Matt Allen: When I open up my conversations with founders, which happens every day, is like, let's just start. What is the problem you solve and for who? You need to remind yourself that you're really shit at most things. Unless you're a big scale, Adjacencies can be the death of an early business.
[Voiceover]: Welcome to ADD to Cart, Australia's leading e commerce podcast that express delivers all you need to know in the fast moving world of online retail. Every week, Nathan Bush from E Suite and an e commerce industry expert will share the news, research and insights that you need to know to keep you at the top of your game and of course, keep your customers Adding to Cart.
Nathan Bush: Hello and welcome to Add to Cart. My name is Nathan Bush, host of Add to Cart and Director at E Commerce talent agency E Suite. With the E Commerce Covid boom, there's no doubt that we've seen more venture capital, private equity, angel investors and rich uncles coming out of the woodwork looking for a slice of that E commerce pie, which no doubt is overwhelming and confusing for those trying to understand whether additional capital is the right path for their business. So I was fascinated to hear of the Tractor Ventures approach. If you haven't heard of them, Tractor Ventures do revenue based finance. That means that they can provide capital in return for payback with interest. Once you start generating the returns from the investment, it means that the founders don't have to give away big chunks of equity to unlock growth, which a lot of founders are looking for. They've already got e commerce leaders such as Kate Morris from adore Beauty, Ed McManus from Deliveroo, and Rob Ward from Quadlock involved in the fund. So there's some really great e commerce brands behind it. Joining me today is Tractor Ventures CEO Matt Allen. In this episode, we cover exactly how the Tractor Venture investment model works and the types of businesses it is most suited to. We also dive into Matt's observations around how male and female founded businesses differ, which is fascinating. We hear about two Shopify apps that Tractor Ventures are already backing. And we hear why Matt thinks moves like Afterpay's $39 billion acquisition will lead to non linear growth for the Australian innovation sector. So there's a lot to cover there, right? Thanks to our partners, Shopify plus and Signet. Here's our conversation with Matt Allen from Tractor Ventures. Matt Allen, welcome to ADD to cart.
Matt Allen: Thanks for having me.
Nathan Bush: No worries. I feel like I know you from following you on Twitter. You've got an awesome Twitter stream.
Matt Allen: You're not the first person to say that. Thank you it's not that I do it on purpose. It's weird. My team gives me shit now because I think in tweets, which is weird, 280 characters. I guess I've been doing it for a long time. Early adopter just seems to be the way I get stuff out there.
Nathan Bush: What do you get out of it?
Matt Allen: It's really weird because a bunch of my mates who are investors like do you do any work or do you just tweet all day long? And I'm just like, well, I did raise my entire fund without going to see anybody. I guess what I get out of it is I do like to conversations with founders. I get a lot of deal flow out of it actually. I get a lot of people DMing me asking me questions that quite often I try and talk about things that may not be spoken about in public very often, especially when it comes to capital raising and startups and stuff like that. So I feel like I try and my curiosity and hopefully adding some value to some people.
Nathan Bush: Yeah, I feel like it's a bad reputation but you can actually develop some really meaningful relationships that almost mimic real world relationships on there.
Matt Allen: Yeah, it's funny, as I said, a few of my other teams like, oh yeah, Matt, I haven't actually met him, but I do feel like I know him and I guess, I guess that's. I don't censor very much. Like I'm. It's pretty much me, like I'm pretty positive guy. I don't generally say or do much that doesn't sort of turn up there. So it just is.
Nathan Bush: Love it. No, it's good stuff. Now we're going to get into Tractor Ventures and I'm sure everyone's very curious around Tractor Ventures. But what caught my eye in doing research was the very first thing that you see on the website when you first load up the page and they're in big bold words is not all ambitious founders need venture capital.
Nathan Bush: What do you mean by that?
Matt Allen: We built Tractor because I've met so many founders in my time and my, my last job I had was on the startup and venture capital team at Amazon Web Services and I met so many founders mostly because I had $100,000 worth of cloud credits to give to them so I could talk to anybody I felt like. And it turns out that I met so many founders who were just building amazing businesses without vc. There's kind of two reasons that sometimes their business is not compatible with VC and sometimes they just chose not to do that. And as time trundles on. And more and more founders have been exposed to a VC backed company, have worked in one, had one or whatever. They're being actual, having conscious choice. So traditionally you're building a tech startup. What do you do? You've got to put some money in this thing. How do you do that? You sold some shares to some people. They come with expectations around growth and therefore that's how you do it. Sell a share, use that dollar to grow the business so that you can sell some more shares to get some more dollars to grow the business. Which is fine. I mean, I'm an LP in several funds, I'm an angel investor that requires VC for those things to be successful. However, it's not the only way. But until recently it's been. Sell your shares to some investors or run entirely out of customer revenue. Now there's more ways to get capital in which is not about selling shares to investors, it's about basically financing or funding that is non dilutive. That doesn't take away the future upside of your business from you. It'll cost you some money. Now you either pay for it now or you pay for it later. And I think ambitious founders, the best ones, realize that, yeah, I'm selling a share today and I am giving that value to someone else, but I'm going to drive a bunch of value for me. But it doesn't have to be that way. It may be that I don't need to include anyone else if I don't want to, so I can sort of retain it all for myself, which is not, you know, both extremes aren't necessarily the best place to be. I actually think there's a blend.
