Canva's AI buy, SAVCF report & BFF grant axed

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Gemma Clancy (00:00):

The Startup Retro is recorded on the lands of the Gubbi Gubbi and Wurundjeri people.

Will Richards (00:07):

Good day and welcome to The Startup Retro, a weekly show brought to you by the team behind the Overnight Success newsletter, where we help you level up on the Australian startup ecosystem by giving you an insider's view on Aussie startups and venture capital.

Gemma Clancy (00:17):

The Startup Retro is brought to you by Day One, the podcast network for founders, operators, and investors. I'm Gemma Clancy.

Will Richards (00:24):

And I'm Will Richards. In today's episode, we'll dive into Canva's acquisition of the fast-growing Leonardo AI, plus an awesome interview with Elli Hanson from Side Stage Ventures, who is one of the seed stage investors into Leonardo.

Gemma Clancy (00:36):

And we'll look into the story behind the South Australian Venture Capital Fund and why the state government has decided to commission an independent report looking into its effectiveness.

Will Richards (00:44):

We also cover the secret killing off of the Federal Government's boosting Female Founders grant program and potentially why it got killed off.

Gemma Clancy (00:51):

And we're going to jump into a couple of our favorite raisers from the week, including Monty Compost, who's looking at moving into industrial composting.

Will Richards (00:59):

And Slice, a bootstrapped FinTech business that focuses on the travel industry, and they had an amazing story of how they survived through COVID.

Gemma Clancy (01:07):

Let's get stuck in.

Will Richards (01:11):

Let's dive into the headlines, and Gemm, the first headline that really caught my eye this week was Canva's acquisition of Leonardo AI.

Gemma Clancy (01:20):

Yeah, when I heard about that, I think my literary reaction was "What?" Sorry for anyone's ear holes.

Will Richards (01:26):

Yeah, it's an interesting story, because they were both Blackbird funded, obviously startups, both playing in the design space. Leonardo AI was branded as this, I think like Canva competitor and Canva potential killer maybe, and what's basically happened is Leonardo last raised a series AI that pretty nuanced evaluation. It was a 45.9 million series A in December, 2023. And that included investors like Blackbird and Side Stage Ventures and quite a few US and UK investors as well. And the valuation there was 320 million dollars. And this acquisition is basically north of that, we don't know exactly what the valuation is.

Gemma Clancy (02:08):

Yeah, it'd have to be north of that, wouldn't it? Which is pretty insane.

Will Richards (02:13):

Yeah, and it's a very young business, two years old, within basically the first month of launching the product and their Discord server, they had over 20,000 users using the platform. So I think a phenomenal story in growth.

Gemma Clancy (02:27):

Yeah, my reaction, I think, when I first heard the news wasn't surprise, because of Canva making the acquisition because it makes completely sense. It fits with their strategy, especially this increased move into AI for them. But my surprise was probably because they're so young and they've got this huge valuation, so yeah, I think I was just shocked at the fact that they're already being acquired so quickly, because it's got to be one of the fastest turnarounds of growth and then acquisition in certainly in an Australian startup ecosystem, is almost unheard of.

Will Richards (02:58):

Yeah, and I'm really proud to say we've got an interview with one of the investors, Elli Hanson, from Side Stage, who invested in their earliest funding rounds. And I'm really keen to go behind the scenes of how the deal came together and also just the founding story of the business and how they got involved. But I think what will be really interesting is understanding, or trying to understand the complexity of the actual deal structure. There's some reporting coming out from Capital Brief that it sounds like it's a fair bit of script that the founders and the investors have secured. So basically that means Blackbird's got potentially more equity now in Canva than they had previously, because the equity they had in this business is now just turning into Canva shares. And Side Stage Ventures I think have done the same thing too, so they've now got a nice chunk of Canva.

Gemma Clancy (03:45):

Yeah, pretty cool. Well, I'm really looking forward to listening to that interview. It should be really good.

Will Richards (03:50):

What grabbed your attention this week?

Gemma Clancy (03:51):

Well, the headline that was really interesting for me was about the South Australian Venture Capital Fund, I think first and foremost, because I'm from Adelaide and familiar with SAVCF and some of the team there. And the headline came out of The Australian, it was talking about this report that the government has got an external consulting firm to develop. The top of the article talks about the cost of that report, and I think that's probably one of the main pieces of public interest because the report costs about $240,000, which to the average person probably sounds like a lot of money to most people who understand how much consulting firms charge for things. Probably not surprised at all.

(04:26):

But they commissioned this report to look into how effective has the South Australian Venture Capital Fund been in meeting its mandate, which the bar is so much higher for this fund because they're trying to obviously make really good investments and make a return on those investments. But they're also trying to drive a broader agenda, which is aligned with the government's goals to increase innovation in South Australia and draw talent in and fuel that part of the economy. So this report looked into how successfully is it doing that as well as how successfully is it actually generating returns for the investors. And really the media hasn't really gone into what are the outcomes of the report because the headline is that that report hasn't been released yet and we're not sure whether it actually ever will be released, which is I think, implied in the media that that's maybe not okay and that it should be released. But the government is concerned about releasing it mainly around the financial information that's contained in the report to do with the performance of the different companies in the portfolio.

