Alloy, announced a US$100 million Series C round at a whopping US$1.35 billion valuation, suggesting this is a hot sector to be backing right now. But what did we know at the time we invested in the Early Seed round two-and-a half years ago? Let's take a look at how our investment thesis from May 2019 has stood up against the world we know today.

Markets with tailwinds

FrankieOne capitalizes on a data integration & orchestration opportunity within the financial services sector. Existing point solutions are often decentralized, requiring multiple integrations (and in some cases, they completely fail to integrate with legacy systems), and provide poor visibility of the customer to financial service providers....and a broken user experience to boot.

And yet, KYC ("Know Your Customer"), AML ("Anti-Money Laundering") and Fraud prevention solutions are mission critical when onboarding new customers and monitoring BAU transactions. The cost of not having adequate tooling and protection can be hugely material to a financial services provider in terms of cyber fraud, as well as revenue left on the table.

We have seen this act play out in a material way in the consumer services sector when Twilio (and similar service providers) saw adoption at scale to provide non-core capabilities to customer tech stacks.

Our thesis: With the build out of open banking and digitally native financial services companies, there is a huge opportunity for the emergence of an automated aggregator for critical services that feed into these banking stacks. The first wave of this is KYC, AML, Identity Verification and Transaction Monitoring.

Products that change the game

Frankie connects compliance and risk data sources to a single API that unifies how its customer base (which includes the likes of Westpac, AfterPay, crypto exchanges, utility companies, wealth management platforms, lending institutions etc.) onboard and monitor their customers, meeting global regulatory requirements.

Frankie's product currency (how it is directly attributable to a measurable outcome for its customer) is two-fold:

(1) A higher "pass-through rate" (the % of new customers that are verified & approved for onboarding) that it delivers by leveraging hundreds of data sources and utilizing its intelligent decision engine to solve for missing information across multiple sources → this increases revenue for the customer and saves the cost and complexity that accompanies manual intervention.

(2) A unified view of consumers at the end customer level (not by product, for example), delivering a better onboarding experience to consumers and a more secure means of ongoing monitoring → this improves consumer satisfaction & retention, and eliminates the multi-step process currently undertaken to stitch together a holistic view of an end customer (e.g. the customers of a bank).

Founders that hustle

Two key attributes we look for in founders are (1) whether they have a unique insight or experience with the problem space they’re trying to solve, and (2) whether they employ a data-driven approach to building a business (how they assess the market opportunity, acquire customers and establish a test & iteration culture).

On the first point, co-founders Simon Costello and Aaron Chipper were FrankieOne’s first customers. Let me explain this circular reference — Simon’s journey with Frankie began with him building the foundations of a neobank (branded “Frankie”) for the Australian market in 2018.

It was during this process that Simon & Aaron experienced a lack of plug & play solution to conduct KYC and AML for new customers. Even when building a financial services company from the ground up — one that would not be encumbered by legacy systems (in comparison to a large Australian bank, for example) — they could not find a solution that delivered what they wanted. There were individual data sources to connect to, but doing so left revenue on the table and did not help deliver an amazing experience to the end customer (an absolute must for any new consumer product focused on Millenials). Simon even delved into the business banking sector only to realize the same applied to KYB (“Know Your Business”) — the industry was stiffened by legacy systems and manual processes (KYB is now a fast-growing component of FrankieOne's product suite).

This leads me to the second point. I believe it was back in 2016, while Simon was still at the helm of a fast-growing Fintech in SE Asia, that he flew to Sydney for a conference to begin his market research on the emerging Fintech landscape in Australia. Having previously lived in the UK, he'd seen the rise of digital challenger banks such as Monzo and I'll never forget Simon sending me the link to its crowdfunding page (I note Monzo is now valued north of A$2 billion!). When Simon moved back to Australia with his vision in mind, I watched him meticulously conduct market studies with carefully crafted user groups to identify exactly where the pain points persisted.

Simon's decision to pull the launch of Frankie, in exchange for the RegTech version of the business we know it to be today, was not one taken lightly — the legals had been finalized, the wireframes for the consumer app built and commitments secured for a large angel round...but it wasn't the multi-billion dollar global opportunity he saw with FrankieOne. Simon's ability to put pens down at the final hour was supported by his data-driven approach to decision making and only served to build even more confidence with investors in his execution capabilities when he came back to fundraise for FrankieOne.