Nathan Bush: Yeah, gotcha. So talk us through. What does the typical deal look like for Tractor Ventures then?
Matt Allen: Yeah, so Tractor Ventures is all about founders that have revenue running through their business. Really important. So we do revenue based finance, which basically means take your monthly revenue, times it by three and we can lend you that amount of money and you pay it back via a 5% top line revenue share. So as your company grows, the 5% is static, but the number obviously gets bigger as you grow. And if you have down months, the payment goes down with it. It gave up months, it goes up with it and that's the sort of the risk we take. And you continue paying that 5% until you pay the loan back plus some interest. And that interest, it'll be sort of 1.3 to 2 times the amount of money lended and it'll take 2 to 3 years. But the important part is that 5% top line rev share is really easy to model and it's really quite good on cash flow. It means you get 95% of every dollar that comes in to spend on running your company. And that little sliver comes out to us.
Nathan Bush: Yeah, nice.
Matt Allen: And if it turns out that your growth slows right down and that's the risk we take, it's just that 5%, if it turns out to be small, then that's our risk. 50 grand a month minimum. However it scales all the way up, we've got a few loans out at the moment that are heading towards the millions. There's two general archetypes of founders. There's bootstrap founders who just don't want to include anybody, and then there's founders who have got other investors with angels or so forth and they want to raise some more money, but they don't do it yet. So they want to continue driving their business. Because as we know, valuations on tech companies are generally a multiple of ARR. So the more you can push it up, the higher the multiple goes up and the fewer shares you'd have to sell to in more capital. So we're here to help founders retain more of their company for longer. So they're the two situations and the two shapes of businesses and founders that we generally deal with.
Nathan Bush: I love that concept about founders retaining their value in the organization that they've built. Is this a model that's new to Australia?
Matt Allen: Yeah. There's not too many. There's a few other people out there doing it and there's a few more and more things like MCAs, merchant cash advances, which as your E commerce folks have probably seen. ClearBank, PayPal Square, all these guys are, well, it's a very similar deal. You know, they say, oh, we don't charge you interest, we charge you a fee. The fee just happens to be a percentage, which happens. And you'll pay a bit back. You can reverse engineer it. It's always, you know, you can always reverse engineer it, but it's the same sort of deal. It's like, cool, we understand your business, we understand it's growing. We're able to sort of pull forward some of your revenue so that you can invest in your business and make grow faster.
Nathan Bush: Think Shopify plus is just for simple retailers. Well, let me tell you, JB hi Fi is no simple business. But when their old site crashed for two hours during Black Friday, doing nothing was simply not an option. Shopify plus was selected as their E commerce partner to help facilitate the fast growing $5 billion retailer. However, with over 200 dispatch locations, a reliance on a web of APIs, and the ability to handle triple growth, it wasn't an out of the box implementation, but the results spoke for themselves. JB hi Fi cruised through a record Black Friday and Cyber Monday in 2019 without a hitch, have reduced average page load time by 15% and were even able to redeploy three techies whose job it was just to watch the servers to make sure it didn't go down. JB hi Fi and Shopify plus not just smashing Prices, but smashing E Commerce to read more of JB hi Fi story and see other case studies, visit the customer section on shopify.com au+
Matt Allen: are
Nathan Bush: you working with any E commerce businesses at the moment?
Matt Allen: We have a couple of Shopify plugins which is really cool. So sort of behind the scenes. Do we have any E commerce businesses? Not yet, although there's a couple in the wings, a couple of beauty products and a couple of things. In reality, the capital for them will be used for a couple of things which is maybe pulling forward some stocks so they can get ahead of their growth curves and not run out. As you know, E commerce being out of stock is a bad idea. People will just go somewhere else. And the second one is using some of that capital to acquire customers in E commerce as it is with any modern business. If you can really dial in your metrics and you know what your CAC is and you know what your LTV is and you know what your return is, how quickly it takes to pay back an acquisition, that's the real time you want to if you've got them dialed in. Well, that's the real time you want to sort of. You can use finance because if I sell you a dollar for a dollar fifty but you can make three bucks off it, then you're ahead of the game. Right. And that's really the mass that founders would want to be doing. And E commerce is certainly in a high volume E commerce one is it's as you said, it's cash flow business. How do you make sure you've got the right cash flow, got the right shape of capital? And for us, because we actually do work with the teams after they borrow some money off us, you have the right people around you to help you support that growth.
