EP05 - Caroline Breeze - FINAL
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Carolyn Breeze: [00:00:00] I think we've attached a lot of success to raising capital.
Liz Nable: Agreed.
Carolyn Breeze: Right? So I think when we open the newspaper and it says such and such raised 25 million, we go, "Wow, that's amazing," right? And they've got $100 million valuation or whatever it would be. I think we need to caveat by saying that's not a marker of success.
Liz Nable: Welcome to a special six-part miniseries, What I Wish I Knew About Small Business Before I Started. This special six-part series inside Media Magnet is brought to you by AMP Bank Go, and I'm your host, Liz Nable. AMP Bank Go is backing Australia's small businesses to get a fair go with tools and support that actually make day-to-day business life easier.
In this new series, we're stepping back from just media and PR to talk about the real lessons of running a small business in Australia right now, the money, the systems, the visibility, the [00:01:00] learnings, and the mindset shifts we usually only discover the hard way. Let's dive into today's episode
I didn't do a business degree. Mine was journalism and communications. So when I opened my first small business, a bricks-and-mortar location, my only business training was the school of hard knocks, on the ground, starting and scaling something from scratch. I didn't know what I didn't know, and the idea of outside investment never even crossed my mind.
I genuinely thought that was a big tech startup thing, something for the Facebooks and the Airbnbs of the world. Little old me just went to the bank and borrowed what I needed or used my own savings. Honestly, it took me a few years before I even had the courage to ask someone what the word bootstrapping actually meant.
And here's the thing, so many small business owners are exactly like me. We don't start with a business degree. We start a business with an idea to fill a gap in the market, solve a problem, or because we're passionate about a product or [00:02:00] service. I wish I'd known about this whole outside investment world before I started, because it could have potentially changed the entire trajectory of my business journey.
But bygones be bygones, I've moved on now. So here I am today with Carolyn Breeze to demystify all of that for you. Carolyn is CEO of Scalari Partners, a listed investment firm that's made over 30 investments and now supports a community of around 40,000 business owners through brands like Tech Ready Women, Fishburners, and Tank Stream Labs.
In this conversation, Carolyn breaks down what terms like equity, venture capital, and SAFE notes actually mean in plain English, the biggest mistakes she sees founders make when raising money, and why she says the businesses with the best outcomes are often the ones who never took a cent of outside investment at all.
We also get into the red flags that make investors walk away, including one founder [00:03:00] request that genuinely made Carolyn's jaw drop. If you've ever wondered whether bigger really is better or feel completely lost the moment someone mentions a cap table, this one's for you. And even if you're sitting there going, "No thanks, Liz, I'm happy building slowly and surely," totally fine.
But this information is gold if you're looking to have educated conversations at any point in your business journey, whether you decide to sell, scale, acquire another business, partner with someone, or invest in something yourself. Listen to this, and you can thank me later. Because no matter what age or stage your business journey is at, this applies to you.
Trust me, you do not wanna learn this one the hard way. Let's get into it. Hi, Carolyn. Thanks for being on the show.
Carolyn Breeze: Pleasure. Thank you for inviting me.
Liz Nable: This is a topic I think that will be a little bit over the heads of a lot of small business owners, but I think it's an important one to kind of explore.
We're talking about investment in your small business and what those different kinds of investments could [00:04:00] look like in terms of going from startup to scale and beyond. So- Yeah ... thank you for being here to kind of demystify what all that means to small business owners.
Carolyn Breeze: Yeah, sure.
Liz Nable: Tell us a little bit about what you do, you're the CEO at Scalari Partners, and your background in this space, and bring us up to speed with what you do.
Carolyn Breeze: Yeah. So, yeah, so I'm the CEO of a, a listed entity called Scalari Partners, and Scalari Partners was founded six years ago as an investment firm. So we invest in very early stage companies, typically tech companies that are scaling and getting capital on investment to grow, and typically they're looking for a partner with some know-how, like that's scaled businesses before, and can help them, you know, open doors and expand and take their products to market.
So we have... We've made 30 investments and everything from AgTech and FinTech and RegTech, SaaS products, [00:05:00] and kind of everything in between. Most of those are in Australia and some are overseas. And then over the last few years we've grown, we've built a lot of products and service offerings to help small business and startups grow and scale, so resources and accelerators and, you know, educational programs, and we've also acquired businesses that help the startup ecosystem.
So some examples would be TechReady Women, which is a female-focused accelerator program, Planet Startup, which is a kind of bookkeeping and virtual CFO service for small business and startups, Tank Stream Labs, who offers co-working spaces and office spaces around Australia, and more recently Fishburners.
So for anyone listening who's in the, the tech and startup space, they'll definitely recognize the Fishburners brand. So they've become part of the Scalari family. And so all together, across all of the different businesses that we own, we have about 40,000 business owners in our databases.
Liz Nable: Wow. [00:06:00]
Carolyn Breeze: Yeah, it's significant, and 100% of the profits that we generate is what we then use to invest back into businesses.
And the way we invest is quite unique. So we'll probably get to this later in the chat. Mm. But if you're a business that's looking for venture capital, so you're looking for investment from a venture firm to help you grow and scale your business, most venture firms put you into like a 10-year fund. So they raise $10 million, they spend the first couple of years deploying checks into companies like yours to help them grow.
They work with them over the 10 years, and then at the end of the 10 year, they look for exits. So they'll sell some of the startups or they'll help them list on an exchange or whatever that may be. And so for investors who invest in those type of models, that money's locked up for 10 years minimum- Right
until there's an exit, right? And within that fund, they might make 20 investments and some will shoot [00:07:00] the lights out and some will just go okay and some will die. And the model is that's okay because we've got this diverse investment of portfolios. Yeah. We don't view it like that. So we write our investment checks off our own balance sheet- We take a very small percentage of the company, usually less than 5%.