Will Richards (05:31):

Sure. There's obviously a lot of scrutiny around these government funds right now, obviously headlined with Breakthrough Victoria's scrutiny, but I think the magnitude is just so different in these two funds. Breakthrough's a $2 billion fund with essentially no mandate. And then I think the South Australian VC Fund is, I think it has a neater mandate and potentially it's more justified in what it does and what it's trying to do. And it's made 10 investments, we can go through who they are, but some of them are performing pretty well. And I think it is following that power law dynamic that we want to see and what we do see in venture funds. But it does have a really interesting founding story, and I know you've done a bit of research on where the fund basically came from. Let's get stuck into that.

Gemma Clancy (06:17):

Yeah, so there's a much bigger story behind this headline that I think makes this much more interesting. And just for context, I think speaking to the size of the fund compared to the lights of Breakthrough Vic, it's only a $50 million fund and it's an eight-year investment period and then a seven-year exit period. So it was born out of the previous labor government, before this current labor government. In that meantime, there's been a liberal state government, so it came out of Jay Weatherill's state government. And they started up in 2017, I think, and they appointed Blue Sky Alternative Investments at the time to manage the venture fund, and they spun up Blue Sky Venture Capital, and that was managed by Elaine Stead at the time. And then Blue Sky Alternative Investments got itself into a bit of trouble and they found themselves falling into administration. And I'm not going to go down the rabbit hole of that whole story because already it's been covered significantly by the media. And if you're interested in learning about it, you can go do your own Googling.

Will Richards (07:16):

Defamation cases, went to court. Yeah, it's a rabbit hole.

Gemma Clancy (07:21):

A serious rabbit hole, and Elaine was put through the absolute wringer on that one, and unfortunately that was a really, really tough period of media coverage for her. Upside of the story is that she's now running our main sequence, which is CSIRO's Venture capital arm. But long story short, Blue Sky got appointed, they fell into administration, so they needed to appoint a new manager of SABCF, and they appointed Artesian Investments. The guy they chose to lead that was a guy called David Rohrsheim. And David Rohrsheim is super interesting. He has got a very interesting backstory and resume, but one of his most notable things on his resume is that he brought Uber to Australia, and he was the founding team member of Uber in Australia. And he was appointed by Stephen Marshall, who was the Premier at the time. The program was under his guidance at the time, and Stephen Marshall and him are actually buddies from way back, way, way back, which was super interesting. They worked together, I think they met through Wok in a Box. Stephen Marshall used to own a Wok in a Box franchise.

Will Richards (08:28):

This is very deep South Australian knowledge. I have never heard of whatever that is. What's a wok in a box?

Gemma Clancy (08:34):

You don't know what Wok in a Box is? I think Wok in a Box is national. I think it's kind of died now, but Wok in a Box is almost like Sumo Salad. You go and they've got pretty standard things you can order, and then they'd chuck everything in the wok, and it's like fast noodles, pretty much.

Will Richards (08:48):

And then it goes in a box?

Gemma Clancy (08:52):

Yeah, and then it goes, surprise surprise, goes in a box. So yeah, Stephen Marshall appointed his buddy, David Rohrsheim, who by, obviously account of his resume, super well credentialed for the role, and he's been running it to this day. And like you said, Will, the media's insinuated in this latest reporting that there's something awry here, and maybe that's why they don't want to release the report around how has this fund gone. But you look at who they've invested in and I don't imagine that it's doing that badly.

Will Richards (09:22):

The startup that probably most people have heard of is Fivecast, and that's been in a few high growth stories of startups that are the fastest growing startups in Australia and South Australia. So there's 10 startups in total, and we'll list all 10 of those, I think, in the newsletter, so you can come to your own conclusions. But I don't think there's been many exits up until now.

Gemma Clancy (09:40):

No, no.

Will Richards (09:41):

So, it's really hard to judge how it's going.

Gemma Clancy (09:44):

It's only been a bit of a six years that the fund's been active. It's got this eight year investment period and then we've still got to wait to see how those investments go. The other one that I found, that I believe that SABC have invested in, is Fleet Space Technologies. And Fleet's huge. It's one of the biggest space success stories coming out of Australia at the moment. So yeah, so I guess don't just take the headline at face value, there's a really interesting story behind it. And then I'm really interested to see how the government takes the insights from that report, whether they release it or not, I guess we'll be waiting to see whether they decide to continue the fund, continue investing in it into the future.

Will Richards (10:26):

I hope they release it, because it'll be interesting, nevertheless.

Gemma Clancy (10:29):

Super interesting. Yeah, to see the waiting as well into are they just looking at investment returns or are they looking at impact on the ecosystem more broadly, and to what extent do they wait each of those things to make their final decision.

Will Richards (10:44):

Yeah, I think that's a great segue into the next really big headline, which is the axing of the boosting Female Founders Program. And this was reported in Startup Daily, and it happened in the budget, but it basically only came out due to a Freedom Information Act. What essentially has happened is the grant program had the budget of 52 million dollars to give away to female founders, and they were really trying to support female founded startups, get off the ground and grow and that sort of thing. And they've deployed 35 million of their total budget and basically killed it off due to basically an internal review from the Department of Industry Science and Resources, saying it had no measurable impact with the ecosystem.

Gemma Clancy (11:36):

Which really confuses me. I know there's a lot of people putting a lot of scrutiny on this, and I try to give the government the benefit of the doubt in many ways, that obviously the media doesn't know everything, but it was only started in 2020. They haven't even invested the entire amount of the budget allocated, and now they're saying there isn't a measurable impact. And I really struggle to see how you could make a definitive call that this has not made a measurable impact in such a short space of time.