Nathan Bush: Yeah. And when you're looking at e commerce businesses, sounds like you're assessing a couple at the moment. What are the key metrics that you're looking at over a period of years to assess whether It's a viable business.
Matt Allen: Interesting enough because we look at top line revolution like really it's top line revenues, 5% of that. So margins are super important because obviously if we're going to take 5% off the top, if you're running 10% gross margin that's going to hurt. That's 50% of your free flowing cash which is like we wouldn't be able to help someone in that situation. But as you know, hopefully most EE Commerce and DTC businesses especially on a unit metric per sale they've got high gross margins. It's really important. On the non E commerce stuff it's all about customer concentration risk which is not generally a problem with, with E Commerce usually there's lots and lots of customers. Repeat purchasing, I mean your LTV is something that's really interesting. Acquiring a customer once is expensive but as soon as they buy twice it's half as much. And if you can drive that machine the time to second purchase and that kind of stuff is such an important metric to be able to for every week you can bring that forward. The impact it has on the whole machine is super impactful.
Nathan Bush: Right. And what's your take on lifetime value? Because there's so many different ways to calculate and we've been through this with a couple, couple of guests on the show before and got different answers which is great. Do you try and keep it a really simple formula or do you have some complex way of working out lifetime value of customers?
Matt Allen: To be honest, we don't even really have a formula because there's, you know, there's so many different ways to do it. You know it's interesting when you look in lock into people's, you know, stripe accounts and stuff where they obviously are using all kinds of signals to determine whether that customer is still a going concern. Bit easier when you've got month to month subscriptions and churn, you know, you can really tell where they've churned and I think in E commerce because tightly coupled to how long the product lasts for.
Nathan Bush: Right.
Matt Allen: If you're in a beauty thing where you're buying stuff that's got a 12 month lifespan but you churn through it every three months because you're using it every day, then how do you determine whether they're coming back? If you've got Omnichannel, how do you know if they're not buying from Priceline versus D2C? It's just complex.
Nathan Bush: It is complex. And speaking of beauty, you've recently had some big E commerce names, you know, join up and contribute to the tractor fund. Kate Morris from adore Beauty, Ed McManus from Deliveroo. What's it been like working with those guys?
Matt Allen: Yeah, really good. Kate's just came in in this last round along with Rob from Quadlock as well, who is a bit of an E commerce genius. And Ed from Deliveroo has been with us from the beginning. So I love these. I love these folks. You know, Kate obviously bootstrapped her company for a long time and sort of skipped over the whole venture capital thing. Went from bootstrapped with a slight deviation to selling a chunk to Woolies to buying it back again to private equity. I think that's really interesting from the Bootstrapper's perspective, which is if you're going to skip venture, which because your business isn't compatible with it or you don't want to do it, what's at the other end? Is it just a business you love running that prints money? How do you get some of that value out as a founder? There is more and more private equity companies coming down stack, allowing founders to realize some of that value they've created in a business and some of them even just keep running the thing. It's great having those people around, great having that experience for us to talk to where some of our founders who are accelerating quickly are sort of starting to ask questions who are like, I don't know, but let me just call Kate, Rob, Ed, some of these super experienced founders who are there and there's plenty more back there as well. You know, Alex from Linktree is one of the fastest growing companies in Australia, if not the world. And a bunch of experienced Exeter founders, there's a bunch of cashed out founders there who have got lots of experience and lots of time. So they will quite often reach out and speak to our founders. And just from our newsletters, our internal investor updates, they're like, oh, I can help them and off they go. So it's so good having people that are actually operators and founders around.
Nathan Bush: That's a nice phone book to have available to you. Is that something that is offered to companies that you invest or you loan to that expertise?
Matt Allen: Absolutely. So the tractor model, we call it revenue based investing, which is a combination of two things. It's the finance as described and it's actually our entire team, so there's actually 12 of us on the team now, which is crazy. And the majority of us are exited founders. So we've actually started, raised and exited our business, which means we're really close to the operator, you know, Archetype. Some of us are still operators. So Kirsty over in New Zealand still runs head of people for Aura, which is a Series B scale up over there. Lachlan Donald, who's our CTO in residence, was the CTO of 99 designs. And he still works with some massive scale ups at the moment, but he's got a couple days a week for our portfolio. So, yeah, the other part of what we do is we actually do earn the option to buy a small part. We're talking 1 to 2% of the founder's company in the future, but we actually earn it and we earn it over that first 12 months of that deal. So every month, 1/12 of whatever we negotiate vests to us. And if the founder doesn't think we're adding value, they can fire us. So it is legit earned equity. If we don't sing for our supper, we won't get it. And they do go hand in hand in the fact that we normally do both at once. There's a loan and the equity at the same time. We have done one and now two. That is the advice. Only surprising enough because the scale ups don't actually need a loan yet. They will in the future, but right now they're just like, actually we need your team to come in and help us sort of hit those levels so that we can take the money so that we can grow even faster.