We help them grow in scale but we, the money's not locked up, so investors who invest on us on the ASX, they can put in a small amount and next year when they're renovating their house they can pull it out, right? It's not locked up at all. Yeah,
Liz Nable: right.
Carolyn Breeze: Yeah. And we go on the journey with the founder. So we're not getting to that 10-year maturity and kind of forcing exits or, you know, relying on one or two to sh- shoot the lights out.
We think there's a journey and a great outcome for every founder in our portfolio. So that makes us really different. We're also one of... We're really the only early stage tech investor that's on the exchange. So- Oh, wow ... typically, yeah, for a lot of your listeners, if they've ever [00:08:00] been curious about investing in tech, in Australia you, in order to invest in some of these funds you need to be a sophisticated investor, right?
So your accountant needs to give you a letter that says basically you've got enough assets and generate enough wealth that you can afford to take some risk and invest in this type of thing. But because we're listed on the exchange, we're open to any, any investor, all retail investors. You don't have to be sophisticated.
Your money's not locked away. You can invest as little as $50, whereas with a lot of those venture funds, you know, the minimum checks are 500 to K to a mil. So-
Liz Nable: Wow.
Carolyn Breeze: Yeah. So we're trying to do something really different. Yeah. We're trying to create a circular economy where we're servicing the ecosystem and helping companies grow.
We're using those profits to invest in the best companies that we see, and we're trying to make that available to all investors, not just sophisticated-
Liz Nable: That's so cool. And I have so many questions for you. And you have to just pardon my complete ignorance here. So I'm hoping that the listeners are [00:09:00] the same as me going, "Hey, what's that?"
Okay, so a venture capital firm, that's what you are. You're just doing it slightly differently, correct?
Carolyn Breeze: That's right.
Liz Nable: Right. And can you just explain in layman's terms what venture capital is?
Carolyn Breeze: Yeah. So venture capital is capital, a capital injection into your business to help your venture grow, right? Right.
So when you hear about Silicon Valley and you see all these things in the AFR like, you know, Heidi raises 25 million from AirTree or Square Peg or whatever it may be, Blackbird, they're all venture capital firms. So they all raise funds, and they've got, like, vintages, kind of like wine. You know? Like fund one 2025, fund two 2025.
So they raise all the money and get commitments up front, then they deploy the checks into businesses to help them grow- Mm-hmm ... and then they mature them over 10 years, and whatever you kinda end up is the return on your investment. Right. And that's venture capital in a nutshell. So venture capital and that tech investment scene, they're [00:10:00] really looking for companies that, you know, the, the Atlassians and the Canvases of the world.
They wanna invest money and have it return, you know, 15, 25x.
Liz Nable: Right. So they're looking for companies who are, like, dreaming big, going big-
Carolyn Breeze: Yeah ...
Liz Nable: who's showing this massive potential and these big goals.
Carolyn Breeze: That's right. That's
Liz Nable: right. Okay. So-
Carolyn Breeze: Big, scalable companies ...
Liz Nable: so for you guys to come into the market in Australia and list- Mm
you must see huge opportunities here.
Carolyn Breeze: Amazing opportunities. So Australia, there's some great stats actually flying around, but for every million dollars invested in Australia, the return, like our per unicorn return, which is like companies that do over, you know, 100 mil- Like Canva ... is higher than any other market in the world It's higher than Israel.
It's higher than the US. I think India's just starting to kind of sneak up and trump us, but our return on investment in the Australian innovation ecosystem is extremely high, so it's really attractive to [00:11:00] international investors as well. And I think the reason for that is that Aussies are just really good at doing more with less.
Mm. Right? We've always had to punch well above our weight compared to our international counterparts. We've always had to scrappy and bootstrap- Mm ... kind of do it the hard way, and we're really good at, you know, turning that around and turning that into money. And it's not as mature an ecosystem as, say, a Silicon Valley-
Liz Nable: No
Carolyn Breeze: where, you know, they can burn some and lose some. We've never had that luxury.
Liz Nable: No, and it's interesting, isn't it? And again, this tech space is something that I'm really just at the beginnings of learning about. But from what I see from a small business perspective, and I know with you we're talking largely about tech companies here.
Mm. But from a, a business or small business ecosystem in Australia- Mm ... it, we do feel like the underdogs, because we're not really geared towards this, like, incredible... We just have a different, I feel like we have this different culture here. It's not like the US where it's like- Yeah ... "You go, girl." You know, [00:12:00] dream big kinda thing.
We're, like, a little bit conservative maybe, but then obviously the stats show that our entrepreneurs are not.
Carolyn Breeze: Yeah, exactly. And I think, you know, a lot of the learnings and a lot of what I see around growing a business or taking capital for growth into your business translates equally to small to medium enterprise.
Mm. I think the only caveat would be these big venture funds, right? They're really focused on scalable tech.
Liz Nable: Mm.
Carolyn Breeze: Mm. But there's lots of other ways to scale a business- Yeah ... and lots of other funding mechanisms out there. And I think to your point, we are really good at doing more with less. And I think the other thing that's really interesting about the Australian market, regardless of whether you're a tech company or you're a bricks and mortar or you're a franchisee, whatever it may be, is those other nodes.
So if you think, like, Tel Aviv, New York, San Francisco, those other areas, they've set up really strong foundations and well-trodden paths for growth.
Liz Nable: Yes
Carolyn Breeze: They've got [00:13:00] really good trade agreements in place, they've got really good visa programs, they've got really good ecosystems and actual physical spaces where innovation thrives.
They've got a more mature investment market. They've usually, unfortunately, got better tax reforms-
Liz Nable: Yes ...