Will Richards (12:05):

Yeah, I do agree with that, but I think this whole program has been marred by mistakes and delays along the way, that just potentially the operation of the thing was just not great. And there's no clarity on basically who's received the grants and there's no clarity on what the measurable impact actually is that they're trying to get to. But what we can say is in 2021, basically the demand for this thing is massive. They've done three rounds of this grant application process, and pretty much every single one of them has had some sort of delay in the process. But the last round, which was round three, had about 700 applications for the program. And the round before that, everyone who applied for the program, which was about 1,000 female founders, there was delays in basically working out when is this closing, and when they could potentially finding out about are they going to be successful or not.

(13:05):

A thousand of those founders were told that they were successful in getting the grant, which was a notification that shouldn't have gone out. So then they had to rescind that notification within 24 hours, and all that sort of stuff. So I think it's just been marred with just not, it just hasn't been very operationally successful.

Gemma Clancy (13:25):

It sounds like they got so much demand they didn't know what to do with it. They weren't operationally set up to deal with their demand, and obviously this is complete speculation, but it makes sense that they've looked at it and gone, "Jeepers, we're getting more negative press on this than we are positive press because of all the delays. And so maybe it's just better to cut it loose and decide that this wasn't something that the government could really administrate properly."

Will Richards (13:52):

But I think you then look at maybe examples of groups who are doing it potentially well, and you've got the launch [inaudible 00:14:01] Alice Anderson Fund, who co-invest at a bit of a discount on equity for female founded businesses. And they've just made their 36th investment and that's a 10 million fund. And we know some of the founders who have been through that process and they speak really highly of it.

Gemma Clancy (14:16):

Yeah, it's just such a different model, isn't it? This is matched funding, but the government's not making really considered investment decisions in the same way that the Alice Anderson fund does. The Alice Anderson fund approached things like a typical VC would. Looks at, I guess, are they performing right?

Will Richards (14:37):

Yeah, well, they actually put the onus on the venture investor basically, because to get that funding, you need to be basically backed by a VC, and they obviously have an idea of who those reputable players are in the market. And they don't put the onus on the founder to do the application, they put the onus on the VC investor to do the application on behalf of the startup. So the Alice Anderson fund's basically doing it. I think they're supporting startups in a really nice way that basically puts the onus on someone else who's got the right incentives as well. So I think it's a better way of doing it, but then you also look at what's happened in New South Wales and they had a female founder venture fund as well that was worth $10 million, and that's basically been turned off as well. So there's just a few different groups doing it different ways, and I think some are maybe better than others, and we're starting to see some perform better, and things like this getting turned off.

Gemma Clancy (15:31):

Well, hopefully given the federal government hasn't invested the full amount, they will hopefully look at starting up an alternative program to replace this one, and maybe it'll have a slightly better model, maybe taking some tips from their friends at LaunchVic and seeing if they can redesign it in a better way for the next iteration of it.

Will Richards (15:57):

Let's get stuck into the startup raiser section, and Gemm, what was your pick of the startup of the week that raised capital?

Gemma Clancy (16:03):

So my pick this week was a company called Monty Compost. Well, before we start, I'm just interested, have you ever tried to compost before?

Will Richards (16:11):

I reckon I did in primary school, and I think our class of kids just threw so much like apple cores and banana skins into the worm bin, that I think it just ended up basically becoming a rubbish bin. So not successfully.

Gemma Clancy (16:24):

Not successfully. And I think that's probably the common story of a lot of people who try to compost. It sounds like a really great idea, and then you try to do it and then you realize it's actually hard to create a really successful compost. I've had many a compost in my time, some successful, some a lot less successful. And in the process of trying to become an expert composter actually came across this company.

Will Richards (16:48):

Oh really?

Gemma Clancy (16:48):

Monty Compost. So they have a organic waste recycling, or composting internet of things device. So that kind of looks like a, you know those solar panel lights that you put in your garden, stick into the ground, and then they have the light on top? It kind of looks like one of those. Essentially what you do, is you stick it in your compost and it provides you with data and analysis of how your compost is going, and provides you a little coach in a mobile app to tell you do this, do that to make your compost actually work and be successful, and not just be a pile of essentially the same as what you'd put into a normal rubbish bin.

(17:29):

So it is a really interesting startup, because it was founded quite a while ago in 2019, by Ashley Baxter, and this is the first time that they've raised. So it's been around for a little while and they've grown organically, pun intended, and they've raised one million dollars from Skalata and Antler as part of Antler's QIC mandate. And now they're looking at taking what they have developed as a direct to consumer product, so anyone can buy it online on their e-commerce platform. And now they're moving into industrial applications with a new version of their Monty device called MontyOHM. And it's just, like the founder said, that she'd always seen this as the track, I guess, that they would eventually end up on. But they've taken this little bit of time to focus on developing the technology, selling it direct to consumer, and now they're pivoting into more of an industrial application.

Will Richards (18:29):

I've actually had a bit of interaction with Ashley. She pitched at one of the Regional Angel Investor Network pitch events at Farm Fest in New South Wales. So this was very much on the pivot of going into the industry and trying to pitch to farmers who obviously deal with a lot of fertilizer, a lot of compost, and a lot of waste. And it was really interesting for me, to get my head around the current solutions in market for this sort of technology. And basically the big differentiator is for the industry and farming customers, these solutions are super expensive. These monitors cost upwards of a thousand dollars each, and the Monty Compost solution is just a fraction of the price.