Nathan Bush: And you usually makes that call when you're in the early stages of talking to a founder around scaling up a business. And it could be money, could be expertise. How do you normally land on what the model looks like?
Matt Allen: Most of the time it's both. Like, to be clear, the vast majority of the things we do go hand in hand because the founders quite often, especially if you haven't been surrounded by other investors or venture or whatever, you get to this point where you're like, hey, I've got this thing to millions in revenue, but I don't know what's going on. I can't see around corners because I don't have the experience. I don't have advisors, I don't have investors, I don't have anyone else. It's me and my co founders. We actually have a surprisingly high portion of husband and wife teams in our portfolio. So they just talk about it all the time, but they hit their local maximum limit. They're like, we don't know what to do next. So our team has got experience doing that stuff. So we kind of help them unlock themselves and get to the next Level. So it's most of the time it's like, unless they've literally got millions of dollars in the bank and finance, they're not capital constrained. It'll be both.
Nathan Bush: Yeah. The two stages that we often see in E commerce around where it goes to the next level is that point where they hit a million dollars in revenue and then all of a sudden it's, oh, shit, I've got to start actually investing in technology and people. This isn't a hobby anymore. And then when a founder, 20 million, 15 to 20 million, it seems to be that they go, oh, I started this because I love the product or I'm a really creative person or I'm great at marketing. All of a sudden now I'm running a company. 15, 20, 30 people. This is serious. Maybe I need, you know, a proper management team to run this thing. Is that similar to what you say?
Matt Allen: Yeah, my favorite word is unlock. Like how do you, how do founders unlock themselves? And it's usually that they're, they're good at what they do and it's not, they don't trust people, it's just that they've never been able to have someone and go, it's okay, now is the time to hand that over. You're going to have to dip back into it every now and then because it's not going to work very well all the time. But if you don't do it now, those charts that are being going up into the right are going to go up into the sideways to the right, then down to the right, unless you get this correct. So we talk about the thing that we quite often do is provide capital and advice. But it's like confidence, capital and it's the confidence to go, huh, yeah, actually I can do that now. So we, you know, part of that advice that we give which we sort of, they click their fingers and get an advisory team of eight senior operators, like on day one. And we have regular meetings with them and have them up in Slack. So there's, you know, there's conversations happening all the time. Is just, you know, those meetings that come to the meeting, they're like, here's some things you want to talk about. Here's the agenda. Like, great. And they're just like, here's what we're going to do. What do you think? We're like, yeah, yes, do that. They go off they go, you know, they do it right. It's just that when you live in your own little world and you don't have people surrounded with you who have some other data points for you to sort of benchmark against. You just don't you get decision paralysis a lot of the time.
Nathan Bush: It can be a lonely world, right?
Matt Allen: Yeah, it is a lonely world. Not because things are bad, just because it's actually things are good. But you don't know what to do next.
Nathan Bush: That makes sense. And when do you. We talked about E commerce being a cash flow business. From an E commerce perspective, when do you reckon, do you have any signals that E commerce operators should look at to go, now's the time I need to pump in a bit more cash to keep this thing growing.
Matt Allen: Yeah, it's interesting. We talk about the cost of capital all the time. What will that cost you as a founder? It's either going to cost you now if you bring in some debt or it's going to cost you later if you sell some shares. It's a constant balance between is this a short term problem, I'm solving that with enough capital it'll just keep going or is it I'll actually hit a limit where I need to make an investment in processes, people or technology so that I can actually get to the next level. And every business is different, of course, but quite often I think that a lot of challenge founders sometimes go a little wide instead of going narrow like they're not finished mining the thing they do before they start going too wide and they start to get distracted.
Nathan Bush: Why do you think that is?
Matt Allen: Look, if anything like me, there's always something shiny around the corner and shiny things are shiny. My boss at Amazon on day one when I was in Seattle, he was like shiny pennies, like they're everywhere. Look a penny and you go around, you've got this handful of stuff but it's not worth anything. So I think people not or feeling like they've sort of got to their limit on a certain thing, but they haven't. You know, there's always more customers out there and it's always a challenge between the cost of acquiring those customers as you start to saturate stuff first adjacencies, unless you're a big scale adjacencies can be the death of an early business going too wide. Choice is not necessarily a good thing for your customers. So I prefer to see people have a small number of products and absolutely blanket the marketing rather than try and sell everything to everybody.
Nathan Bush: And do you find that there's a big difference between creators and operators? And can you pick those people straight away? Because on the shiny syndrome I kind of see a lot of people who are great at creating things and they get to a certain point and they go, yeah, it's created. I'll move on to the next thing. And I keep moving on without actually taking anything to its full potential. Do you see that as well?
Matt Allen: Yeah, I mean, not only do I see that, I feel it as well.
Nathan Bush: Yeah.
