Expert: Niki Scevak – Blackbird’s search for wild ideas and wild hearts

Bryce: [00:00:10] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status. Our aim is to break down your barriers from beginning to dividend. My name is Bryce and as always, I'm joined by my equity buddy, Ren. How are you. 

Alec: [00:00:31] I'm very good, Bryce. I am very excited for this interview. We haven't spoken to a lot of venture capitalists on on this podcast. We mainly focus on public markets, but when the opportunity to speak to one of Australia's best venture capitalists comes along, how can you say no to that? 

Bryce: [00:00:48] Well, we can't. And that's why it is an absolute pleasure to welcome Niki Scevak to the studio. Niki, welcome.

Niki Scevak: [00:00:53] Thank you for having me. 

Bryce: [00:00:54] So Niki is a co-founder and general partner at Blackbird Ventures, their Australasian investment firm, whose mission is to invest in wild hearts with the wildest ideas right from the beginning. He's also the co-founder of Start Mate. So we're going to unpack all things venture capital today with Niki. But just a reminder before we start, we are not experts, we're not financial professionals and we are not licenced. So we're here learning just like you. And nothing on this podcast should be taken as advice. So Niki, we always love to start these interviews with insight into the story of our guests. First investment. So can you take us back to that time and perhaps talk us through the moment when you first got into markets into, well, whatever your first investment may have been? [00:01:38][44.3]

Niki Scevak: [00:01:39] I think that was at university. I started university in 1998, and that entry way into technology was through the backdrop of the first Internet boom of of the turn of the century. And so I think the the first interaction with investments I had had was through technology companies like oh my goodness, Liberty One and E Corp. And I think there was a Web design agency called Slack. And these were sort of the I guess the heroes or at least the the bright lights of the original technology boom in Australia at the turn of the century. [00:02:19][40.6]

Alec: [00:02:20] I've got to say, not any names that I'm familiar with now, any of them kicking along under new names or as acquired companies. [00:02:28][8.2]

Niki Scevak: [00:02:29] Liberty One and SPARC were abject failures and a hiccup was a great success. It was actually founded through Kerry Packer or James Packer's PBL and Daniel Petrie, founder of Entry, and Jeremy Phillips, who went on to Grand Investing success at Spark Capital, leading their growth team. The incredible people quality of companies they brought to Australia, eBay, Australia and Charles Schwab and Monster and a whole bunch of sort of iconic Internet brands from the US and they're set up in Australia. So certainly E Corp was certainly a great success, but not the other two. [00:03:14][45.2]

Alec: [00:03:14] Yeah. Okay. Now you said you got interested in technology and started investing at that time. You also founded a company at that time and we'd love to hear about your experience as a founder before we turn to your experience as an investor. So I believe Bookmark Box was the company back then and then more recently, although still a little while ago, home thinking, I believe was the other company. Tell us about your time as a founder and those two companies. [00:03:42][27.4]

Niki Scevak: [00:03:42] Yeah, well, the bookmark box was more famous for the person I did it with rather than what it achieved itself. So I went to university. In my university course, I was fortunate enough to to do the course with Mike Cannon-Brookes, who is the founder of Atlassian. Scott Farquhar was also in the same cohort as well as a whole bunch of great people who went on to entrepreneurial endeavours. The story of the book, Dropbox, I would say was I always like to say that the book Cloud Box was my university degree. So I met a whole bunch of wonderful people eventually, but I learnt so much more through the journey of the book box, which he raised a little bit of money from my dad and my uncle and another angel. We built the built the service to, I think it was nearly 100,000 users and millions of bookmarks and in football boxes, basically a way for you to manage and share your bookmarks online. When people use different computers as they went from home to work or to school and in between. And so it was a great learning exercise around customer acquisition, around product engagement and product roadmaps, and we ended up selling the company even a funny story. There was the company that bought it and again, these are all tiny amounts of money, tiny, tiny exit. But the people who bought it went on to build DoubleClick, which is the backbone of Google's ad serving system. One of the other companies that was a competitor to the books was Elon Musk's brother. So we got to interact with him through that process as well. And so this. So again, just a set of experiences that summed up to, I would say, 100 times the learning I got through the textbooks in the classroom of my real university degree. [00:05:26][104.1]

Bryce: [00:05:26] That's awesome. They are in for ideas. We often speak about the years that produce like an awesome draught and it sounds like they use it. The year at your university was jam packed with some amazing and. [00:05:38][11.2]

Niki Scevak: [00:05:38] I would even say that that particular course, which is business information technology, it's kind of half commerce, half computer science produced wonderful like year after year entrepreneurs. Brad Lindeberg, founder of Quad Pay, which was acquired by by many other great Start-Up success stories from both our year and then the years before and after as well. So it was a fountain of entrepreneurial activity, even though it had nothing to do with entrepreneurs. [00:06:06][27.5]