Gemma Clancy (19:11):

Yeah, it's certainly very affordable as a direct to consumer product. It's retailing at $200 AUD, at the moment it's 30% off, if you're interested in getting one for yourself, it's $139. And when I first heard about this, I was reading the press releases and hearing that they were pivoting into this more industrial use case, I just imagined that the actual device itself would be really big and look quite different, and maybe just the inherent tech inside it and then the software to support it would be the same, but it actually looks really similar.

(19:42):

So I guess they've been able to transfer a lot of learnings from the direct to consumer product into this commercial product, and they're obviously not going to incur a whole new lot of costs to develop this industrial version. What's different about it, I guess, is that they've got this software product in the background that the managers of facilities that are trying to manage this waste can view, and then they can better understand the data surrounding that waste, things like methane production and help them meet certain compliance and regulatory requirements.

Will Richards (20:13):

And they've obviously got the physical thing in the app as well. And I think they're changing the model of the pricing that they give to industry. It's like a staggered approach, so depending on how big your farm is or how big your need is, it goes from $1 a day, with one of these monitors, all the way up to $5 a day. But then you get all these API integrations and you can really connect up your smart farm to trackers that you have elsewhere on the property, or a big sort of central data hub to really monitor what's going on. And I think there's a lot of complexity in composting that I had no idea about, which is methane gas released and temperature of the actual pile of fertilizer as all the pile of compost as well.

Gemma Clancy (20:54):

Yeah, exactly. It was quite timely for the announcement of this raise actually, because the Climate Council released a report just this week about how big Australia is in terms of methane production on the world stage. And we're actually the 12th largest methane polluter ahead of other economies that are even bigger than us, like Germany and France, which is pretty crazy. And the majority of that methane comes from agriculture, which is 52%, and then it's fossil fuel mining, 25%, and then household and business waste is about 11% according to government data. So this is one potential part of the solution.

(21:34):

Something that also came to mind when I was doing some research into this one and reading about methane production and the impact of it, was a conversation that I had with a founder of a company called Blocksolve Infrastructure at Sunrise earlier this year. And he was talking about the fact that they were looking at developing an energy related business, and as part of their research and setting up that business, they wanted to understand the methane production of various waste facilities around Australia. And they realized that the data wasn't that great, and that a lot of these facilities didn't actually know how much methane they were producing.

(22:10):

And so they went away and produced a methane map, and you can actually go and have a look at that. And it's a map of Australia and you can see all the different facilities and how much methane they're producing. So you can go to blocksolveinfrastructure.com, and it's on their website. And I was like, "That's so cool." But the most interesting thing about that conversation was just that lack of awareness and clearly this is a product that now is going to help those facilities and also agricultural organizations, composters, councils and all of those use cases better manage methane.

Will Richards (22:45):

So interesting, because there's such a growing market of carbon credits and bio credits, and those sorts of things as well. And I feel like this is just one more data point that's going to go into that market as well.

Gemma Clancy (22:57):

Yeah, potentially.

Will Richards (22:58):

And maybe a way people can offset or understand how much they're producing. So it's great to see and awesome to see the product live.

Gemma Clancy (23:05):

Yeah, very cool. What was your pick for this week, Will?

Will Richards (23:08):

So my pick of the week was a company called Slice. Slice is a Sydney based FinTech business that basically is helping people travel. It's a buy now, pay later for travel in particular. They raised a 7.5 million seed round led by Peak XV Partners, which was formerly the Sequoia Capital India Fund. And they also raised a 10 million dollar debt facility from Road Knight Capital, which is a Melbourne based venture debt provider, which this is probably one of their biggest investments that we've heard of so far. So it's good to see them getting active in the market as well.

Gemma Clancy (23:44):

You said Peak XV was formerly Sequoia Capital India. What's going on there?

Will Richards (23:50):

So they spun the fund out, because basically the fund was competing for deals with their global fund, which is also enormous. So they spun this out as a new entity, a new fund manager, and basically Peak XV now focuses on Southeast Asia and the Indian market, in particular in their own right. So this isn't their first investment in Australia, but they're starting to get more and more active in Aus, and usually when they invest it's a pretty big check size.

Gemma Clancy (24:21):

Right, so it's after pay for travel? Tell me, I'm going on an overseas holiday in the not too distant future and we're looking at all of our bookings now. How would it work in the context of me booking my new holiday?

Will Richards (24:34):

So they operate two main products and two brands, essentially under their main slice banner. And one is a buy now, pay later for travel, and that's called Pay Later Travel. And then essentially the other one is a travel agency solution which offers lay buys for travel, so you can just pay for your travel bookings and installments over time.

Gemma Clancy (24:56):

Makes sense. I'm surprised there hasn't been something like this before, especially with all the buy now, pay later stuff that's out there. Yeah, it's interesting.

Will Richards (25:03):

Well, there's credit cards.

Gemma Clancy (25:06):

Yeah, true, true.

Will Richards (25:09):

I think there's just a growing trend of sophistication in financial service products and this is just an evolution of a very niche product that specializes in a particular market. Maybe another good example is like Butter Insurance, classic startup, out of Startmate that really focuses on travel insurance and insurance for millennial travelers. And it's just a very niche financial services product that's solving a problem for a particular type of person. And I think this is what they're doing as well. But they've got a really interesting story, because they actually launched in 2018 and have bootstrapped the business for the past six years, and they obviously have grown this travel business through COVID.