Matt Allen: I actually did Ray Dalio's the Principles test this morning, and I'm like, I am that. I do the ideas and initial execution, but I'm really not the best at sort of refinement and systematization. It took me 40 years to be comfortable knowing what I'm good at and then. And not disrespecting what I'm not good at. Actually have a total respect for it, but just acknowledge that I can't do it and that if I do do it, it's going to end in tears for everybody. So now I just backfill, you know, my gaps with other people. And, you know, there's a real element there on ego.
Nathan Bush: Right.
Matt Allen: You need to. First, to make that even to even start a conversation, you need to remind yourself that you're really shit at most things and that there's someone who's actually. And I still struggle with asking people to do things I don't like to do. Yeah. I'm like, oh, that's a shit job. They're like, what do you mean? I love that stuff. I'm like, oh, yeah, sorry, I forgot you love that stuff. I hate that stuff. And then we move on. Right. So I don't know if that answered your question, but that's certainly how I sort of think about it.
Nathan Bush: No, it definitely does. It definitely does. And I see it as myself. I think I'm a creator as well. I'm not great at systemize. I have lots of ideas and I always talk at the moment around the danger of opening boxes. So it's like, I've got a few boxes open.
Nathan Bush: I haven't fully unpacked them.
Nathan Bush: Don't go opening more boxes because I'll just hit you in the head. Just let this one sit for a bit.
Matt Allen: Yeah, it's a little bit of a challenge attractor. I think our mission is something along the lines of helping those founders retain more of their companies for longer. And then I think about us as a product company, like, what are the products we have that can slot in and do things at different levels for different parts of the company or the founder themselves? And so I live at. I wonder if I can build a product around that particular part of that problem. You know, what does the risk look like? You know, how would I fund it, so on and so forth. When the rest of the team is like, hey, you know, we're trying to originate these RBF loans, that thing you invented 10 months ago, like, help us with the process. I'm like, cool, I will, but I've got this other one over here that I'm sort of brewing over at the same time, so definitely identify with what you said.
Nathan Bush: How do you like your cocktail gift boxes? Shaken, maybe stirred perhaps. Broken, definitely not. Cocktail gifting company Cheers Sweetie were finding that they were regularly coming up against broken items when mailing their gift boxes all over Australia. Not only was it costing them money, but it was a horrible customer experience.
Matt Allen: Experience.
Nathan Bush: Working with our packaging supplier partners, Signet, Cheers Sweetie added an outer protective layer and internal cushioning, all while remaining environmentally friendly. They're now saving over $6,000 a year in broken items.
Nathan Bush: Cheers to that.
Nathan Bush: Visit signet.net aublog to find out more.
Nathan Bush: Is April, your wife, involved in tractor with you? Yeah. Great. How does she complement your skill set? How do you guys work together?
Matt Allen: She did her principal thing this morning as well, is that we're so different in so many places. It's definitely opposites attract. So now April doesn't. April's a co founder but doesn't run the business. So we talk about of all the people in Trakta, we have the lanes that we stick in and most of us are quite broad. So we're kind of, we're a team of professional problem solvers with varying degrees of broadness of the lanes we stick in. So April's lane is very quite focused on the customer functions, so customer service, customer success and things like that, knowledge management. So she's very much in the portfolio and every single founder needs her to help her scale up the sales ops or scale up customer service. But she rarely comes up into the sales funnel, she rarely comes up into any other parts of the business, the finance part of the business and what she does. So her boundaries are quite well defined where minority, quite broad. Jody, our other co founder, is very much operational. So you know, we spoke about my ideas and my origination and might be able to sort of create the model and create the thing and then she can definitely sort of backfill and help systematize it and process everything so that it's accountable along the way. So the three of us actually cover a lot of ground when it comes to, you know, different parts of the business that are all, you know, as equally as important. With each other, but we know where we stop and start. The interesting thing about the difference between April and Jody is that Jody and I can probably do most of the same jobs. So she does a lot of the sales and conversation with founders up front, which I could do all day long, but it's probably not the best part of my time when I'm raising funds and she's running the founder conversations and then we have the team running the portfolio. So this kind of works quite well.
Nathan Bush: Yeah. And did those lanes exist right from the word go or did they kind of naturally evolve over time?
Matt Allen: They've naturally evolved. April's was always as is. But so Kirsty and Lance over in New Zealand have quite. They have the domains that they, they're very T shaped but they have very deep domains and what they do, but they also go quite wide. So, you know, whenever we have our portfolio conversations, which we had one just, you know, before this call, the conversation is around, it meanders all over the place and we all have stuff to add and it's, it's quite valuable. Like, I don't think it's nice having a team full of sort of senior operators that have been through the wringer a few times. And it means you can cherry pick from experience and sort of present it in a way that's hopefully succinct and useful all at once.
Nathan Bush: Yep. So you have lanes, but it doesn't stop you from sharing opinions or experiences across other areas of the business.