Bryce: [00:06:08] So it's every young entrepreneurs dream to have an exit during university. You then went on to do home thinking was it as is as successful as bookmark box? [00:06:17][8.9]

Niki Scevak: [00:06:18] Well, I'd say both were not successful. So so to calibrate. [00:06:21][2.8]

Bryce: [00:06:21] Okay. [00:06:21][0.0]

Niki Scevak: [00:06:22] There were I mean bookmark boxes tiny home thinking we raised an angel around it ultimately did not succeed for home thinking's fortunes so I'm thinking was essentially a we would crawl all of the real estate activity in the United States to notice which agent sold the most homes for the best prices in the quickest amount of time. And sort of when you were thinking of selling your own home, you could search and make this decision as to who to hire as your real estate agent in a in a very kind of data driven way. And so in the beginning, this was 2005, the company had success in sort of driving traffic and usage through organic search. And so for a while it was successful. And then as sort of the tides of the Google algorithm changed, it sort of steadily was chopped down and and ultimately didn't find another way to acquire customers. And so if that company did not work out, but again, a set of experiences that helped me both appreciate sort of online businesses, customer acquisition and business models on the Web. And so both the book, my books and I'm thinking featured very heavily informing my views on on what is a good business and what is a, not a good business. [00:07:37][75.3]

Alec: [00:07:38] The really privilege thing that Bryce and I have here is that we've had so many conversations with so many different people and you can really start to draw parallels or like you can link different conversations and you talking about how you are having initial success and then Google changed their algorithm or things change with Google and all of a sudden the whole business was put in jeopardy. Just gave me massive deja vu to when we spoke to finders founder Fred Sebastian, where he had exactly the same thing, early success. Google tweaked their algorithm and then all of a sudden the business was had to be rebuilt from the ground up. It's just it's just a really real reminder, I guess. And we really don't need this reminder of just how powerful Google is. But anyway, Niki, so you started a few businesses, I think if you exert that successful. So I don't think you can sell yourself short and say bookmarked books wasn't a success. But then in the early 20 tens, you start to do things which I don't think anyone will dispute is was successful or co-founded. Two things that have been very successful, Start, Mike and Blackbird. I want you to take us back to that time, 2010. You've just wrapped up your second business home thinking what gave you the confidence to think, all right, I can start I Australia's like first founder mentoring and education community and start my and I can become a very say yeah take us back to that time and tell us the story. [00:09:10][92.0]