Carolyn Breeze: around building business and scaling business. And so we really do it the hard way. Oh,
Liz Nable: my God. Totally. I mean, and that's a whole nother episode, right, about the tax reforms and how hard it is here in that kind of ecosystem.
Mm-hmm. Because it's just not as progressive for whatever reason. Yeah. So I agree with you wholeheartedly. So just before we go in, and I'd like to get you to explain, like, to me, like I'm a five-year-old, how different levels of investment work, because I feel like if for anyone who's, like, just starting a business, you know, a lot of tech companies but also small business would be keen to know the answers, too.
But you've come from, like, a big, like, fintech background and payments companies and those sorts of things. You're now servicing, like, thousands of small businesses. Like, what... [00:14:00] Did you know that when you made that transition? Like, what's sort of drawn you to wanna, like, go back to little guys?
Carolyn Breeze: Yeah. So I first started my career, if I kinda skip over sales roles in telco and whatever- Yeah
my first kind of role that led me on the path to where I am now was actually at eBay. Okay. I was there for a few years when eBay was first launched in Australia. I then went across to a company called Braintree that was then acquired by PayPal, and I ended up in PayPal for a few years. And when I was there, it was really interesting.
Like, I was really fortunate that I got to test and deliver- uh, new projects and new go-to-markets and ways of doing things under this safety net of a big brand that people picked up the, answered the phone for and a big budget, right? Where you could kind of fail safe and keep moving. Yeah. So that was... And I learned a lot about payments, I learned a lot about tech a- and entrepreneurship 'cause, you know, sellers using the eBay platform are ultimately entrepreneurs, right?
Yes. As big businesses have been built out of eBay. [00:15:00] And then I went into, like straight into the payments thing. I loved Braintree, loved PayPal, and then I stepped into a couple of scale-ups that were launching in the Australian market. So they were quite well-established businesses in the UK, for example, and I was first boots on the ground in Australia.
I helped build that team up, you know, would- and then would leave, you know, three years later and go onto the next project, and I did that a couple of times. And throughout those years of scaling businesses, and I always wore like the commercial hat, I was always the head of sales or chief commercial officer.
I learnt a lot about tech and I met a lot of great tech companies, and I invested a little bit myself. And I jumped into a, a, a group called Startmate in Victoria, where they help small businesses come in and kinda get their ideas off the ground, and I was a mentor and I've just always played a little bit in that.
Mm. And then that kind of led me then into Scalari 'cause I felt like, well, now I've got the option to invest more on behalf of an entity, help them make those investment decisions, help lots of businesses scale and grow, not just one at [00:16:00] a time. Mm. And that was, yeah, that was really attractive to me.
Liz Nable: Yeah.
Wow. It's so interesting that your history's obviously like s- almost like it's a perfect, like, formula for what you're doing now.
Carolyn Breeze: Yeah. Yeah. Yeah. And I mean, I never would have thought I ended up here, and if I think back to when I was at school and post school, there was no, there was no- nothing that would've given me this direction.
No. Not even AFTR payments and getting into scale-ups and start-ups. It just wasn't on the radar. I think it is a lot more now. You know, the universities have the incubators and they've got entrepreneurial streams that run through different faculties and, you know, we've kind of, we double down or we try to now on STEM in schools and kind of, you know, that whole you cannot be what you cannot see.
I think we're getting better at showing that there is m- you know, more than one or two different career paths you can take, and one of them is you can be a business owner or an entrepreneur. And I think the other thing that's really driven that is these great platforms, like influencer platforms and things that have allowed people to kind of take control of their own finances [00:17:00] and side hustles.
And so I think it's a different era. But back then I would never, uh, have envisioned- No ... that I would end up in this position, and I love it.
Liz Nable: Yeah, you're sort of pioneering that path. That's really cool. Okay. So educate me here. Yeah. So we're talking to small business owners. Some will be tech, like, you know, start-up sort of environment.
A lot of maybe bricks-and-mortar business owners, those sorts of things. But speaking really simply about s- I guess taking your business from, like, the very beginnings in, in, financially and then growing it or scaling it. Can you give me the levels of investment that, right from, like, mom and dad, borrowing money from mom and dad right up the scale?
Yeah. Just explain it to me.
Carolyn Breeze: Yeah. So I'll start with the caveat that- I think we've attached a lot of success to raising capital.
Liz Nable: Agreed.
Carolyn Breeze: Right? So I think when we open the newspaper and it says such and such raised 25 million, we go, "Wow, that's amazing," right? And they've got $100 million valuation or whatever it would be.[00:18:00]
I think we need to caveat by saying that's not a marker of success. That's a- w- we've treated it like that, but it's not really, right? Mm-hmm. That's a company that's doing well that said, "Hey, I see an opportunity. I think I've worked out the pattern to scale this and do more. I need someone else's money to help me do that."
Liz Nable: Yeah. "
Carolyn Breeze: And I'm willing to give away a slice of my pizza for that."
Liz Nable: Yeah.
Right?
Liz Nable: Yeah.
Carolyn Breeze: And I think, I think we celebrate almost the wrong metrics. Agreed. I just wanna start by saying that.
Liz Nable: Agreed. Like- It's like profit versus- Yeah ... revenue, right? Yeah. I made $1 million in revenue. I worked, took me five years to go, "Oh, wait, that, it doesn't actually matter," 'cause if you're spending 5 million and you're making 5 million, you're not m- taking home any profit, and that profit number is the most important thing.
Carolyn Breeze: That's right. And if you've got a business that's doing a million dollars of revenue a year and someone invests, you know, $500,000 in your business to grow and you give them 15% of your business, when your business is $100 million business, [00:19:00] they own 15% of your business, right? Mm-hmm. So I think we just need to kinda keep that in mind.