Gemma Clancy (25:49):

Yes, it's pretty hard.

Will Richards (25:50):

And this is their first external funding that they've taken since launching the business. So they've gone through some really turbulent times as founders. So the founders, Yannick Dharmalingam and Farouk Ismail have posted a really nice recap of how they've basically gotten the business to where it is now. And I'll just share a little anecdote from that blog post, but it's a fantastic read and we'll put it in the show notes in the newsletter this week. But basically in COVID, they were primarily an Australian based business and they were serving Australian customers, and obviously all the flights basically got grounded and no one was really leaving the country.

Gemma Clancy (26:27):

Certainly no one was thinking about booking travel.

Will Richards (26:31):

And they tell the story of going on to FlightScanner and looking at the planes that were in the air across Australia, and they could count them on their hand. And I remember there were times when I was in lockdown and I'd look up at the sky and it was bizarre, because you would never hear a plane or see a plane.

Gemma Clancy (26:49):

It's nice and quiet. Sometimes I miss it.

Will Richards (26:53):

They basically scrolled across to Europe and the US to see how they were tracking with flights just to get a sense of visualization. And there were still quite a few planes flying around Europe and the US, and it was a bit of a do or die moment because they had run out of runway in Australia. And the product had customers up until then, but it completely died off in COVID. And then they looked at the US as basically the next opportunity, and it was very do or die. So one founder sold his car and then the other one financed it on personal credit cards, and they launched the business in the US with the same products that they had in Australia, but they just moved their whole focus to the US and ran it from Australia.

(27:38):

In 2023, which they've come out of COVID, but people were tangibly traveling, but I think there was that desperation of I want to travel as much as possible and just sort of get out of where I've been locked down for a little while. They saw a 350% revenue increase in 2023, and I think that story's just continued into now, and obviously with the capital raise they're doing now, the world's opened up and they're just really well positioned to take advantage of it.

Gemma Clancy (28:05):

Yeah, that's incredible resilience. They must have had a small sense that when this finishes, hopefully the lockdown and COVID-19 does end, that there would be an upswing. They must have somewhat felt like that was an inevitable outcome, and that if they were there for that and they could survive through to then, that it would work out. But it was a pretty big if, because we didn't even know how long is COVID going to be around and how much more is it going to restrict our travel. So that's a pretty big punt to take, but good on them, it's paying off.

Will Richards (28:36):

Yeah, I think they obviously had a sense that the product was loved in other markets, and when they launched in the US they definitely saw the word of mouth spread and people would tell their friends about the experience that they had, and it just grew and grew and grew and it's continued to grow so good on them and congrats on their ace.

Gemma Clancy (28:52):

And they've shown that you can launch in the US without having to move to the US. Very interesting. I'm sure it wasn't easy, but it's an interesting use case.

Will Richards (29:10):

So I'm super excited to be joined by Elli Hanson, one of the principal investors at Side Stage Ventures, who just had a significant exit with Canva acquiring Leonardo AI. But before we dive into that acquisition and what it means for everyone involved, I'd love to hear your story, Elli, about how you got involved into the world of startups and your previous experience in the startup space. I know this isn't your first acquisition that you've been a part of, so I'd love for you to introduce yourself.

Elli Hanson (29:36):

Thanks so much, Will. It's a pleasure to be here today and to chat with you. Yes, it's true, so my background, actually my technical background, is industrial design, product design and then I cut my teeth in the States at Ogilvy in New York and spent some time doing corporate ad agency land, and left that to fund my own startup. Actually I had founded an incubator in LA while I was doing my MBA, which was a wonderful experience to get to see across a number of different sectors and meet founders across working in many different industries. One of which I ended up joining after my MBA as a co-founder. And so my company in the States was consumer hardware electronics brand, and built that, brought that to market. Consumer hardware is everything from production, manufacturing, supply chain, brand, packaging, D to C go, to market, and of course fundraising all along the way.

(30:28):

So you really get to pack your backpack full of a lot of that founder knowledge when you go end to end. Took my exit from that last year and made my way over to the Australian ecosystem and spent some time getting to know everyone here, and really fell in love with the Side Stage team. Joined the team earlier this year, as you said as principal investor. And one of the things I just love about Side Stage and our team is that we really see this unique opportunity of this thin layer of really world-class founders that could be building anywhere in the world, and they're building here in Australia. World-class technology and world-class founders coming out of Australia.

(31:07):

And we are sector agnostic seed funds, so we really are investing across a range of different industries, but we love to focus on that early pre-seed and seed. We love to be the first check-in when we can, which in this case was one of, and lean in and back great founders and support them on their journey. That's really what we're here to do and I've been lucky so far to get to start to do it with just an amazing team beside me.

Will Richards (31:34):

It's so nice to meet a fellow industrial design graduate.

Elli Hanson (31:38):

Yes. Great.

Will Richards (31:39):

But let's get stuck into Leonardo AI. I think for everyone's understanding of the acquisition and maybe why Canva was so interested in the business, would you be able to give us a quick summary of exactly what Leonardo AI does and what their product is?