Niki Scevak: [00:09:11] Yes. So as I mentioned with I'm thinking it was it was for the US and I was I moved over to New York I think at the end of 2003. And so I was living in America, I was travelling quite often to San Francisco around that 2005 period. There were a kind of wave of start ups that, you know, it's called Web 2.0 or user generated content or sort of different monikers. But through that, got to know a lot of the say early, like the founders of Yelp, the founders of Trulia and Zillow and a whole bunch of other sort of Web 2.0 start-ups and founders. So I had that experience moved back to Australia around 2010 to get married, to have kids. It was very personally driven rather than work driven. And as I moved back to Australia, the people that I was meeting here were just as good as the people I was meeting in San Francisco, I was meeting in New York, so that was the first realisation. Then Mike and I are still great friends and I'd, I'd followed the journey of Atlassian and how. He and Scott had built the company over the years. And again that that is a truly pioneering company, particularly around the unique philosophy around sales and marketing that has driven the company to the success it has become. And so I always had a love of investing, and I think people think of investing as spreadsheets, whereas I think of investing as psychology. It's such an interesting game or environment to test psychology, whether it's your own psychology, whether it's the psychology of the people that are building great companies. And so I had always loved Charlie Munger. He's my favourite person and biggest investor influence. Warren Buffett I would read everything I could ever get my hands on, whether directly through the annual letters or through the many different books written about him or articles online written about him. I always like read hedge fund letters. I think that some of the best examples of writing and clarity of thinking and I've always enjoyed, just even reading those for fun, even though I didn't really have any money to to it to invest in the public markets or in or in start-ups. And so that investing gene had always been there. And I'd always personally, you know, read and learnt and listened around the craft of investing. And so when I came back to Australia I was thinking, should I do another start up? And I was exploring some different ideas around. It was sort of like a conversion marketing software where you do AB testing and you would also have this marketplace of people to help you run a steady diet of AB tests. So I was doing that, but I also had this each of again, I've met people that were just as good as the people that got to know in America and want to just begin angel investing. And so I had the budget for say to one or two investments per year of 25 each and began meeting companies in in Australia and realised first of all 25 K is not going to bring a round together or make much difference and even investing one or two companies per year, that's going to limit the learning I can I can I sort of glean and so that led to start mate which led to this this batch model of investing in batch model of learning as I thought about it, as to how to become a great angel investor. And so that that was the prompt for start mate. Also the big difference in Australia at that time was in America and in Silicon Valley. The magic is when someone who builds a technology company, helps and invests the next generation, invest in the next generation, and that was largely absent in Australia. You had very successful companies but they were all very disconnected and there wasn't that same circle of life or founders helping out the founders. And so the two prompts for Start Mate was I could learn a lot more quickly and make a lot more investments for a year as the selfish reason. And then the sort of what the market needed reason was assembling this community of founders to, to help the next generation. And so that initially was, was stop mate, stop mate wasn't I didn't imagine it would be a full time job or I didn't imagine it would be a career. But as soon as I did it and soon as we completed the first cohort and the second cohort, it was just so clear this is what I wanted to do to contrast it with home thinking, which serves so do real estate agents. If I ran into one of the customers on the street, I'd kind of duck into the side. Like Bezos. If he ran into one of the customers of Start Mate, I would run towards them and embrace them with a hug. It was that difference of just truly, even on the level of like you make friends in waves and you make a wave of friends in high school, you make a wave of friends and university. You don't really make a wave of friends after that would start, mate. I genuinely made a wave of friends in the Start-Up Founders that we invested in and the mentor community as part of Stop Made so that that was a realisation moment. Our lightbulb moment to me of like this is actually what I want to do in life and also success slaps you in the face. If you're launching something in business and you're kind of, you know, reading the tea leaves or you're sifting through the gold pen and you're not quite sure. It's like, you know, the saying, if you walk into a shop and you have to ask the price of a good, you can't afford it. If you have to look for product market fit, you don't have it. And so with Start Mate, just right from the beginning, it was just so clear both from all of the wonderful pipeline of people who should be doing start ups from Mentor, interested in investing and helping the next generation. The initial success of the companies that we invested in it was all slap you in the face, obvious that this this was something that was that was truly needed. And so I think around that time I was like, why am I thinking of doing another company? Why am I spending time on sort of like this, this software idea, when this is the greatest opportunity, this is the greatest imbalance between opportunity and who's looking at it? And so that was the personal prompt. Around bringing Blackwood and teaming up with Rick Baker and teaming up with Bill Barty to begin Blackbird. And that that moment was for me. Let's try to make an impact through investing and helping Start-Ups to come from Australia, New Zealand and to win this kind of global prise rather than start-ups at the time had been very sort of locally focussed. Take a good idea from the US and make it work in Australia. And the mission of Blackbird is can we produce these world champion generational companies from Australia, New Zealand and to do everything we can to set up the environment for that to happen at a higher rate than at what it was doing. [00:15:49][398.4]

Bryce: [00:15:50] Mm. Well, Nicky, we're about to unpack the mission and your investment framework at Blackbird in a bit, but I thought we should just mention that we have. We personally know a number of people that have gone through the start, make programme and speak incredibly highly of it. So yeah, just thought we'd pass that on and we'd certainly recommend it to and it will not that we've done it, but based on the feedback, it sounds like it's absolutely worthwhile. [00:16:13][23.6]

Niki Scevak: [00:16:14] It is a magical community. [00:16:15][0.8]

Bryce: [00:16:15] Yeah. So Nicky, let's start with the name Blackbird before we dig into the thesis and wild ideas, what does it mean? Does it have any meaning behind it? Start-Ups is probably name is one of the first thing founders do. Put an IO at the end, put a lay at the end. [00:16:31][15.4]

Alec: [00:16:32] Drop a drop of out. [00:16:33][1.1]

Bryce: [00:16:33] Change the spelling. How did Blackbird come about? [00:16:36][2.9]

