The problems with Australia’s startup investment landscape have been well-documented over the years: depending on who you ask, we either face a dearth of funding at the seed stage, or at Series A, or at the later stages where local startups face the valley of death. Whatever the truth is, it is also true that investor interest in startups has never been stronger than it is now; however, the process of finding the right company to invest in, or the right partner to bring on as more than just an investor is still as difficult as ever, particularly for those new to the startup space.
A web-based platform, Thundering Herd is an introduction and matching service that looks to bring together like-minded entrepreneurs, investors, and professional services providers in order to create complementary high growth opportunities.
Explained cofounder Joseph Galvez, “What we’re trying to do is create a far more level playing field where investors are able to access more deal flow opportunities, so they’re not necessarily stuck with, ‘if I deal with stockbroker XYZ, I can only ever see these deals.’ Being a member of our community, they’re able to see deals from around the market. Similarly it allows entrepreneurs to access a greater pool of funds.”
The platform, founded in 2015, could be described almost as an “early stage venture capital dating platform,” Galvez said. It works in three main ways: the first has a company approach Thundering Herd completely investor-ready, with all its checks and balances in place, and put up a deal on the platform that investors can either take or leave.
The second is an investment collective model where, based on the criteria both companies and investors have listed as what they want out of a deal, the platform’s algorithm will help match the two together.
The third method is a sweat equity model, where the platform, approached by a company that may not be investor-ready, will introduce them to professionals that will help them tick off the boxes that will help them on the road to becoming investor-ready in exchange for equity.
The platform too can, if suitable, work with companies at various stages, from those who are pre-IPO through to those with only an idea written down on a napkin – literally.
For example, Galvez said Thundering Herd was approached by a man who had just an idea, and within weeks had entered into discussions with the CSIRO on his behalf, looking at what it would take to create a working prototype, whether the CSIRO would take some skin in the game themselves, and what kind of interest the investors on the platform might have.
Of course, not every scribble on a napkin is taken in, and Thundering Herd’s putting together of the puzzle for the most part revolves around matching companies with professional services providers.
“We had a company that came to us wanting $3 million. That $3 million had $1.2 million of a loan towards a financial management team over a four year period. Now, going to the market and asking for $3 million is hard enough, but to say $1.2 million specific to a function that’s not revenue producing is tough,” Galvez said.
“In that sweat equity function we introduced them to a virtual CFO business, which, for the handsome price of around $45,000 a year, gives them exactly the same secretarial and CFO services required for their business at this stage. So all of a sudden we’re not needing $3 million, they’re only needing about $2 million. It becomes more palatable, and the virtual CFO firm, because they’ve looked under the hood, they’re a part of the business, they charge a little bit of cash, they take a little bit of equity, they’re then comfortable to bring in their network of investors as well.”
The platform is focused primarily on wholesale investors, with Galvez saying that while Thundering Herd believes everyone has a part to play, its target market is “anyone with available money that can invest in an asset that doesn’t need to be liquid within a three to seven year period, depending on its structure.”
Having worked for the likes of Deutsche Bank, Merrill Lynch, Morgan Stanley and Macquarie Group, Galvez’s personal view is that the average retail investors, the so-called ‘mum and dad’ investors, do not have the time and capital available to really fuel the innovation boom.
“As a stockbroker sitting on a dealing desk with 100 other stockbrokers, you would struggle to get a retail investor to invest $10,000 any given day in a stock like Telstra that’s offering a handsome dividend that, if their car broke down, they could sell out and three days later have their bill,” he said.
“All this talk about, ‘let’s get retail investors to invest money,’ that money’s going to get locked up. They’re not the target market for us. Should any of them be able to extend themselves then, regulations allowing, they’re more than welcome, but for us it’s really a question of sophisticated professional investors.”
Thundering Herd could perhaps be likened to a service such as global startup and investor network AngelList or CapitalPitch, a Sydney-based ‘capital raising accelerator’ that aims to help startups become investor-ready and then introduce them to a network or potential investors. However, Galvez said Thundering Herd is more bespoke.
“We want to ensure we get only the best deals up because we know that not every deal will work; there are no guarantees, but at the very least we want to make sure that we put relevant deals up that people are interested in so that when we do put a deal up people are going to pay attention and they’re going to want to get involved.”
This reflects Galvez’s reason for starting the platform: he felt in his previous that his clients didn’t have the ability to participate in the best early stage deals or, in fact, see any.
“For companies that actually wanted to raise money, the cost of dealing with me or with the firm I was at were always quite expensive, they were just not on the same ball park,” he said.
“I had one particular opportunity where a friend made a significant amount of money, but I completely missed out on being able to assist the process. It wasn’t about making money myself, but just being a part of the successful venture and that’s I suppose what Thundering Herd is trying to do. We’re trying to bring the right people together, that all have the right interests at heart, that lose less together or all do well together.”
Galvez’s experience in the private wealth management space means he was able to bring a ready-made network along to Thundering Herd, and there are now a couple of hundred members signed up.
The platform charges companies an upfront fee of $9,000, which has Thundering Herd conduct due diligence and a full investor-ready review, with assistance also available for putting together documentation. A commission is then charged on the closing of a deal.
Thundering Herd sees 20 to 40 deals “in a slow month”, said Galvez. However, of those, around 10 the team might look at introducing to potential partners that could help them become investor ready, while only three or four others would progress to conversations on a serious level. Of those having serious conversations, just one or two would be taken to market.
“At the end of the day, if people just start throwing up crap, we’re going to lose complete confidence in the space, and it’s not going to be a case of creating jobs, it’s going to be a case of finding jobs. For example, I look at Thundering Herd and say, Thundering Herd needs to be run well, run lean, run smart, and run for a profit otherwise who are we to talk?” Galvez said.
The platform earlier this year closed a funding round for Melbourne healthcare startup HealthKit, raising $1.5 million, and KernMobile, raising $1.875 million. A number of deals are in the pipeline for the next few months, with deal flow coming from both Australia and overseas.
Image: Joseph Galvez. Source: Supplied.