Elli Hanson (31:55):

Yeah, absolutely. Leonardo AI is one of the really leading image generation platforms, especially coming out of Australia, but pretty immediately on the world stage, Leo really garnered this incredible community around it from the early days building on their Discord channel, and they have expanded across just a number of different platforms in the way that they are. The technology and their recent Phoenix release was pretty amazing, but just at its core, image generation AI platform. Keep it simple.

Will Richards (32:27):

Yeah, image generation platform is definitely a very high level summary of what Leonardo AI does, but I think it goes even more specific than that, doesn't it? Could you talk about the absolute fidelity of how deeper designer can get into editing the images with a software like Leonardo?

Elli Hanson (32:46):

Absolutely. The level of fidelity, I think especially as a designer, getting to see that as you would know then coming from industrial design, when you study three-D design and you study rendering these things from scratch, when you learn how they're built from scratch, when you do it yourself back in the day, in the different technologies you would've used would've been much different back then. And to see the model and the level of fidelity that it's able to create and then the level of control you are able to have to go in and tweak it and adjust it and get to whatever kind of photorealistic or illustration or three-D, whatever it might be that you want for your output. It's been pretty amazing. But really to see the team lean in and build and see the opportunity that they recognized from day one and then how they went after it, was just really inspiring and why we do what we do.

Will Richards (33:34):

Let's jump back to when Side Stage got involved with the startup, and I know you were invested in the seed around back in April, 2023, and then invested again in their Series A with a whole bunch of international investors. And you invested alongside Blackbird back in the seed round and the Series A. I would love to get a sense of what you guys as a team were seeing in the startup, and did you have a feeling that it was going to be this explosive growth story?

Elli Hanson (34:03):

So early on, of course, you're thinking about what the potential exits are, but that's not how we qualify in these early stages. When you're a seed investor, you're so looking at that founding team and the people behind the business and behind the product. And that's what we were so excited by and so impressed by, was that just incredible team that's got some wins under their belt. They've built something big before, they have this vision and it's what we call an outlier founder. And we have built, I will say we're very proud of, we have a pretty proprietary deal flow to be able to find and uncover new technologies and founders that are building that maybe other funds aren't getting to see. And we're pretty proud of that and what we've built with that and to get to have a look at Leonardo so early and find them was something we're really excited by. But then it's really seeing that opportunity and being willing to lean in and take the plunge and jump in to be a part of it, and to get to earn the right to be a part of it.

(35:07):

And the way that we do that is because we've been founders ourselves. We're a team of investors who have built companies and who have exited and bring a certain operator knowledge to the table that we hope is really valuable to the founders that we back, and that founders that we get to work with get to lean in as much or little as they want. But the Leonardo team early on, we could see that for us it was really about that traction that we saw. They were building such an incredible community and the community was really excited about what they were building, and there was this feedback loop of positive trend that we could just see it growth month after month really early on from month two. And I think what was really unique about it, was just that it was born alongside our fund when we got things off the ground as the first investment as the fund, that was a pretty special time.

Will Richards (36:00):

I'd love to now get stuck into the actual acquisition itself, and I remember writing about the Series A round back in December, 2023, and there was a lot of media attention around being a significant investment and how a lot of people were comparing Leonardo AI almost as a competitor, a direct competitor to Canva. And it was interesting to hear that perspective. A few people were talking about potentially how Leonardo could knock Canva off its perch and maybe it was a startup that the likes of Canva should be worried about because it was growing so quickly. I would love to get a sense of the behind the scenes of how the acquisition came together. Was this something that was in the works for a while, or maybe something that just came out of the blue really recently?

Elli Hanson (36:45):

Well, in terms of how the acquisition came together, I think at the end of the day it's important for us as investors not to take too much credit that these founders are building great products and they have a vision for where they want to go. Obviously we as investors try to be there whenever founders want to have these conversations about is it a raise, is it an acquisition, what's the best way to grow? And so I think in terms of how this comes together, we tried to be there for the Leo team to almost act as a mirror for them to decide what's the best next step for them as they're building the product that they want to build and going to market in the way they want to go to market.

(37:24):

It's funny, I think people like to create drama over whether something's a competitor or whether it's going to knock it off its perch, or whether it's the next this or the next that. And I think, to be honest, at the end of the day, there is such amazing tech talent here in Australia and there's so much room to grow and to build. And I think that's what this acquisition actually illustrates, is that what Leo can do and what Canva can do, are both incredible pathways and they would be incredible pathways in their own right. What they can do together is probably even better, combined. And I think that's what we're so excited about, is really the potential of how the technology that Leonardo built in such a short amount of time, can be commercialized so globally and so quickly within that Canva ecosystem.

(38:17):

And then for Canva, how the incredible AI technology that Leo's built in such a short amount of time can amplify the platform that's already a juggernaut. So for us, it's an exponential additive thing. And of course there's different pathways that each could go on, and of course there'd be some competitive areas, but I personally didn't see it that way. And I think that people who like to talk about it like that, just like to drive up some drama, just some gossip, some good tea.

Will Richards (38:51):

Yeah, we're definitely guilty of getting involved in the tea at times around startup drama. I'd love to put some numbers around that comment though. So Leonardo AI right now has 19 million users, and it's a massive number, but it's only 10% of the 190 million users that Canva has. So it's going to be really cool to see that this tech and this platform now get distributed amongst a really huge range of users across the world. Could I ask what the acquisition means actually for you and your team as a group of seed investors?