Niki Scevak: [00:16:37] The name Blackbird references the Blackbird fighter jet that was developed by Lockheed Martin. And before Lockheed Martin developed the Blackbird plane, it had spent, in the order of tens of billions of dollars, built a team of thousands of people to to design the world's fastest fighter jet. And they'd failed to run over it cost to cost much more than they thought. And they're a small group of people within that team that said, you know, screw this, this is ridiculous. Let's break away the skunkworks project that initially references the Blackbird fighter jet. And this small team ended up building the world's fastest plane. And I think it still is the world's fastest by this was back in the developed back in the seventies. And so I think it's this idea that small teams achieve things that big teams don't. Why in business do all of the world's biggest corporations with the already the customer relationships already the revenue streams of an existing product have a front row seat into what's next in the future of whatever the industry is. Why do they screw it up? The innovator's dilemma and so on and so forth. Why does a team of nobodies who have no money and very few resources... Why does that team consistently win time after time in history? You know, Fairfax lost the opportunity to seek in real estate to accompany you and Carsales and so on. Why does why does that happen time and time again? And I think it is, you know, small teams beat big teams. Small teams don't have middle management. I think middle management kills the creation of something. Middle management is useful in optimising something to take, something that you already know is true and to try and make it work on the bigger scale but suffocate sort of the creation of new things. And it also, I think the constraint of or the fear of death produces these great moments and these great conceptions of of, of businesses. And so the start-ups, which stared death in the face every 12 or 18 months, is a much greater motivator. And then when they do succeed, this succeeded. The level of success is on the founders and employees all become extremely wealthy versus in the big company. If something fails, which normally does, the person might be fired. If something succeeds, nothing really changes that it really get the fruits of that success. And so there's not that same fear of death and there's almost to the opposite. It's sort of a failure minimisation environment. There's no reward for success. And so I think the structural make up of of of Start-Ups mean that despite all of the advantages, strategic advantages it could have at once, a small team always needs a big team. And so I think that's we love that idea. The idea is reflected through the the nine buckets. [00:19:25][168.3]

Alec: [00:19:26] I love that story behind the name. Now I feel that we need a better story behind nine. I'm feeling very inadequate. [00:19:34][8.3]

Niki Scevak: [00:19:35] And the second test was it had to it had to be pronounced correctly by a three year old. Could you say it as a three year old? And then if you heard it, could you spell it automatically to your earlier point around the no vowels and l, y and so on? So he said it over the phone, over a video call. You have to naturally be able to spell it so nice. [00:19:54][19.2]

Alec: [00:19:55] So Nicky, then that leads us into your investment philosophy because you've had some great successes with some of the companies in the companies you've invested in Blackbird. But before we get to the specifics, it would be great to understand 2012, you and your co-founders are starting it. What's the investment? Thesis. What companies are you looking to invest in? And I know in previous interviews you've spoken about maybe the silliness, maybe that's not the right word, but the silliness of the round structure that a lot of pieces fall into. Was that was that a thesis you had at the time or is that something you developed over time? Just give us an idea of how you think about investing in early stage companies. [00:20:36][40.9]

Niki Scevak: [00:20:37] Yeah. First of all, I think I don't think at the beginning we had a strong view. That strong view emerged after we began investing. And the first fund of Blackbird was a $29 million vehicle, which basically means you can only invest in the first round of a of a company because you don't have enough money to invest in the in the next rounds. But the world of venture capital is strangely structured around the round of financing. What I mean is, like you have these seed funds that invest in the seed round and then you have a growth fund that invests in growth rounds and you have venture capitalists that only invest if it's private. And if it goes public, something magical happens to the company. And those people who invested in the private markets have no qualifications to invest in it afterwards. So you have to wrap up your involvement with the company and the public markets person who's in the what, whatever asset threshold bucket of the small cap fund, that person is the most qualified to invest in the company now and then if that person makes a good decision and the company succeeds and it gets bigger then the small cap threshold, then the mid-cap person and then the large cap. And so it's just this silly way that the investment world has structured itself and it is a by product. Why is that the case? It's a by-product of the people that gives money to investment funds. So every institutional investor follows exactly the same model of investing, which is the portfolio allocation model, and they divide the portfolio into buckets and they want to have X percent in bucket and Y percent in bucket B, and it's sort of like a bucket way of viewing the world, which doesn't make sense because if you think about it through that lens of like the person who makes the small cap manager who meets the company in a hotel room for the pre IPO roadshow makes them over to meetings. That person is way more qualified and the venture capitalist who knows them for ten years and has developed all of the context of the market and the product in the team and how the founders run the company. And that falls away. That doesn't make sense. Does it make sense for a seed fund to invest in a company when it's an idea? So before revenue, before product, and you see the company succeed and then you're saying by only investing in the seed round, it's like, well, I would like to invest in a company before they're successful. And as soon as I know they're successful, I'll proudly not invest in them. Which again, that doesn't make sense to me. So I think we've reoriented Blackbird around the concept of company relationships rather than particular staged investments and the vision. You mentioned Australian venture capitalists and we don't want to be the best Australian venture capitalist festival. That's the tallest dwarf contest. We want to, you know, be the best in the world, not the best in Australia. But you also don't want to be a venture capitalist. We don't want to invest at the early stage, full stop. The aim of Blackbird is to invest in these generational companies right at the beginning before they have a product and before they have revenue, but invest all through their life and both through their private market life and the public market. The idea behind Blackbird is that Australia, New Zealand will produce more than our fair share of generational companies. Generational companies end up as the world's largest companies. If you look in the US, most of the top ten technology companies, the top two companies, Alibaba and Tencent, are the third largest companies in China and that same phenomenon will happen in Australia over the coming decade, or at least that's that's what we believe. And so we want to invest in the very, very best companies right at the beginning, be the major investor partner to them, and to figure out a way we're not structured to do this currently, but to invest not only through their first decade of their life, venture capital funds as the ten year vehicles. But to figure out how we can own these generational companies beyond the first decade. [00:24:22][224.5]