And-
Liz Nable: Agreed ... there's
Carolyn Breeze: lots of different ways to get capital, but- I just wanted to make sure I was really clear on that first. Some of the most successful businesses I've seen that have the best financial outcomes for the founders and for their employees are businesses that have bootstrapped, which means they've grown chicken and egg.
They've made money, they've spent it on growth. They've made money, they've spent it on growth. They've been really particular about how they manage and deploy capital. They've been very lean and they've grown the business themselves to an exit without having to bring anyone externally onto their cap table, which is what it's called when you take external money from an investor, whether it be mom and dad, an angel investor, or a venture firm, right?
They are now partners in your business.
Liz Nable: Mm.
Carolyn Breeze: Right? So they get a share of the pie as well. Yeah. And so I think that's really important to note because that's what we call dilutive capital, 'cause you're diluting [00:20:00] your share of the business, where there are other ways to get money to help your business grow that is non-dilutive.
Liz Nable: Mm.
Carolyn Breeze: Right? So you can borrow m- money from a bank. You can get a business loan. You can work with organizations like Lighter Capital or Tractor Ventures who help ... You know, Tractor, for example, helps companies that are in manufacturing. So let's say you're in manufacturing or you're in D2C, you sell a product, T-shirts- Mm-hmm
whatever it may be. Mm-hmm. And you've just been signed on as the supplier for the Brisbane Olympics.
Liz Nable: Yeah.
Carolyn Breeze: And you're like, "Holy cow."
Liz Nable: I need to make lots of T-shirts.
Carolyn Breeze: I need to make lots of T-shirts and I need to do it now, but the money, I'm not gonna get paid until the Olympics- Yeah ... starts. Well, how do I do this?
Don't get an investor necessarily. You can- Right? But don't. You don't have to. Go to the bank, right? Take them that contract. Go and see Lighthouse Capital, go and see Tractor, go and see someone else, right? There's other ways to fund a [00:21:00] business that's not giving away a piece of your pie. Mm-hmm. Mm-hmm. And I think that's really important to note.
Liz Nable: Yeah.
Carolyn Breeze: And, you know, I see a lot of bootstrapped small businesses that are becoming larger businesses, not necessarily in the tech space, that in those early days maybe they did get some money from mom and dad and uncle whoever, right? Mm-hmm.
Liz Nable: Mm-hmm.
Carolyn Breeze: And I think that's different if they're in the family and you get to a point where it's your family business and you're paying dividends and whatever.
You know, I see that as, as different as well.
Liz Nable: Mm-hmm.
Carolyn Breeze: Mm-hmm. Um, but yeah, and then I guess the other thing is we hear a lot of these terms around is it an angel investment round? Is it a pre-seed round? Yes. Is it a seed round? Is it a series A? Like, one of the companies I worked for that was based in the US, in the UK, when I joined they'd just done their series B, and when I left they'd done their series G.
Like, it can be never-ending, right?
Liz Nable: Wow, okay.
Carolyn Breeze: Yeah. And at the end of the day, and, and it depends what market you're in, like a, a series A raise in Australia from a venture capital firm would be considered a seed [00:22:00] round in the US just because of the economies of scale. And at the end of the day, those terms don't really mean anything.
Like, I think we- we've all tried to kind of fit it into a box, right? So that we can think about what a seed or pre-seed round should look like. Yeah. But in a nutshell, the way to think about it is when you're first starting out and you've got an idea and you're trying to validate it and get it to market and see if you're onto something and see s- it's something that someone's willing to pay for, you might take angel investment.
Right. Which is a sophisticated investor, right? Or mom and dad or someone who says, "I'll p- I'll put 25K in," right? "I'll help you get to that next stage." Once you get through that stage and you're like, "I'm onto something here. I've got some paying customers. I need to improve my product or I need to get, you know, the print right on my shirts," or whatever it may be, I actually need a little bit more money.
We'd call that, like, a pre-seed round, and then you go into a seed round, and then a series A round, and it kind of grows from there. But the, y- you could lay out every seed round and series A round that happened in [00:23:00] Australia last year, and there'd be nothing really that could- Right ... that would identify it, right?
It just depends on what they've raised before and where they're going and how much they need.
Liz Nable: So quick question on that. So if you have got, like, a, a pre-idea or an idea- Yeah ... and you borrow 25K off mom and dad or an investor, is there a reward for someone who's taking more of a gamble on you now than there would be in the rou- the third round?
'Cause you're taking less of a risk the deeper- Yeah ... you get into the product or the service, right?
Carolyn Breeze: 100%, and it depends on how you wanna structure it. Right. So there's obviously a loan, right? Yeah. But then there's investment. Yeah. So if it's investment, there are three mechanics that are really popular. One is investing directly for equity.
So that would be like, "Okay, Carolyn, I'm gonna invest in your company. We haven't generated any revenue yet but I love your idea and I can see what you've built, right? How much do you think it's worth? Let's agree on that number." Uh-huh. And I, you know, go, "I think it's worth a million dollars." Right? [00:24:00] And you go, "Okay, well, I'll give you 250,000."
Right? So that means then you get X percentage of my company.
Liz Nable: Yeah.
Carolyn Breeze: Now, if my company goes ba-bonkers and I kill it and I'm amazing and I sell it for $50 million in a couple of years, your percentage remains. Like, that's your- Percentage, yeah ... equity, right? Depending on how you set it up. So that's called an equity round.
So someone's actually taking a piece of the pie. And the other thing to keep in mind there is if you give someone a piece of the pie, depending on the, the terms and conditions that you put in place, like the agreement and how you work with that individual and what kind of investor they are. Are they a passive investor or are they a hands-on investor?