Elli Hanson (39:26):

Yeah, I think for us as a fund, obviously I think it's worth noting that it's a huge win to have an early exit on the books. I think the truth is that there are tons of funds out there that invest for a few years and don't get that exit. And it's nice to be able to say, we know that we can exit companies, there is no doubt about it, but for us it's not necessarily about that, it's about leaning into build. And I think that we know that there's a ton of value that's going to be added to Canva and we see a lot of compounding value ahead. And we're obviously incredibly excited about what that means, bringing the Leonardo technology into the Canva ecosystem and what that growth is going to look like. So we're building a fund for the next 10, 20, 30 years. And so it's a long road ahead. This is obviously a really exciting quick win to have on the books here for us, but it's really about the founders who built the business and we're just leaning into that next step.

(40:24):

At the end of the day, I think it's a huge win for the Australian tech ecosystem. Obviously, we all know Canva's story, it's incredible, it's a global story. And we as an Australian venture ecosystem are just tremendously proud of Canva on the global stage and can't wait to see it continue to grow and reach its potential, and what that really means for the Australian ecosystem. But I also think Leonardo coming to fruition, yes, very quickly, but a lot of work to be done that the last 18 months for that team, they've just put in so much creative, and technical, and fundraising, and hard yards work to get here and they deserve every minute of this.

(41:11):

And I think that for Australia to be on that global stage to see an AI acquisition this early in the AI ecosystem globally, is great, and I think that it's additive. Seeing these two coming together is just exponentially additive to the potential of each technology, but then also really what the Australian tech ecosystem can be. And of course I'm Canadian via the US so I come at this with a very different perspective in having built my company in the States. So I of course come at this with a global perspective and I'm just tremendously excited for what the next five, 10 years of this tech ecosystem has to offer.

Will Richards (41:54):

Very well said. Well, thank you so much, Elli, for joining us and shedding a bit of light of what's happened behind the scenes with Leonardo building so quickly and the acquisition that's just happened. Where can founders find you and reach out to you?

Elli Hanson (42:07):

You can find me on LinkedIn. My name's Elli Hanson, I'm a principal at Side Stage Ventures, and it's been such a pleasure chatting with you. Thanks for having me, Will.

Will Richards (42:15):

Thank you so much.

Gemma Clancy (42:19):

So each episode of the podcast we finish up in the same way that we finish up our weekly newsletter, which is with a section called Knowledge as a Service, or we like to call it KaaS, and we share our favorite thing that we've watched or listened to, or read during the week that's started relevant and therefore we think will be interesting to our readers and our listeners. Will, what was your KaaS this week?

Will Richards (42:43):

This is a KaaS that I saw shared by Nicky Skivout from Blackbird on Twitter, and it's called The Big Guide to Fusion by Ben James. And it's just a really, really nice written and easy to understand and easy to follow blog post on what's happening in Fusion and where humanity is at in sort of the fusion nuclear-powered debate and conversation. And I think we're starting to see more and more conversation around nuclear power and fusion here in Australia, and I think just in the world generally. Peter Dutton's coming out at the moment and really talking about nuclear power is something that the liberal government is making a focus moving forward. And it's interesting to see how that's going to, I think land on voters. But I think more broadly, we're also seeing the likes of people in the Auckland podcast asking questions about Fusion being the solution to rising demands of power needs in AI and compute and electric cars more generally. So I think it's a topic that is going to continue to be discussed. So Gemm, what was your KaaS of the week?

Gemma Clancy (43:46):

Yeah, my KaaS this week was an recent episode from The Journal, which is the Wall Street Journal's podcast, and it's about Amazon's rollout of Alexa. Quiz for you, because they love to quiz you mid podcast without warning. So Will, there've been 500 million devices enabled with Amazon's voice assistant, Alexa, distributed around the world. How much money do you think Amazon has made from them since 2016?

Will Richards (44:12):

From Alexa?

Gemma Clancy (44:13):

Yeah, from devices with Alexa in them.

Will Richards (44:16):

As in profit, or just like?

Gemma Clancy (44:17):

Sure, let's go with that.

Will Richards (44:19):

I don't think it'd be much at all. Surely it's got to be a loss making thing, because I don't think I've ever looked at a device and been like, "I'm going to purchase this over that because it's got Alexa", or another Siri or Google.

Gemma Clancy (44:35):

Well, you're pretty much on the money because between 2016 and 2021, they've lost 25 billion dollars.

Will Richards (44:42):

That's way more than I thought it was going to be. I thought it was going to be a minor loss.

Gemma Clancy (44:46):

Yeah, no, 25 billion dollars is what they've lost on rolling out these products. So largely the main one is the Echo that's similar to the Google Homes that's got the Amazon voice assistant in them. And pretty much the podcast goes through how on earth has this even happened in the first place? And pretty much it just talks about the fact that their main focus with this was that they just wanted to get them in the homes and then figure out how they were going to monetize it later. And they had a rough idea that maybe they would monetize it by having the Alexa interact with various other Amazon products, obviously mainly through the shopping experience on Amazon saying, "Hey, Alexa, please order me new washing detergent." And then she would make that purchase more seamless for the customer. And then other ways they were looking at it were with advertising.