Bryce: [00:24:22] Now, Niki, before we turn to actually unpacking what a generational company looks like, we're just going to take a very quick break to hear from our sponsors. So you mentioned that you like getting in and investing in the very, very best companies right at the start of their journey. Can you perhaps to explain to the Equity Mates community, if possible, like what does a generational company look like? What is the the sort of key common traits that you see sort of form in the early stages of these companies? [00:24:52][29.9]

Niki Scevak: [00:24:53] It comes down to, I think, ambition and a sense of responsibility to see that that vision come true in a big way over many, many decades. And so I think at the beginning, you can only detect it through the ambitions of of the idea and the impact it hopes to make. I think at the end, it's very clear that something is a generational company, something like Amazon or Microsoft or Google. It's very clear that they have completely reshaped the way that the world does something or the way that consumers spend their personal lives or the way that people spend their working lives, has this large impact on the world, has a product roadmap that last many decades. Again, a faux pas or a sort of turn off is if someone comes to us and says, hey, here's our exit strategy, why would you want to almost like plan your divorce from your relationship between you and the idea? I think the sort of truly interesting is the stories where that person is doing their life's work. It's most useful in the beginning when it's usually in the beginning it doesn't go right straight away. And so that that sense of doing their life's work gets them through that that early tough period. But more importantly, when it's clear that something is working, it provides a defence barrier against exiting too early. So the only way that you'll get to $1,000,000,000 company is if you have a really successful business again. That is a very, very rare thing, the 99% thing, but in the 1%. So you've got a successful business and you're in that situation that 1% of companies, you need that person to be almost irrationally rejecting acquisition offers. You have to say, no, add $100 million. You have to say no to $1,000,000,000 in the Facebook movie and even in real life where Yahoo! Almost acquired Facebook for $1,000,000,000. And the way in which Mark Zuckerberg considered that offer, why would we even talk about it? It clearly doesn't take into account, you know, his sort of multi-decade vision of what is to come dramatically undervalues the company's long term prospects. But in the short term, in the moment, $1,000,000,000 looked incredibly generous. But that person and their last work and their mind is so far in the future. And so to get to 100 billion or more, you need you need that person to say no to acquisition offers along the way. And and really, the only credible and predictable and authentic way that happens is as if that person is doing their life's work and does have that product roadmap in their head that is like itching to get out and it takes decades to come to fruition. [00:27:28][154.8]

Alec: [00:27:28] Well, Nikki, let's let's turn to some of the the companies that you've invested in, because our Blackbird, you know, you you look for wild hearts and wild ideas. And you have been pitched some incredibly wild ideas that have gone on to be successful. So I think Canvas is the big name in your portfolio. In hindsight, not that wild an idea, just an incredible business and one that has made even Bryce and I designers. So kudos kudos to the whole team there but another company that people may not be familiar with but is a pretty wild idea Zoox, W X are since been acquired by Amazon but a self-driving car start-up from the very early days. When you get pitched an idea like self-driving cars very early, how do you even go about forming an investment thesis or like assessing the probability and likelihood of this business succeeding? [00:28:26][57.6]