We backed FrankieOne at the earliest stage of Seed, when it was pre-launch. We had huge conviction in the market but it’s fair to say we put our chips on Simon & Aaron, founders with a clear vision and the discipline to truly test the market and iterate.

Seed: landing a compelling business model and strong product-market-fit

Frankie's Seed Phase comprised two rounds — the first was pre-launch and the second was just as the company was going live with its first handful of customers.

One of Frankie's first tasks was determining the best pricing model for the business and its customers. Frankie went to market with a SaaS consumption model — customers are charged a SaaS fee that gives them access to Frankie's software in addition to a transaction fee charged for each API call (which equates to product usage, across any of: KYC, AML, KYB, IDV and new products to come). The transaction fee (or consumption-based component) cost per unit varies by product and the volume of usage.

In terms of achieving PMF, one of Frankie's most compelling attributes has been the inbound nature of its customer base. The team acquired its first +50 customers through inbound leads and referrals → a clear indication that people were proactively searching for a solution to a problem they were facing. In order to facilitate this flywheel, the company launched a website with crystal clear messaging around its core capabilities and the problem it solved. The team also focused on 'landing' with one product (e.g. KYC) as the likelihood that a customer would expand to another product (e.g. AML) was high once Frankie earned a customer's trust. This simplified GTM messaging reduced complexity in the sales pitch as well as made the decision-making process for the customer a lot more straightforward (vis-a-vis selling a suite of products upfront).

Series A: a scalable GTM model and a defensible moat

In order to build next-round investor confidence that Frankie was positioned for scale by the time it launched its Series A round, we workshopped a list of prioritized 'Series A proof points' to help focus resources & time. The team was exceptional at systematically ticking these off one by one over the 12 months that followed.

A big question thrown around during white boarding sessions was "how can Frankie get its customers up and running quicker". This was especially relevant for start-up and mid-market customer segments. Frankie released a Stripe-like widget enabling customers to create their own customized onboarding flows with only a couple lines of code, auto-populating personalized screens that would otherwise have taken weeks to build.

Frankie also focused on shortening the TTV ("time-to-value") for its customers by rolling out Smart UI onboarding screens for its end customers, which improved usability and resulted in a much timelier increase in the pass-through rate for Frankie's customer.

To overseas markets and beyond

To date, FrankieOne has focused its GTM efforts on Australia but this hasn't stopped it from generating > 40% of its revenue from international markets. For starters, some of Frankie's largest customers, acquired in Australia, have pulled the company into overseas markets in which they operate, based on the clear product currency delivered by Frankie on domestic soil. The company also landed Zipmex, a fast-growing cryptocurrency exchange based in Southeast Asia. Frankie has connected data sources in more than 46 countries (and counting), setting the stage for further global domination.

A big part of this next phase in the company's growth will be to proactively enter key geographical markets. One of the core differentiators between Frankie and its competitors around the globe stems from the conscious approach it took on Day One, to address a breadth of customer by vertical and size, ensuring compliance with the largest of banks down to the smallest of Fintech startups.

A note on the Fintech infrastructure thematic

The definition of a Financial Services Provider is evolving to include almost anyone as the demonstrated acceleration of embedded finance reshapes the financial services industry (noting embedded finance is projected to grow by 922% between 2020 and 2025). We talk about the non-core (but mission critical) element of KYC/AML and Fraud Monitoring across Frankie's existing customer base — the dynamic of this relationship only intensifies when you extend Frankie's applicability to any company with an embedded finance offering, where the core focus of the tech stack could be on travel or e-commerce, sitting well outside the realm of financial technology.

Payment services was the first to be embedded, though we have now seen the layering in of more complex capabilities (e.g. FX, lending and insurance) into the tech stacks of embedded finance providers alike.

Frankie becomes a required addition to the primary embedded financial service into the tech stack of non-financial products.

It is the growth of embedded finance up until today that has fueled the proliferation of Fintech giants like Stripe and Square and is poised to have a multiplier effect on the success of companies like FrankieOne.

We look forward to continuing to support the FrankieOne team. If you're a visionary founder who is ready to make waves, please reach out via our website.