You've basically let someone into your business. Mm. So it's gotta be someone that you can work with, right? And you need to be really clear on their level of involvement 'cause that can go wrong later on.
Liz Nable: Yes.
Carolyn Breeze: So that's the first mechanic. And then there are two other mechanics. One's called a safe note. So you would do a safe note if you said, "Look, I'm not sure what this business is gonna be worth, but [00:25:00] I'm pretty confident that with this investment I'll be able to get it to X point.
So what I'll do is I'll take your money now, and either when we hit that revenue mark or when I do get more capital in, I'll convert you to equity." And I'll give you a discount for coming on the journey early.
Liz Nable: And what happens if the business doesn't succeed? Is the investor then, it- when you invest in that way, particularly early on, is the investor essentially saying, "It's a bit of a gamble.
Like, if you tank- Yeah ... they lose their money."
Carolyn Breeze: It's a b- yeah, 100%. Yeah. A, a safe note would mean that it was, like it's safe, as in if the business goes into insolvency outside of, outside of salary and super and tax obligations, it's the next thing to be paid, right? Right. Okay. Which is why it's called a safe note.
But it is a gamble 'cause they might not have enough to even do that. And then there's a third option, which is a convertible note, which works pretty much the same as a safe note except it's not the safest thing if something was to go wrong, right? Yeah, yeah. It comes behind some other things and other- Yeah
bits and pieces. So that's when [00:26:00] you're ri- kind of raising from an investor or an investment firm or a venture capitalist. They're kind of the three main mechanics.
Liz Nable: Yeah. So what's your, what's probably the, the main thing, to me, that stands out from what you're telling me is even from, like, the very beginning, even if you are just at the baby steps of a business, be it tech or bricks and mortar or product, service, whatever-
Carolyn Breeze: Mm
Liz Nable: it's important if you're gonna take any sort of outside investment or even a loan, like to do it properly, right?
Carolyn Breeze: Yeah. And make sure you have those agreements done up. Like, it's a false economy to think, "Oh, it's only 25K, I'll just ChatGPT my agreement." Yeah. Right? Because down the track if your business does turn into something or something goes wrong in that relationship or whatever it may be, the way you've set up that agreement is so important.
Liz Nable: Mm.
Carolyn Breeze: So if you are gonna take external capital, then you need to make sure you've got that agreement set up right- Yeah ... from the beginning. And that also kind of sets the tone for all the future investments. And if you then do grow your company and down the track you wanna raise $10 million to [00:27:00] scale in the US, those, those investors will go right back on, in all the term sheets and look to that first one as well and go, "Oh, I don't like that."
Don't like something about that agreement and it can stop things down the track. So it's really important, regardless of the amount you take, that you spend the money and the time getting that agreement right.
Liz Nable: Yeah. And even though I would imagine even more important if you're trying to save relationships, if it's friends and family investing- Mm
that it's really, really clear from the outset that you've got the right accountant and the right lawyer setting things up. And it's not just like, "Hey Mom, can I have five grand?" Yeah. "I'll pay you back later." Yeah. Because, you know, as we know, those relationships can deteriorate for different reasons, and if that company's worth 500 million, you know, like, that's important that's all done properly.
Carolyn Breeze: Yep, absolutely.
Liz Nable: Yeah. Yeah. What are some of the biggest mistakes you see founders make in this stage, or it may be in the initial set-up phases of going and getting some sort of investment, be it informal or formal or, or whatever?
Carolyn Breeze: Yeah, so there's a couple. I think the first one [00:28:00] would be not having the right agreements in place.
Giving away too much, like not getting their company valued properly, so they end up giving away too much too early, and it makes it hard for them to get investment down the track and to scale. I think another thing would be really clear on what you're going- the money that you're raising, how you're gonna deploy that and what it's gonna turn into.
'Cause I've seen a lot of people raise money early and they get excited. They're like, "Oh, I've got, you know, 500,000 in the bank or 100,000 in the bank. I've been doing this in my spare time. I'm gonna hire someone, I'm gonna do this, I'm gonna put some money out there." And I think they can burn through that really quickly.
So I think be really clear about what you're gonna do with the money and how you're gonna manage it, because- Yeah ... you know, if you can't raise again down the track and you burn through it, it's gone. Right? Yeah. And then you've got a really upset investor on your table. I think the, the other thing would be I meet a lot of companies who have, like, this beautiful vision, very passionate people who are like, "I'm building a business and this is what the problem my business solves, and this is how it's gonna be."[00:29:00]
And they think that it has to be that from day one. And so they put all this money and time into a platform or a SaaS product or setting up their bricks and mortar store, whatever it is, and they have all the bells and whistles and all the features and all the whatever. It doesn't have to be that from day one to generate revenue.
Liz Nable: Mm.
Carolyn Breeze: Get the bare basics out. Mm. Start validating with customers. Start getting feedback. Start generating revenue so that you can start spending as you grow, right? Even if you've got investment, you've got money in the bank, doesn't mean that you need to basically build the whole thing before you go to market.
Go to market.
Liz Nable: Yeah. And that's one of the biggest takeaways, 'cause I don't know if you know, but I did the Tech Ready Women course two years ago, I think, for a part of the business that I'm running now actually. But that was one of the biggest takeaways for me because w- and my husband is a business partner, and he kept getting ahead of ourselves, going, "Oh, but we can't do that because we've gotta do this, and that needs $100,000 and that need..."
And I think the biggest takeaway for me was [00:30:00] I just need to prove that something works, that there's demand for what I'm offering- Yeah ... and that revenue is possible. Like $1, $5, $20, whatever.
Carolyn Breeze: Yeah. Before you go spending all that money creating things that you think people need, find out if they need them.