Niki Scevak: [00:28:27] Hmm. Well, so first of all, is it fresh? Is it unique? And certainly back in 2014, when we met Tim KENNEALLY Clay, who was founder and CEO of the X, is that sort of idea fresh and unique? Again, it's almost sort of one of the most common questions I get asked is like, what categories of investment are you interested in? And sort of venture capital is actually at least seed round investing is is anti category. You don't want there to be a category, you don't. The prototypical example of Airbnb was weird. There was no on demand economy. There was no category for it to fit through. When the seed investment of Airbnb happened, as EB succeeded and as Uber succeeded, there became the category and then became this sort of comfort in investing in that category. Like even Airbnb, having someone stay in your house that you didn't know, or having someone hop in a car with a stranger. These were like strange sort of ideas in the beginning that quickly become mainstream as they succeeded. And so you want something to be quite. Strange in the beginning. Then I would also say, what is a good idea? Everything is a good idea at a high level. But sort of the definition of a good idea is, in my mind, is, is the second meeting better than the first meeting? Is the third meeting better than the second meeting? Does the idea become better, as the founder describes it, in more detail? Usually it's a facade. Usually it's like, Hey, we're blockchain for, I don't know, some other category. And then you're like, Well, what does that mean? And as soon as you go to the second step, as soon as you go to the detail, it just completely falls away. And so it's this facade that has nothing behind it. This is the great ideas, the level of detail in which the founders have thought through the product and the system around it. That's the exciting thing is as you go deeper, do you get do you get more and more excited? And with Zoox, obviously it's a very hot technical challenge. How do you have a car drive itself? But the insight or the vision, physics was not technology driven. It was to not only have the responsibility of the software, but to have the imagination, to take the responsibility for the hardware that you would. If you could build something from the ground up, could you create something that is truly different, that is more a living room on wheels rather than a car that drives itself? And then the ultimate expression of the business being a consumer service as being a service where you have the Xbox app, you press the button, the vehicle picks you up and takes you to your destination. The responsibility to do the software, the hardware and the consumer service, but also the reasons why you would want to do that. Again, to have the the fresh user experience, you need to imagine the vehicle from the ground up. But also, if you're going to run a taxi service, you need the vehicle to run 16 hours a day. And so you need so you need a huge battery in the vehicle. You need to optimise it to be run in a fleet. And so in terms of how can you repair them quickly if Formula One pitstop versus like go into your suburban garage and like, you know, custom parts and ordering and pallets and different things. And so the business model of a of a robotaxi service. So self-driving cars, you might think of why would you sell the car like you can buy a Tesla. But if you think about it from an economic point of view, you buy a Tesla for 100 grand. Tesla makes sort of 20, 25 grand gross profit and that's like a one off transaction. You buy the car, that's it. One revenue event versus if you operate a robotaxi service still costs and it's going to cost you more to make the car because it's driving itself. But that Robotaxi is earning revenue every single day. You can earn hundreds of thousands of dollars per year for many, many years. Hopefully the vehicle could be in service for five years, seven years, eight years, whatever it might be. And so it's not just like a little bit more lucrative, it's like 100 more lucrative. And so to know that if you have the most lucrative version of the business model, you can get to market quicker. Again, the vehicles are very, very expensive. It's not doesn't cost 50 or 70 grand to make. It costs hundreds of thousands of dollars to make. Well, if you're operating a robotaxi, you can still make your money back within a year. And so you can launch all of the ROBOTAXI providers thought they could launch in the last year or two. That hasn't happened. But you can now halo robotaxi in San Francisco with Cruise, you can Halo Robotaxi in Phoenix with Waymo and then Zoox sort of hinted they're very, very imminently launching their own commercial service as well. So it was two years late. But again, the choice of Robotaxi as a business model, those three companies which were not automakers, Cruise was acquired by GM. So I guess that could be twisted to say yes, it was an existing automaker. But again, these small teams that had no automotive automotive experience are going to be the first ones to bring this technology into the world. The business of earning 100 hundreds of thousands of dollars per robotaxi is a lot more lucrative than selling $20,000 Toyota Corollas. And so I think the automotive industry as a whole will be reshaped as the transport industry. And then also just the I mean, you think about electric vehicles replacing petrol vehicles, but you think about robo taxis replacing people who own their own cars. Most of the time your car sits in your driveway or parked. And I think the utilisation is, is, is essentially like 2% of the time you're driving your car every day. This is a robotaxi. If you can have the robotaxi in utilisation, say 50 or 60% of the day in paid commercial rides for every robotaxi that's taking 30 cars off the road. So you automatically in terms of like electric vehicles, replacing petrol vehicles, you're taking 30 petrol vehicles off the road with every robotaxi that is utilised to to 50 to 60%. And so again, just so many aspects of the idea, so many ways in which they thought through both why it was possible for a car to drive itself, what the user expect. So the consumer experience of the vehicle might be a business model of a robot taxi versus selling the vehicle. It was just enthralling and it was just so interesting and so and so that's what you look for in the beginning. You don't try to think, is it likely or not? You just try to think it doesn't have a chance or not. You know, in the beginning and we've published our initial investment note on Zoox, we said it's going to take a long time and they're going to have to raise a huge amount of money. It's completely illegal for a car to drive itself back in 2014. It was. And they're going to have to compete against all the world's largest automotive makers, Volkswagen, as well as all of the world's largest technology companies like Google and Uber and so on. And so those three things are quite daunting. Those three things logically make it a low probability, but you just looking for some probability, you don't looking for a likely probability. The other aspect is in the venture capital business, the money is invested over time. And so in the case of Zoox, our first investment was $500,000 in that first seed round of the company. But we ended up investing more than $100 million just into Zoox as they progressed, as it became clear that it was legal to drive for a car, to drive itself on public roads. But it became clear as to how Zoox would would raise the capital it needed to how the sort of technical progress and progress of the company overall was a very, very special. It was it was one of the best teams in the world alongside Google and Cruise. And so as that information became clear, that's when you invest larger and larger amounts. Similarly, with even Canva, first investment was $250,000. We've invested $270 million just in the canvas. The first investment was point 1% of our total investment. So if you thought about it, as in the successful case, I'm going to invest 0.1% of my total investment in this round. Again, you won't trip yourself up mentally to too much to say. The question is actually, are they asking the right questions and does it have a chance rather than do they have the answers and has it been proven kind of some mental traps that you can fall into. [00:36:42][495.4]