Matt Allen: No, and I encourage that. So, you know, my leadership style is very. What I, I don't have the monopoly on good ideas. We do have strong opinions loosely held and we'll have robust discussions and we're even talking this morning about how we refine our investment committee process around making decisions on who we invest in, who we don't, and how we put some more robustness around that and some processes in there. But I want to hear everyone's opinion because I will release ideas early and they're not fully formed in the hope that everybody else is like, oh yeah, that's good. But if you thought about that, where April is a long term gestator, she'll go like, ta da, look what I've got. I'm like, holy shit, that's amazing. It's been brewing for six months and I didn't hear a word about it. I'm not that guy.
Nathan Bush: Yeah, gotcha. One of the unique things that I read about your investments is that over half of your investments are in female founded business, which is fantastic. What have you noticed about the difference between male and female founded businesses? Is there anything?
Matt Allen: Yeah, I mean sweeping generalizations but the women seem to just be more conscientious around just doing what they said they're going to do. They're usually more capital efficient, they're usually far more conservative in their projections and then actually exceed them more often than not. And they're on the kind of the pros on the cons quite often their confidence levels are far below what they should be. Their competence is actually far greater most of the time and the confidence is far lower. And you know, if I can use my 43 year old wokeye bullshit is to help people understand that hey, you're actually really good at this. Like, trust me, I've got a lot of data. I speak to founders all day long. I've got a portfolio for a lot of them and you are above average. Just keep doing what you do and like, oh, okay, cool.
Nathan Bush: Off we go.
Matt Allen: And they come back around. I did what I said I was going to do, can you help me again? And off we go. And you know, it's certainly not about, you know, they know more than I do the vast majority of the time. But it's just like I said earlier, it's just that confidence to be able to do that thing they wanted to do and have the confidence to do it without having to sort of ask permission a lot of the time, which I certainly don't even have it to give. So I can't, I don't want to do that. It seems to be that, that, that seems to be an unlock that we can do.
Nathan Bush: Yeah, there's that old analogy around the difference between male and female going for a job where males will just put their hand up and say that they can do anything. Females will contact some convincing even if they've demonstrated that they've done it before. Obviously a sweeping generalization. Is that the same that you find with investment is that with female founded businesses there's that piece that goes. No, actually you are perfect to take this business to the next level.
Matt Allen: Yeah, again it's generalization. But yes, I find that, you know, opening up that ambition levels, it's usually always there. It's just that the chart I'll show you is the chart they're actually going to do where the chart that the dude shows you just like there is no way you're going to hit that. And then they do the one, the other one and then if we put the Aussie or Kiwi lens on it, it's even Worse because none of us like to talk ourselves up any more than we particularly have to, which is a challenge we all have as founders, which is being ambitious enough and telling the narrative about what we want to do and how we're going to do it and convincing people the right level of balance of like, wow, that's impressive. I want to back you up. Which is a slight knife edge to pull the other one, mate, it's not going to work. And I used to talk to the start mate founders all the time when we went to San Francisco before we weren't allowed to go to San Francisco anymore. Was you could put the same pitch deck in front of Aussies and SF investors. And the Aussies are like, are you sure you're going to be able to do that? And the SF investors are like, I can't even talk to you. Like, this doesn't even excite me at all. And so that sort of rolls down to. And then gets amplified when you sort of put the guys and the girls next to each other.
Nathan Bush: And speaking of pitch decks, casting your mind back, what has been some tactics or data or visualizations that has really caught your eye in those initial conversations that you went, that's interesting.
Matt Allen: Yeah, I'm not a huge fan of pitch decks. We do a lot of writing. Like that's my Amazon sort of leftover. And we just raised our second round attractive purely on two and a half thousand words and one graph that I put in there. I think the. And my friend Rowan Simpson from New Zealand I think said it best in one of his newsletters this week is all I want to know is you had this hypothesis and now what have we learned? Tell me what you know now, like what you thought you knew and what you knew and then maybe what that might lead to if given the right set of circumstances and the right capital maybe and the right people. And how do you do that? And that's kind of what everyone's betting on. It's like, I've got this idea, oh, holy moly. Yeah, okay, that looks as good as I thought it was going to be, if not better. Now this is what I'm going to do next. And you know, Tams and all that kind of stuff is weird. And I think there's a few good businesses that quite often create their own market, right? It's like, oh, here's a comparable addressable market. But in reality, when we get this thing up, it creates a whole bunch of use cases that we can't even. They're not even comparable. So I Do like it when founders create a category and they can actually create an adjacency to something that exists and go, well, that's that. But this is this. And, you know, the savings or the efficiencies the customers get out of this thing is going to create a whole new thing over here. And that's like, that's quite exciting when you unlock a bunch of sort of tailwinds that nobody else has got. But that takes time and effort and a good narrative.
Nathan Bush: I can imagine your bullshit radar has to be pretty high.