Liz Nable: Yeah. And I think founders and entrepreneurs tend to be probably similar to me and you. Like, you get so excited about your idea and you've got this entrepreneurial brain, like, burrowing away at 3:00 in the morning. You get really distracted by the bright sparkly lights instead of just saying, "Just prove this basic thing that's not perfect, it's got heaps of flaws in it.
Prove it works and then put money behind it." And bit by bit you can grow it. It doesn't need to be overnight. And maybe that's social media, maybe that's what we read in the papers. We want that $100 million, like, dream- But for the most of us, it doesn't, it's not like that.
Carolyn Breeze: Yeah. Yeah. Yeah. Exactly. Yeah.
Exactly. And I think, yeah, and that's, I've seen a lot of companies build the big thing and go to market, and people either don't wanna [00:31:00] pay for it, or they need to change it, they don't see the value, and they're like, "Oh, I just spent $150,000 building my platform, and now I need to change it."
Liz Nable: Yeah. Yeah. Yeah.
Definitely learning that the hard way, and it's a very expensive way to learn as well.
Carolyn Breeze: Yeah.
Liz Nable: I guess this is a broad question, I don't know how detailed you can answer me, but how do you kinda know when it's time to take on external investment? I- is there sort of like flags, green flags you're looking for, or certain- Yeah
what parts of the business are like if you can prove a certain like forecast in revenue or like demand for, like you said, like the Brisbane Olympics, that's just one contract though, right? For one lot of T-shirts. Yeah. Yeah. What are you looking for, I guess from your point of view from Scalari Partners-
Carolyn Breeze: Yeah
business that you would invest in? That's a really good way to frame it. That's probably the best way for me to answer it is what we look for. And every investor, every individual investor, every f- everyone has different approaches. But what we look for when we're investing is that the product's been validated, and by validated we mean there's [00:32:00] been value exchange.
People are paying for it, right? So they're already generating some revenue, which means there's customers out there that want that problem solved in that way, and they're willing to pay for that, right? That's, that seems like validation. That it's a scalable product. And so if y- to put myself in the small business owner or founder's seat, for me that would mean, okay, I know now that if I spend a dollar here in my business, it generates $3.
Right? And now if I can just have more money to do that, I know that I can generate revenue. Mm-hmm. So I'm not guessing anymore. I've proven what the go-to-market is, and I know now that commercially, if I had more money to invest, I would be able to return more money.
Liz Nable: Yes. It's
Carolyn Breeze: no good, yeah, no good taking capital if you c- if you don't know how you're gonna deploy it and what it's gonna turn into- Yeah
'cause that's what the investors are g- are gonna ask you. Yeah. What are you gonna use the money for, and what, w- what revenue will that generate, and therefore [00:33:00] what valuation will the company be if you execute correctly?
Liz Nable: Mm, mm. Yeah?
Carolyn Breeze: So it's a- I- Yeah.
Liz Nable: Yeah. I remember having a conversation, we were in the fitness business before I started this business, with another, a guy actually who was i- in a, he'd started a franchise, and he had got all these external investment and grown really quickly, and he was saying to us a couple years ago, "I'm gonna go back to these investors and get more money."
And we were like, "Oh, what are you getting more money for?" And he was like, well, like, it was essentially to pay him and his partner more. And we were like, "I don't think-
Carolyn Breeze: No ...
Liz Nable: that, I'm pretty sure- No ... investors won't approve that."
Carolyn Breeze: No.
Liz Nable: So that- Yeah ... that business has since gone bust. No surprises there. Yeah. But it's interesting how, I guess, naive, I'm not sure if that's the right word, people can be about what they think that money is for.
It's really, like I, I see external investment as me now having to prove to an external party- Yeah ... or show them what I'm spending my money. I'm now reporting to them essentially in some ways.
Carolyn Breeze: Yes. Yeah, yeah. It's interesting. I've seen [00:34:00] some really funny stuff come across the desk for investment. Like there was this one investment opportunity where- Well, 'cause we also look at what the founder and the team are being paid, right?
Liz Nable: Yeah.
Carolyn Breeze: I mean, founders or business owners, like, and I'm sure there'll be lots of people laughing when I say this, we're not starting our own business because we wanna earn a million dollars a year.
Liz Nable: Oh my God. There's- That's not- I keep saying to... I say to people on the podcast all the time, it's not a get rich quick scheme.
Like, no one starts- No - ... their own business because they- Takes time ... it, there's easier ways to make- Yeah ... a lot of money that's probably illegal. Yeah. But small business- Yes ... is a slow burn, for sure.
Carolyn Breeze: It's a slow burn. It's a slow burn. And when you're building your own business, you're your own boss, right? Or whether it be a tech company or whatever it is, you're building value in an entity, an asset that you own.
So there's one component, which is the salary that you need to be doing the job to be done. Yeah,
Liz Nable: you need to live. Yeah.
Carolyn Breeze: Right? And the other is the value that you're building in this asset that you own, if [00:35:00] not all of. You know, if you've got investors, you'll still own a meaningful amount.
Liz Nable: Mm.
Carolyn Breeze: And that, that's the asset that you own.
And in the future when you're successful, whether you wanna sell that business, you wanna list it, or you might just wanna take dividends and let it grow and scale.
Liz Nable: Mm.
Carolyn Breeze: Or you might wanna borrow against it. You're building... That, that's your asset. And I remember a, a founder putting in his forecast for how the, the money would be deployed in his business for growth, and he'd given himself a ridiculous pay increase.
Liz Nable: Oh my God.
Carolyn Breeze: Yeah. And oh, and it had... One of the things he was gonna use the money for was to, for a, a founder loan, director's loan. So he'd looked at what he thought he should've got paid over the two years he was building the company, and basically wanted a lump sum up front for that. And I said, "It's your company.