Bryce: [00:36:44] So, Niki, what would be the wildest idea that you've actually put money into? [00:36:49][4.7]

Niki Scevak: [00:36:50] Hmm. Well, I would say Zoox would be right up there. And this was sold to Amazon in 2020 for more than $1,000,000,000. But it's still a company that I think about every single day. I think. [00:37:04][13.8]

Alec: [00:37:04] I know. I was going to ask, are you annoyed that they sold? Like, did you say bigger things and you think they sold too? Well. [00:37:11][6.8]

Niki Scevak: [00:37:12] We made money on our investments and Amazon with one of the biggest balance sheets in the world by owning Zoox makes Zoox much more likely to come into the world and much more likely to to succeed. So from the idea of Zoox coming into the world, Amazon's acquisition makes it much more likely. So there's no taking away from that aspect. But from a personal or at least a career standpoint, it is a company I still think about every single day. And I think it is such a great example of ambition, such a great example of first principles, thinking. It's such a great example of taking the responsibility to see something come into the world. It's not like a piece of the puzzle. It is the puzzle. And I think over the coming years in particular, Zoox has a chance to be a generational company, even with the stock market as it is. Amazon isn't really Amazon anymore. Amazon is, you know, 90% of the value of Amazon stock is IWC and the retail operations and everything that people know about Amazon is essentially valued at zero and I think Zoox has the chance. If you had to fast forward a decade, it has a chance to do the same thing to the IWC is a rounding error of Amazon is that is the value. Again no love got niki. [00:38:28][76.0]

Alec: [00:38:28] I love that. [00:38:29][0.4]

Niki Scevak: [00:38:29] Not likely and not probable, but a probability of some sort given just the economics of the service at full scale. [00:38:36][7.4]

Alec: [00:38:37] Hmm. Now, Niki, we are running short on time, but I have to ask you a question about valuations, because valuations in 2021 and valuations in 2022 completely different in public markets and in venture capital and private markets. So my question is, where we wrong then? Are we wrong now or is it both? [00:38:57][20.9]

Niki Scevak: [00:38:58] I was going to say we're always wrong. Whatever year you pick, there is never a chance that valuations will be precisely correct. You know, 2021 was was 100% wrong. Equally, though, you think back to 2012 or 2011 was $2 million pretty money. The right seed round price for Airbnb, $2 million. Pretty money for Instagram. Was that the right pretty money? YouTube. I think the race did a $3 million valuation. So knowing what you know now about the, you know, Instagram as a public company would be worth $200 billion if it was an independent public company. YouTube would be worth $100 billion as an independent public company. Was that correct? And I think that's categorically no. Knowing how many Start-Ups got started in that year. So the universe of ideas, knowing the probabilities of success, I think people correctly estimate that it's a very low probability of working out. But I think what people underestimated was the scale of this of the success when it does work out again, they were imagining that it might be worth $1.5 billion or $10 billion, not $500 billion. And so I think people were wrong about that. Equally, 2020 €1, it was not only people drunk on vodka, it was the vodka mixers, Red Bull. And not only was it Red Bull vodka, but it was intravenously connected to people's veins rather than orally ingested. And so for sure, last year was wrong. But I think of it as technology start-ups and technology companies. The world is still figuring it out. The world again to think that valuation is a settled science, that that's where you can make the mistakes. When you think of valuation as a constant experiment or a constant process that is being added to and improved upon, like it's embarrassing what we teach university people about finance and that it's an efficient market and then use DCF. That's two of the worst ideas just to think the human race has not figured out valuation in business and we are constantly trying to add to our knowledge and to experiment with what is the signals to pay attention to. Also, just even like the accounting system was invented when things were very asset driven and so very heavy industry asset driven versus all of the all of the value increase in the world's business. You know, enterprise value is intangible driven. It it's not an asset, it's knowledge. It's how do you think that, you know, Google's product spend is an expense and not an asset? When some company gets acquired, that knowledge or the operating expense becomes an asset on the balance sheet. So again, I just think if we think we don't know and we're coming from that place and trying to work out, the world is just in this wrestling match with. To correctly value companies and especially technology companies, and especially at the early stages, these are all the margins of error, exponentially increase as you smash these things together. [00:41:58][180.4]