(45:37):

I was working in advertising at the time when all of these new voice assistants were coming out and everyone was like, "Voice is the new thing." There's going to be advertising in everyone's homes through their voice assistants. But when you think about it, it's not a very natural experience. When you ask a voice assistant to give you an answer on something, you're not expecting an ad back. And you certainly don't want the results skewed by ads, because the voice assistant isn't like a normal Google search where you can see which ones are sponsored and which ones aren't. Anyway, so safe to say they haven't really successfully figured out how to monetize Alexa and the devices that it sits in. And obviously there's been a changeover in CEO in over the last couple of years at Amazon and the new CEOs come in and it's like, "Okay, we've got to figure out how to make this thing profitable."

(46:24):

And so the podcast talks about the different routes that they might take to get there. And yeah, it's really fascinating to hear about some of the creative accounting methodology that they use to somewhat hide intentionally, or not intentionally, who knows, but there was all these very creative ways that they were looking at attributing profit and revenue to this product line that really hasn't been making the money since the get go. It's pretty crazy.

Will Richards (46:52):

I'd love to give you some kudos on not using the latest acquired episode as your KaaS as well.

Gemma Clancy (46:58):

Oh yeah.

Will Richards (46:59):

Because I always think that's a given when as soon as they drop a podcast episode, that's always straight to the KaaS. But I have to imagine though, that they're going to release some language model and smarten up what Alexa is doing right now. They've got the distribution, right, so why wouldn't they leverage this new wave of tech?

Gemma Clancy (47:16):

Well, exactly, that's the conundrum that they have. They have all these Echoes and all these Amazon products enabled with Alexa in all these homes, and you can't exactly just disable them and say, "Sorry, your product no longer works." And the podcast does go into the fact that they've got what this semi-secret project going on in Amazon at the moment, trying to figure out how to make what they're calling the Remarkable Alexa, which would just be hopefully a better, more AI-enabled version of Alexa with the latest technology, rather than her just only giving you the weather and how long you've got left on your pasta cooking.

Will Richards (47:54):

One of my favorite things is watching my mum use Siri when she's cooking. She yells at her phone to start the timers, and there's several timers going at once, and one goes off and she doesn't know which pot she's taking out of the thingo.

Gemma Clancy (48:06):

It's not as intuitive as you would sometimes like. Well, we have Google's in our home, and Google really likes to interrupt a lot of conversations, and she certainly can't answer most simple questions. Her favorite thing at the moment I've noticed, is that you ask Google a question and she'll say, "Sorry, I don't know the answer to that." And then she'll say, "But I found something similar." And that something similar will be the exact answer that I wanted, but she just took 30 seconds longer to provide it to you.

Will Richards (48:33):

I've had my TV activate the smart Google speaker that it's outputting from. So you'll just be sitting there in silence watching TV, and then the audio will cut out, the TV will stop, and it'll be like, "Sorry, I didn't quite hear that." And it's like you're talking to yourself.

Gemma Clancy (48:49):

Oh God, it's scary. I mean, I want these things to be better so that they can do a better job of helping us in our day to day, but I've got to say, it is also still a little bit ominous having your speakers listening into everything that you do, but I think it's probably an inevitability.

Will Richards (49:04):

Have you chatted with the voice thing on Open AI yet?

Gemma Clancy (49:07):

No.

Will Richards (49:08):

Download it on your phone app and have a conversation with it, it's pretty good. And what you notice as well is it's really fast, and it quite hasn't nailed the amount of time potentially it takes a human to actually think about what the next question or the next follow-up question to the last point that they made is. And it almost gets like, "Oh, we're done with this conversation because you haven't followed up to my last answer within a second or two." But you are still processing this massive information top that it's given you, but it's really cool to use.

Gemma Clancy (49:40):

Yeah. What have you asked it?

Will Richards (49:43):

I've had a few, almost like having a conversation with a Wikipedia page, so asking about, I'm in a book club and I was walking, I read the book and then it had been a few weeks since I'd finished the book. So [inaudible 00:49:57]

Gemma Clancy (49:56):

If people are listening from Will's book club, he's been cheating by asking AI about the book. He's a hundred percent cheating. You can't rock up to a book club and pretend that you've read the book, Will.

Will Richards (50:06):

No, I'd read the book, but it was 1984 and I was actually asking questions about George Orwell and his life and where he'd come from, and his whole story, because he's a very interesting individual and it was just a really fascinating conversation. But it gives you so much information and then you're processing it, then it's like, "Cool. Thanks. Speak later."

Gemma Clancy (50:28):

Everyone in your book club now is like, the pennies dropped for them why you sounded so smart in the last book club session, because you knew all this random stuff about George Orwell from a quick AI search. Hilarious.

Will Richards (50:38):

Hey, what do you think I do before the podcast?

Gemma Clancy (50:41):

I know.

Will Richards (50:42):

I've had this conversation with an AI for about four hours before we jump on, so.

Gemma Clancy (50:46):

All right, expect your answers to be better then.

Will Richards (50:48):

Yeah, yeah. All right, you're out. I'm getting me AI in.

Gemma Clancy (50:56):

Oh, well, that makes my life easier, so that's good.

(51:06):

Thanks for joining us for this episode of the Startup Retro. We would love to hear what you thought of the show, so feel free to reach out to us directly on LinkedIn, or even better, you can follow us on your favorite podcast player and leave us a review so that more people can find us. And if you enjoy the podcast, you'll probably also really enjoy our weekly newsletter, Overnight Success, which goes into even more detail on the news headlines and startup raises, and much, much more. You can subscribe to the newsletter at overnightsuccess.vc. Catch you next week.

Will Richards (51:32):

Catch you next week.

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