Like, you own over 50% of it. That is your value. That is your asset. No one's gonna invest in you to pay yourself." That- That's not a thing.
Liz Nable: I mean, the audacity of that. I could tell you some stories. Probably I shouldn't tell you them to you on the podcast, so we'll save that for another time of, again, in the [00:36:00] fitness industry, those kinds of things happening.
It's really delusional to think that an outside- Yeah ... investor would wanna pay for that. That was actually gonna be my next question to you. When you are considering investment or, you know, someone comes to you and says, "Can you invest in our company?" Mm. Are there any red flags that you're looking for in founders that turn you off?
Obviously, that's a good example.
Carolyn Breeze: Yeah, yeah.
Liz Nable: That's a great example. Um, and I know that they have to show... You know, they need to show you, obviously, their revenue, their projections, their vision, blah, blah, blah. Yep. What is, like, a red flag for you?
Carolyn Breeze: Yeah. Yeah. So if you take out, let's assume they've managed their P&L well, let's assume their forecast is solid, they can prove to me that they can generate revenue with capital injection, let's assume the tech or the, the product itself is something that I believe I can back and that I believe is scalable, right?
So assuming all those things are there, I wanna make sure this is someone that I can work with. Right? So how do they handle adversity, objections, feedback? Are they coachable? Are they passionate? Are they in it for [00:37:00] the long haul? You know, no one wants to invest their money in a company and then six months later the founder goes, "Oh, I don't wanna do this anymore.
It's too hard." Yeah. Right? Yeah. So you're really looking at that person. Is this someone that, that I can work with? And then c- secondary to that is can I open doors? I- is this a product or a something that I believe I can add value to? So at Scalari, that's a big thing for us. Can we open a door? Is this an industry we know?
Can we offer value to help them scale and sell? Like, is this something we believe we can have a positive impact on? If not, we're better off investing somewhere where we can, 'cause obviously- Yeah ... our return is more. So we're very strategic about investing in companies where we know we can help them grow.
Liz Nable: Yeah. And on the flip side of that, and you just brought up a really good point, is- Mm ... as a small business, be it startup, bricks and mortar, whatever- Mm When you're looking to external investment, whether it be mum and dad, friends or family, whatever official, you know, official avenues- Mm ... are [00:38:00] you just looking for someone to give you money or are you looking for someone who can complement what you don't know?
Like sort of- Yeah ... for example, someone who's done it all before and can give you advice on scaling or someone- Yeah ... who is great at numbers and maybe that's not your strength. So is- would that be the advice you would give?
Carolyn Breeze: Yeah, 100%. And companies are always looking for different types of investors. So that would be like a passive investor- Yeah
versus a strategic investor. Yeah. So a passive investor is, "Hey, I just need some capital. I really don't need any advice or help. I kinda know what I'm doing." And hopefully you find an investor that is the, that wants that. I'm not that person, but maybe it's, they're out there. And then on the other hand, if you're looking for investment, and it's always hard because a lot of people I meet who are looking for investment, they might have been told no 50 times.
Yeah. And then someone says yes, and it's hard for them to take the feedback and to say, "Okay, well, excellent. Like, sounds like we're close to getting a deal. I'm just wondering, like, [00:39:00] what are the other investments in your portfolio? Do you see any synergies or partnerships? What's your experience in my vertical?
Are there any doors that you could open? Like, how will you be adding value to my business too?"
Liz Nable: Mm-hmm.
Carolyn Breeze: Right? Mm. 'Cause it's really important. These are, whether it's 5% of the cap table or 40% of the cap table, you're gonna be doing business with this person for a long time. And if you can, if you have the luxury, try and find someone strategic who they put in the money, but then they also open a door.
Liz Nable: Mm-hmm.
Carolyn Breeze: Right? And or- Yeah ... can open several doors, or they ha- they have a skill where you know you're lacking. You know, maybe it is that they can help you more with the financials. Yeah. Maybe they're a lawyer and they've got a legal background and you're heading in to do your first RFP response. Yeah. So like, find people that complement you and can help you grow in addition to just the money is always my advice.
But there are founders out there and investors who just wanna be passive.
Liz Nable: Yeah. And I think, again, when you've had a small business for so long, you've been working on a project for so long or, and you, you finally get that yes-
Carolyn Breeze: Mm ...
Liz Nable: it's very difficult, [00:40:00] it, to not just get really impulsive and say, "Yep, I'll take the money."
It, you kinda gotta be a bit more strategic about that decision, even if you do feel a bit desperate- Yeah ... to kinda think of that long-term vision. You've gotta work with this person. You're essentially reporting to them or you're working together- Yeah ... potentially for a long time. It's gotta be-
Carolyn Breeze: And, and also how-
a bit- ... you take the money. Like, there's a program in Australia, or I won't mention their name, that's very common amongst startups. It's usually one of the first accelerators they go through. And part of the proposition from this company is we'll give you X amount of dollars and take a percentage of the company regardless of the kind of valuation.
It's kind of a set in stone amount, which is fine if, and if you think your company's worth that and you want the help that they can provide and the accelerator's gonna grow your business, go for it. But I- part of the terms and conditions in the agreement means that with any future investment, regardless of how big the company gets or the size or where the investment comes from, overseas, whatever, [00:41:00] that, that little company that invested in them at start has to approve it And so- Wow
there's a company that I know that, you know, now does over 10 million in revenue, and they were getting investment from a firm in the US to expand into the US, and it was for millions of dollars, and they were waiting over a month for this entity in Australia to go, "Yeah, you can," or, "No, you can't."
Liz Nable: Wow, so it's another layer of complexity, isn't it?