Alec: [00:42:00] We're always wrong, but that's that's what creates the opportunity. And Niki, we we could have spoken for another hour. There's so much more we'd love to unpack, so we'll have to do this again. But we are running out of time, and we always do like to finish with the same three questions. So we'll move on to those the first. Do you have any books that you consider a must read? [00:42:22][22.6]

Niki Scevak: [00:42:23] I always give Poor Charlies Almanac to anyone, you know, whether they join Blackbird or I mean, it's my absolute favourite book in the world and I think I took two things out of it that investing is is more psychology than spreadsheets. Again, people think of investing, doing spreadsheets, and you have three decimal precision and you can this fantasy that you can forecast out precisely ten years ahead, that is a theatrical version of investing that has nothing to do with reality versus the psychology of investors. At different times when you're at the extremes that when things go well and at the extremes when things don't go well, and what governs that psychology in those extreme moments. And then also the second incredible idea is you can take lessons from other disciplines in other industries and apply it to investing and whether that's through how general society works, how biology works. Everyone should check out the Santa Fe Institute, which is a sort of interesting university in America that looks at these sort of complex systems and how they all interact. And investing is one complex system, but the other know how and aren't. Colonies are another complex system and how they work and the dynamics that govern them and so on. And another and what can we learn from those other systems and apply it to the investing system? So I think that book was so transformational in my life that it's singularly the best recommendation. [00:43:49][86.5]

Alec: [00:43:50] Now the second question, forget valuations, forget the this company as an investment idea and just purely on what the company is, what it does and who runs it, what's the best company you've ever come across? [00:44:02][12.3]

Niki Scevak: [00:44:03] Hmm. That is a difficult one because there are many different candidates. [00:44:08][4.5]

Alec: [00:44:10] Yeah. I feel for you more than most. This might be like picking between children with all the invested in. [00:44:17][6.2]

Niki Scevak: [00:44:18] Companies that we have already invested in. Is that. [00:44:20][1.7]

Alec: [00:44:20] Oh, no, I just mean generally in the whole universe. But but I feel like, you know, your it might be easier for a public market investor who's abstractly looking at spreadsheets then than you are. [00:44:31][10.2]

Niki Scevak: [00:44:31] So I would say it's Amazon, but because of us, I think is the is the most beautiful business in the world and again in a decade's time will be the largest company in the world, maybe still inside Amazon. It may be still called Amazon, but it is the most beautiful business. [00:44:49][17.8]

Alec: [00:44:49] I love that. At least until Zoox makes it a rounding. [00:44:53][3.6]

Niki Scevak: [00:44:53] Error over time. Yes. [00:44:54][1.1]

Alec: [00:44:55] It will. Niki, we've absolutely loved this conversation. Bryce and I, as we're going, we keep notes are in the Google sheet and we've got a big paragraph of notes and quotes from you today. So it's been it's been a great conversation and one that we hope we can do again. The final question, if you think back to your youngest self at university in that cohort of future founders, starting that first company and getting interested in tech, what advice would you give to your younger self? [00:45:29][33.3]

Niki Scevak: [00:45:29] Go directly to what you want to do in life. I think I was victim to this and I see so many young people delude themselves into thinking that you know where they want to get to. You need seven different steps and some winding maze to get to it. I need to join a consulting banking job for two years to hate it and leave and to do something else. And. And everyone who does that like, I hated it, but I definitely don't regret it. I definitely would do it again. So what you just said you so to to me people put this thinking of their career as some chess match where you need to do ten different moves, where if you have a good idea as to what you want to do, just directly go and do that thing. Don't create any interim steps in between that. [00:46:15][45.6]

Bryce: [00:46:15] Love it. Awesome way to finish the interview, Nikki. And as Alex said, we certainly appreciate you coming on. We've been looking forward to this conversation. Not often we get to speak to those in in the private markets. So thank you for for spending some time with us and and speaking to the Equity Mates community today. We very much appreciate it. [00:46:33][17.6]

Niki Scevak: [00:46:33] Thank you for having me. [00:46:33][0.6]

Bryce: [00:46:35] Hey, thanks for listening to this episode of Equity Mates. We love hearing from you. So drop us a line at Contact@equitymates.com or even better go to your podcast player and leave a five star review. Also a reminder that the Equity Mates content train doesn't stop when you've run out of. So it's to binge. We've got a brand new website, a Facebook discussion group. We're on Instagram, YouTube and slowly making our way as an influencer on Tik-tok. That's Ren. So come and say hello and join the community. We'd love to welcome you. Until next time.