Matt Allen: Yeah, but, you know, and again, speaking about Aussie founders, is that, like, I think quite often the reason people can't raise money is that they actually don't have it. It's not that the bullshit's not turned up high enough, it's the confidence to go, I know, like, this is the stuff I know, right? And I mean, most people only back a founder because they know stuff. Like, very few founders go out with. We've got this hypothesis and no evidence whatsoever, no experience. You're like, oh, you know, like, that's really, really tough to solve.
Nathan Bush: Yeah.
Matt Allen: But assuming you do have some sort of experience in the domain, like your ability to assert what you believe to be true and the delta on what reality is and what you're going to be, and then the confidence to explain how you're going to do it, like, that's quite often you miss that mark in so many deck. You see, just like, I don't understand what the problem is and for which customer. Like, you didn't start at the right spot and that kind of stuff.
Nathan Bush: Do you think it's sometimes because founders live in. Live with these ideas and these businesses in their own head for so long that they go that they miss the basic selling points because they've lived with it.
Matt Allen: Yeah, possibly. And I think it is zooming out enough to go, I'm going to talk to someone who may not have any background or knowledge on the industry or problem or whatever. And you know, when I open up my conversations with founders, which happens every day, is like, let's just start which, what is the problem you solve and for who? And like, how that question gets answered. And sometimes it still doesn't get answered even after 15 minutes, you're like, yeah, I understand what I think I said what you said, but tell me again, like, who is, you know, who and why and how. You're right. I think you forget that the people you're talking to have got no idea. Most of them. And most investors have no idea. Like you know, in Australia especially, where everyone's quite broad, very few narrow people, which means you don't get to walk straight up to someone who has, you know, first principles, understanding of the problem you're solving. Very often.
Nathan Bush: Yeah.
Matt Allen: And, you know, and that's something I recommend to people looking for angel investors quite often is seek out the people who understand your problem because at least you don't have to explain to them there's a problem there. They'll go, yeah, I got that. Now let's move on to the solution. And that's a shortcut that so many founders seem to just pitch randos who you can spend more time convincing there's an even problem than talking about how you're going to solve it.
Nathan Bush: Yeah, it makes sense. And I can imagine that the process is not like Shark Tank at all in that you're done and dusted within eight minutes and you invested a whole bunch. Is it a long get to know you process?
Matt Allen: Really? For me, I'm basically backing people most of the time, which means you can't get to. You can't get to a Hell yes straight away. I mean, you can get early signs and the early signs are great because you build on that. So it's funny, we started this conversation off around Twitter. The amount of founders that I've invested in, because we've had just could be months or years worth of Twitter conversation. Then they're like, slid into the DMs and like, hey, I'm doing this thing. And I'm like, oh, cool, let's have a chat. And next minute we're on the phone or on Zoom and having a chat. And I've either invested or I've introduced a bunch of people and we've all invested or whatever the case may be. Like, that has happened multiple times.
Nathan Bush: Yeah, nice. So it's about getting ahead of the game and actually being genuine and being part of the community before the point where you go, oh, shit, I need some investment. It's like, think ahead of the game. Cool. And you mentioned before that you had partnerships or investments with some Shopify partners and apps. Anyone in there you want to give a shout out to?
Matt Allen: Yeah, well, I'll give them both a shout out. The first one is Synkio. Jimmy from Synkio, which moves stock between multiple Shopify stores and does it all sort of on demand, which is a really big problem for people that run multiple stores in multiple locations and drop shipping. The other one, the guys from Disco Labs who run a plugin called Submarine, which do sort of complex subscriptions, complex payment, rails. So they built the website for JB hi Fi and Marvel and stamps.com and like these are top of their game. Shopify plus developers who are moving into an app rather than agency. So there's something we seem to have an affinity with people that are like hey, we've got this app that's got this growing revenue but we've got this agency over here and it's hard to get off the day rate crack. So Tractor comes along and says well we can give you some capital so you can fire a few of those annoying customers, double down on your plugin and hopefully drive the recurring revenue rather than the, the consulting revenue. And then everybody's happy.
Nathan Bush: Yeah, turn into a product rather than relying on the service.
Matt Allen: Absolutely.
Nathan Bush: I can't let you go without asking. Last week and this is recorded the week after after pay, get a nice little acquisition check for $39 billion. What impact do you think that will have on the Australian tech and investment community?
Matt Allen: I think so from the outside looking in. So from the non tech people or the people who still think the techs are bad or you know, can't be valuable and you know, the people that think BHP and Telstra are where it's at, I think that there'd be some validation for their kids, you know, like hey mom, I want to go work at a tech company. Like oh yeah, there seems to be something interesting happening over there and still quite well. But $39 billion is hard to not read. The I think it was, was it 16 or 17 articles in the AFR in the three days afterwards. This is like mind blowing. And then internally there's a lot of people who with a lot of capital, I mean that company already shed a lot of capital in and of itself. Those guys are angel investing. I think I've got one or two on a cap table with me already. So they do it quietly but it's really interesting and I think from a global level, more and more large Australian things, I mean square and afterpay I have holdings in both of them and now I'm going to have one and they're pretty big positions. So it's interesting that from a global level one of the most exciting fintechs has bought probably one of the most exciting fintechs in Australia and now globally. So I think there'll be some signaling around and it's already happening. The big guys are already here. There's lots of funds flowing directly into scale ups but also indirectly via funds that have got other sovereign money coming to them now. So I think people will want to get international funds, will want to get into the game earlier, and whether that's directly or via seed stage funds or whatever the case may be, so that when these things happen, they've already got a. They've already got an in and they can keep piling in.
