Profile: Blackbird Ventures' Rick Baker

Australia's venture capital community was in a slump in 2012 - but the country's tech start-ups were showing signs of life. The question for Rick Baker, co-founder of Blackbird Ventures, was why the institutional capital wasn't being put to work to support homegrown start-ups the way it should, and how to put things on the right track.

"We'd had about a dozen real breakout companies form in Australia over the last decade," Baker remembers. "The unfortunate thing was that they hadn't been backed by Australian venture capital firms - over half of them had been backed by US VCs in the later stages. Australian venture was almost a scorched-earth territory."

Like his co-founders at Blackbird, Niki Scevak and Bill Bartee, Baker had built his view of what VCs need to bring to an investment while working on both sides of the divide. In Baker's case he founded two tech companies, then worked at MLC Private Equity for six years as a portfolio manager.

In addition to this direct industry experience, though, Baker also credits his success at Blackbird - which raised a A$200 million ($143 million) second fund last year - to a background that he describes as checkered. While his previous career was not aimed at entering the venture capital industry, he believes it actually makes him more similar to the US-based VCs that he considers his models for success. Now, with Australia's VC industry experiencing a resurgence, Baker feels confident that he and his colleagues at Blackbird can continue to lead the way forward.

Off the beaten track

Baker's path into venture capital seems inevitable in retrospect, but when he majored in accounting and finance at the University of New South Wales and subsequently obtained a law degree from the University of Sydney, he had no idea that he was laying the groundwork for his current career. "I realized very quickly I didn't want to be an accountant and I didn't want to be a lawyer, but accountancy and law are two of the fundamental skills that I use in my job, and they're a great foundation," says Baker.

A two-year stint in investment banking at Fieldstone Private Capital Group followed law school; then Baker's education took another twist when he left Fieldstone in 1999 to found real estate software developer IDC Global. Four years later he moved on again, starting Right Party Connect, a developer of notification systems for financial institutions.

Baker's experience as a start-up founder, he feels now, was a pivotal moment in his turn toward a career as a VC. It gave him a fundamental understanding of the pressures that entrepreneurs face - and, more importantly, what they need in order to deal with those pressures. This is a viewpoint that has been lacking in the country's investor community, and one that Blackbird's founders are hoping becomes more widespread.

"Many investors, perhaps Australian investors in particular, think that when times get difficult, that's when you've got to kind of ratchet up the pressure on a founder," he says. "From our point of view it's actually the complete opposite - when things get really difficult, the job of a good investor is to reduce the stress by helping find solutions."

After selling Right Party Connect to customer engagement platform Adeptra in 2006, Baker took the post of portfolio manager for venture capital at Australia-based MLC Private Equity. His tenure at the firm was just as important as his start-up experience, because while founding his companies had shown him the risks that an entrepreneur needed to take, working at MLC taught him the discipline required to be an investor.

"That was very important to where I am today as well, to be inside of a large organization that has very well defined investment decision-making processes and investment reporting and management processes, where you have to work within a compliance framework," he adds.

In 2012 Baker felt ready to move on again. Now, with the insight gained during his time at MLC, he decided to partner with Scevak, founder of US-based real estate site Homethinking and Australian accelerator Startmate, and Bartee, a former CEO of message routing system developer Mantara and founder of Southern Cross Venture Partners, to form a VC fund that would give Australia's tech start-ups the financial and strategic support that they all knew was desperately needed.

The founders' backgrounds have played into their roles at the firm as well. Fresh from his time at MLC, Baker found himself gravitating to the administration and operations side of the business, with which he felt more familiar; Scevak handled the community and branding. This division of labor continued through the firm's A$30 million debut fund, though Blackbird has recently hired operational and community specialists to relieve some of the burden on the founders and let them concentrate more on investments.

In fact, having the founders take on supporting work was never the intention due to a desire to avoid an organizational model in which the leadership team focused on operational issues. Rather, the plan was to have a small team of top managers focused on their investment duties as equals. This structure would give them the best opportunity to deploy what they consider their most valuable asset as investors, an almost-subconscious deal evaluation strategy that Baker refers to as "gut feel."

"Gut feel sounds like it's a kind of imprecise and not to be trusted decision-making tool, but when you think about what gut feel is, it's actually pattern matching," says Baker. "And pattern matching comes from years of experience of seeing things and seeing what tends to work and what doesn't work. That pattern matching is what drives a good venture capitalist in the end."

Baker credits gut feel for the team's ability to spot good deals, such as online design platform Canva, to which Blackbird has committed several rounds of funding since 2013, and US-based talent marketplace Elto, which received around $1 million in seed funding from Blackbird and was subsequently acquired by GoDaddy.

He feels that the importance of gut feel is often overlooked in the investment community, or even viewed with suspicion by professionals who see it as too intuitive and unreliable. But it is an essential tool for investors who are often confronted by new business concepts or technological capabilities, and need to make investment decisions despite lacking an intimate understanding of the issues involved. Even when the firm can reach out to its network of sector specialists for help explaining a particular opportunity, in the end the founders must be confident enough in their judgment to make a decision.

"I spent years in Silicon Valley watching some of the best VCs and thousands of companies and founders. In waiting to see whether or not they were successful, I started to build up this bank of experience, which leads to an ability to make these calls on data that's very imprecise," says Baker. "I guess if you boil it down, that's what makes a successful VC."

Key connections

While Baker would never have planned the career path he took if he had intended to break into venture capital from the beginning, he values the diversity of his background. Each of his previous positions helped him build the competencies that he uses now; while his time at MLC might seem like a first introduction to the investment community, in his view it was the seed around which his existing skills crystallized.

Baker's past has also helped him to build the connections that are essential to a venture capital investor. The potency of his Rolodex, along with his co-founders, was shown in Blackbird's first fund, which had 97 LPs - 65 of which were founders of Australian tech companies. Their participation helped confirm the notion that there was a thriving technology start-up ecosystem in Australia, with founders who were willing to commit resources and knowledge to building the next generation of entrepreneurs.

"That community helps us in terms of getting deal flow, and then in selecting investments, we use the network and their networks as real litmus tests as to what we're going to invest in," says Baker. "And then they help the companies themselves, because we're able to form a great mentorship around the actual company."

Now Baker hopes that his legacy, and Blackbird's, will be that they helped to rejuvenate the once-ailing Australian VC landscape, taking it from "scorched-earth" to "green shoots" and showing the country's institutional capital that there is potential among domestic funds after all.

"In hindsight we got our timing perfectly right. We were one of the first new VCs to pop up, and the first to reengage the superannuation funds here in Australia," he says. "So I hope we've had a positive impact on the venture industry in terms of being able to prove that it can be done, and that we can earn back the trust of the superannuation funds and institutional investors."

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• Topics
• Australasia
• GPs
• Blackbird Ventures
• Australia