How to secure investors, from the co-founders of Judo Bank
The founders of Judo Bank share their journey of securing investors from 2015 to 2019 and reveal how it is all about the ‘richness and reach’.
May 16, 2023
Put simply, in seeking investors we found there is just no substitute for ‘wearing out shoe leather’, or, to borrow from a parallel idea from the book Blown to Bits by Philip Evans and Thomas Wurster, it’s about ‘richness and reach’.
‘Richness’ in this case is the combination of the depth and quality of the engagement you can achieve, and the personal relationship, rapport and credibility you are able to build over time when you are physically sitting across the table. ‘Reach’ is all about the number of qualified investors you see and the consistency with which you see them.
In the period from 2015 to 2019, that’s exactly what we did. We made numerous international trips, and invested heavily in building relationships and rapport with investors and progressively developing their familiarity with the Judo proposition.
One of our more significant frustrations in having to make these trips during our first several rounds of capital raising was facing the questions, ‘Where are the Australian investors? What do they know that we don’t?’
It is an unfortunate irony that, while the Australian financial system is one of the deepest in the world, when it came to raising capital for a new Australian bank serving Australian SMEs, most of our capital in our first several rounds came from international investors.
On richness
Perhaps in the post-COVID-19 world, a greater proportion of capital will be raised through remote and virtual connection – that’s how our IPO process was conducted. For us, though, we have always felt that, in the vast majority of circumstances, the richness of conversation that comes with face-to-face meetings creates the strongest and most durable foundation with investors.
As a cornerstone, it allowed us to frame the conversations around the strength of our sense of purpose and belief, something that is established far more through tone, body language and personal chemistry than it is through words. It also allowed us to establish ‘across the table’ that, for example, risk management was a central plank in every dimension of how we were building Judo Bank and that we were across it.
We also knew that each conversation has two distinct and roughly equal elements:
The commercial opportunity
The nature of the proposition and the risk–return trade-off over time.
An assessment of us as individuals
It does not take mind-reading powers to know that every potential investor was thinking, ‘Okay, l get the business opportunity, l buy the proposition, but can these guys and their team pull it off? Can they execute?’
This reinforces the point that the calibre of management is so important in the way that investors assess opportunities. As Thomas Eisenmann observed, management’s industry expertise considerably reduces start-up risk. That expertise needs to be deep, not superficial. Far too many people pass themselves off as experienced in an area when, on close examination, their experience is narrow and shallow. The ‘jockey’ matters more than the ‘horse’!
To that end, in our initial meetings with a prospective investor we always spent the opening minutes introducing ourselves, our backgrounds, the genesis of Judo, the background and calibre of the leadership team we had put together, and then, later in the meeting, the depth and experience of the board.
A key learning along the way was that, with a significant portion of investors, you must work to keep yourselves top of mind given the volume of propositions they typically review. So, from early on we decided not just to visit at points when we were raising capital but to maintain consistency of contact between raises, both face-to-face and with regular video-conference calls, to update them around key achievements: for example, obtaining our banking licence, our first wholesale funding facility or our first $1 billion of lending.
Supplementing that consistent engagement, from our first capital raise onward we have always had behind us a comprehensive, up-to-date and well-organised virtual data room. This allowed those investors whose interest we had captured and their analyst teams to immediately go in and start looking at the detail behind the discussion.
Perhaps as clear a proof point as any of the value of the strong and durable foundation these many face-to-face and follow-up meetings between 2015 and 2020 created was the fact that, during the COVID-19-driven disruption to markets in 2020 and 2021, when there was no travel and no face-to-face meetings, we raised more than $500 million in capital at progressively higher prices.
On reach
We simply did the miles. The typical trip for us involved flying out of Sydney on a Sunday and doing a mix of Beijing, Shanghai, Hong Kong and Singapore on the Monday, Tuesday and Wednesday; then on to Abu Dhabi at the back end of the week; on to London, getting in Saturday night for a quick pint or two at The King William IV or The Flask and staying until Wednesday; New York Thursday and Friday; then back to Australia over the weekend. To say this schedule was gruelling is an understatement, but it is part of the price you must pay when living in Australia – the tyranny of distance.
Travel is a bit like what John Wanamaker (the founder of Macy’s in the USA) said about advertising in the late 1800s: ‘Half the money I spend on advertising is wasted; the trouble is I don’t know which half ’.
And so, with investor meetings, quite simply it is about the grind: you travel the miles, and you take the meetings. We worked out quickly that approximately 50% of those we saw never really intended to invest, but took the meeting because they were interested in hearing what the sector was doing and how new entrants were approaching it as background or benchmark-setting for existing investments in their portfolio. Equally, there were numerous meetings we left thinking there was a low probability of any follow-on, only to have the investor come back and begin to do serious work on the company. There were also those whose commitment we felt sure of who pulled out at a minute to midnight (literally).
On clarity
With clarity, it’s about continuously working on it.
One of the great benefits of speaking with investors as a team was the ability to critique each other’s delivery. It was also an opportunity to sit back at some point in the meeting and observe the body language of those across the table – was the message being heard and understood? Were we getting the cut-through? As Peter Drucker famously said, ‘The most important thing in communication is to hear what isn’t being said”.
Between meetings we would regularly download and do a self-critique over a coffee or sandwich to assess the meeting: our delivery, the clarity of our message, our responses to questions, whether we prejudged what we thought they were asking, what the emergent themes were at a macro level and how they tied in with issues other investors were raising.
A great learning here for us, and indeed anyone that embarks on this pitching process, was to embed the meeting review as a discipline, and from that, actively evolve your approach – not your message, your approach – and your effectiveness in delivering it.
On Australia as an investment destination
While at the macro level Australia is globally recognised as a sophisticated market, we regularly faced a key challenge: the ‘tyranny of distance’, the practical difficulty and time required to come to Australia, walk the offices, meet the staff and see the operations. Secondly as one New York–based fund manager pointed out, ‘Australia represents less than 2 per cent of global GDP, so that’s roughly how much time I spend thinking about it’. It was said tongue-in-cheek, but the message was a real one. For a material number of our investors, Judo has been their first investment in Australia, and part of their due diligence included building a foundational understanding of the market, investment land scape and economic outlook.
A counterpoint to these challenges, discovered along the way, was the significant value of individuals having an affiliation with Australia or New Zealand. Those affiliations included having worked here for a period, having a family member or close friend living here, having personally completed a degree at an Australian or New Zealand university or having a family member currently completing one. In one case, the investor owned a property in Queenstown, New Zealand – we could almost see him thinking that another three hours to Queenstown after a 24-hour flight to Melbourne would be easy!
This is an extract from Black Belt: A masterclass for start-ups and entrepreneurs by Joseph Healy and David Hornery. Healy is a co-founder and the CEO of Judo Bank, and Hornery is a co-founder and non-executive director of Judo Bank.