Nathan Bush: Yeah. And I think too, what. What we see is people like yourself, people like Kate, people like Nick and Anthony, like, the more that successful founders and operators get bought out, they have that likelihood and that desire to contribute back in to emerging founders and entrepreneurs as well. So it kind of doubles down on itself as we go.
Matt Allen: Yeah, I do think it's a nonlinear growth thing. Their dollars will get spread around. I know for a fact that the Atlassian guys have invested so much money in multiple of our companies as well, which is really exciting. And I also know that as much as these people can take lots of money off the table, like none of them sit on the beach forever. I know some founders that have disappeared, you never see them again. But it's not many of them, to be honest with you. And I think those people who are naturally curious and naturally as problem solvers and especially ones that have sort of gone through the ring of themselves, they almost feel obliged to deploy some of that back in. And I know that when I've had some success, I feel like I'm so lucky to have this success. Like, I better make sure how can I pay that forward? How can I invest in some other people? So hopefully. And again, if you get in early in that first check, and there is that weird signaling thing where if I invest some other people like, oh, if that's happening, then I'll get in. And I'm like, that scares the hell out of me because my DD process is not as tight as some people may think. So I'm like, all right, you can follow me, any of you like, but just be clear. I like this founder and that's about the end of it.
Nathan Bush: You need the not financial advice sticker just on the back of your head.
Matt Allen: Yeah. My AFS Alpha tractor does not extend to me personally.
Nathan Bush: Awesome, Matt, thank you so much for sharing more about yourself and what tractor do. I think it's really interesting and I'm sure there's lots of e commerce entrepreneurs and founders listening to this who are thinking whether it's now, whether it's years down the line, they can set themselves up and keep that equity in their business, which is a great option to have. What's the best way for people to get in touch with yourself or the team.
Matt Allen: So I'm on Twitter all the time. Just MATAL. We're@tractaventures.com which has got all our FAQs and application process takes about two minutes. That's probably the two best ways to find me. Beautiful.
Nathan Bush: Thank you very much.
Matt Allen: My pleasure.
Nathan Bush: That was such a wide ranging chat and I wasn't expecting it to go as wide as it did. But I'm so grateful for Matt for sharing both his experience in what he has seen in the past, but also being really open with his perceptions of what's going on in market. I feel like we can leave with a good understanding of what it takes to be a good founder in the current environment. I have three actionable tips that I took out from that episode. The first is it's so important to know your strengths. Is it strategy? Operations? Analysis? Creativity? Matt isolated the Ray Dalio Personality Test as a way to see where you excel and like Matt and his wife April, it's important that not only you do it, but the team you work closely do it as well. The results from it might be able to help you distribute responsibilities between yourselves to better reflect your strengths but also your energy. Seems like a great activity for me to do. Number two, Matt emphasizes the time to second purchase as a critically important metric and it makes sense. If we think about it, a rapid second purchase effectively halves your customer acquisition costs. We put so much time and so much emphasis on that initial customer acquisition ROI number that we often overlook the time to second purchase and that could be the shift in the effort to amplify returns. And the third and final one. I loved Matt's quote. Adjacencies can be the death of an early business and I thought it was gold. So critical to nail your flagship product and attract your biggest fans early before moving on to the next idea. I know it's something that me personally I need to be continually conscious of and I see it in businesses all the time of not nailing that flagship product before moving on and expanding the range. To finish up. I have three resources for you. Firstly, if you're a first time listener of Add to Cart and you want to stay up to date with new episodes, head over to add to cart.com and you can sign up for our weekly newsletter. We'll let you know every time time a new episode drops, as well as giving you my three takeaways from each episode and a link to the transcripts so you can know that this is an episode that you want to dive straight into secondly, if you want a weekly roundup of the best e commerce case studies, tools and research, sign up to the High Five Friday newsletter which is delivered to inboxes at 8am every Friday morning. I read all the e commerce news and send you the bits that I think you can take action from. Sign up at 12high12high.com auhi5 and the last thing if you are looking to explore your next e commerce opportunity, head over to esweettalent.com we are a dedicated e commerce talent agency connecting the best e commerce talent with the fastest growing brands. Check it out. Sign up to the email and get in touch with me if you want to discuss your next move. Until next time, thanks for listening and keep those customers adding to car.