Carolyn Breeze: Yeah, so you've just gotta really ... It's going back to what we spoke about at the start. Mm. Like, it's false economy not to pay a lawyer to do- Don't get overexcited ... the same for a 25K investment as they would a five million investment. You wanna make sure that there's nothing in there around ... You know, gotta be careful with pref- preferential shares and all these things.
So there, there are investment agreements that say, "Well, if I own 15% of the pie today, and in the future you need to raise money, you dilute but I don't. I still hold my 15." Yeah.
Liz Nable: Wow.
Carolyn Breeze: There's all these kinds of bit- th- things that you need to watch out for.
Liz Nable: Yeah, you've gotta be [00:42:00] smart, and I guess it's the whole premise of this podcast is, is as business owners we get ahead of ourselves, we get excited.
We're like, "Oh, my God, this is such a massive opportunity." We jump in without thinking, and then down the track we get caught up in the detail and the T's and C's, and we're trying to advise people, I guess, on this podcast, help people see that slow and steady, be considered, get the right advice. Do you think from your work, like being immersed in this kind of, this, I guess this exciting entrepreneurial landscape in Australia, are we
Should we be more risk ... Should we be taking more risks as Australian entrepreneurs? Would you like to see more people coming to you pitching for investment, or do you think we're kind of growing at a steady pace?
Carolyn Breeze: I think we're growing at a steady pace. If there was something to change in the ecosystem
So I look at it like this. There's founders and entrepreneurs, there's investors, regardless of the type of investment, and then there's [00:43:00] government and infrastructure. And I think the two things that need to change really is the government and the infrastructure, and also the reforms to allow investors to feel more secure about investing in earlier stage tech companies.
So everything from the tax reforms to the way we do our self-managed super funds, to accessibility to early stage tech companies, to matching grants. All those bits and pieces, and then from a government infrastructure layer I think there's a lot more to be done.
Liz Nable: Yeah. I couldn't agree with you more. We lived in the States for six years, and the difference in the culture in terms of, like, the, the structures around, like, that, the potential in small businesses and tech startups and those sorts of things is, like, just worlds apart.
It just feels like- Yeah ... a really exciting place to be with, you know, a- and you're encouraged all the time to like go for it, dream big, take risks- Yeah ... fail, have another crack, and it just seems a bit not like that here. It, it- Yeah.
Carolyn Breeze: And that's also why we lose so many founders to the States- Yeah ... and [00:44:00] to other parts of the world.
Liz Nable: It's like we're scared of someone else. You know, and, a- and, and entrepreneurs are, we've all got skin in the game, right? So I find generally speaking, we're like there for each other and saying, you know, "Go for it. Take the risk," or giving each other advice, you know, supporting each other. But if you're not from that mindset, it can feel a bit like, and I've seen a lot of this on my socials recently when I've talked about those tax reforms is, "Well, you shouldn't get special com- you know, dispensation.
You shouldn't get special treatment. Like you should be taxed like we're all taxed." And I just disagree with that because- Yeah ... I just think collectively when, you know, rising tide lifts all boats, and like- Yeah ... it's only good if we're creating an environment where businesses are encouraged to grow and take risks and evolve- Yeah
and like be world leaders. We're so innovative and smart, and we're doing so many cool things. I just wish the culture matched that.
Carolyn Breeze: Yeah. I think we'll get there. I like- Yeah, I think the last few months we've seen a couple of setbacks. The CGT stuff, like even though in the startup ecosystem [00:45:00] it, technology companies, it didn't quite land the way they were talking about, it was enough of a shock to the system- Yeah
that a lot of investors just put their hands back in their pockets.
Liz Nable: Yeah. I know, and that must be so frustrating from- Yeah ... where you sit as well. Last question. Yeah. Tell us a little bit about the programs you run, 'cause I obviously know a little bit about Tech Ready Women. Yeah. If anyone's listening, is there, you know, a way they can sort of start to, like, get to know a little bit more about what's possible for their business if they think they might like- Yeah
to grow, or if they're at the early stages, w- tell us a little bout- bit about those opportunities.
Carolyn Breeze: The best way to understand the Scalari ecosystem and all the brands that we have and all the accelerators and resources and things that we offer is to jump onto the Founders Union. So it's- Okay
thefoundersunion.com. It's free for small business and for founders. And it, basically it's like a library of resources and access to different perks and information and grant information and accelerators and programs and lunch and learns and everything, mostly free. Any events we're having, so if it's a Fishburners pitch [00:46:00] night or we've got the S2S Summit coming up on the 1st of September in Sydney, like come along to that and listen to all the speakers.
And what it does as well, the Founders Union, is if you're facing a challenge or a problem in your business, it connects you with different service providers or tech platforms or resources that can help you with that issue. So if you need a lawyer or you're hiring your first employee or you need to know, you know, how to better manage a cloud spend or whatever it is, it'll help you connect with the right people.
So that would be the best way to get involved.
Liz Nable: Amazing. I will pop all those details in the show notes as well. Mm-hmm. I've still got a lot to learn, but we only have a certain amount of time. You've got a job to do. Thank you, Carolyn. Yeah. It's awesome to chat with you. Thanks for being a guest on the show.
Carolyn Breeze: Thank you for having me. I've loved it.
Liz Nable: Thanks for listening to What I Wish I Knew About Small Business Before I Started, a special six-part miniseries from inside the Media Magnet Podcast and brought to you by AMP Bank Go. If this episode helped you, follow Media Magnet wherever you get your podcasts [00:47:00] and go back to catch the other episodes in this series.
And if you know a small business owner who's learning everything the hard way right now, please share this episode with them. It might be exactly what they need today. I'm Liz Nable, and I'll see you in the next episode
