.png)
Carl Hartmann is well known in startup circles across Australia and abroad. He’s been on the founder journey a few times, firstly with logistics software startup Temando which he co-founded in 2008 and rode through to a successful exit in 2015; and more recently with both Compono and Lyre’s where he co-founded and remains actively involved.
He provides a unique perspective on angel investing, having sat on the other side of the table many times. He draws on the knowledge of all the incredible mentors he’s had around himself over the years, and has a wonderful pay-it-forward mentallity - something very special to our Australian start-up ecosystem.
The Key Points
- Carl enjoys the early stage chaos and bringing commercial expertise as a co-founder or angel investor.
- He started with small cheques in syndicates and funds like Startmate and River City Labs before having more capital to deploy directly after exiting Temando. He notes the importance of building a portfolio approach.
- Key founder traits Carl looks for are tenacity, coachability, and passion. He also looks at market size, unit economics, and a plan for profitability. Big red flags are no clear monetisation plan and bad unit economics.
- He invests any where from synthetic biology to jet boards, with a particular focus at the moment on health/wellness and AI.
- He believes good angel investors can be great advocates for the companies they support. Passion and purpose are key.
- Tips included taking a portfolio approach, putting aside follow-on reserves, helping founders without overstepping, and adding value beyond just capital.
Find the full interview and an edited transcript below.
Tell us about your entrepreneurial journey?
My first company was Temando, one of Queensland's first venture-backed SaaS businesses. It started in 2008 – the GFC was a tough time to raise capital so we bootstrapped and didn’t raise our first external capital until 2011, and then exited in 2015 and concluded in 2017. After a small break, I then went on to co-found two businesses, HR tech platform Compono and my first consumer brand, non-alcoholic drinks company Lyre’s, which is in about 100 countries – more countries than Tim Tams!
So when did you get into angel investing?
Post exiting Temando and making the customary house, car, boat purchase I started to think, where can I make a bit of a difference? Because building businesses is hard. Scaling from Queensland is even harder.
I've met some really amazing founders over the years and often the challenge actually is not so much the capital, it's the execution. So for me, whether I'm joining others as a co-founder and co-creating something and bringing my commercial expertise, or whether I'm participating a bit more passively as an angel investor, it’s about how can I add a value of more than money and help bring something to market.
Over the years I've had some phenomenal people that have supported me as both investors and mentors; and the conclusion and bit of advice I've had is, if you have the privilege of success, you have this obligation to pay it forward. So wherever I can help someone, regardless whether I’m going to invest, I still always try to help, whether it's an introduction or a half hour call to help refine their commercial model anything that might add a bit of value.
I think the fallacy of entrepreneurship is it takes a one person army to do it - when the reality is it's a real team sport. It might take someone to start something, but it takes an absolute team to finish.
What’s your investment thesis?
I haven't had any sort of real thesis, it's more things I can get passionate about or add value. So I've done everything from synthetic biology to electric jet boards to most recently a sports supplement company. There’s lots of bread and butter B2B SaaS that I understand is my mainstay. But one of the cool things about angel investing is it’s often a really good opportunity to learn. And even if the startup doesn't work out, it might be an MBA level experience in something. What you can learn just working alongside a founder even if just passively catching up, it's phenomenal.
What was your first angel investment?
Whilst I was still working at Temando, I began investing in things like Startmate, and with Steve <Baxter> in the precursor to TEN13, the River City Labs Fund. As an operational CEO, I didn't have any time, so I would much rather partner with someone and take smaller bets. There's been a few in those early series where they've now returned liquidity, which is great. That's probably the advantage of working with partners like TEN13 or Startmate that aggregate deals, because you have to take a portfolio approach.
Tell us what you mean by portfolio approach?
Typically, if it's earlier stage as an asset class, you're going to have more risk. If you invest in 10, mark my words, three are going to die. Five are probably going to be in purgatory, but you only need that one in every 10 that just absolutely hits your home run. That can make it worthwhile.
What do you look for in your investments? And any red flags?
This has stayed largely consistent for me over time. I think the first one is belief in conviction in the founder. I look for tenacity. I’m trying to back founders that have follow through and drive and where I get that feeling that nothing is going to stop them from achieving their vision. I think it's very much about investing in people.
The other really important thing for me – and something I lecture on regularly - is both the addressable market (or TAM) and the unit economics. I get concerned when I see a deck or a pitch and they're not even talking about their addressable market or how it makes money? Where's your GP at? What's your cost of scale? Arguably simple metrics.
Any tips for budding founders?
When you look at all the data out there in terms of investors and how long they actually spend on an investment deck it’s between 30-90 seconds, so your first slide should always be: here's the addressable market and our product, right? So, hey, it's a billion dollar TAM and it's 100 million SAM and we're going after this. In the next three years, we're going to try and make 10 million in recurring revenue and this is our pathway for doing it. It can’t just be top down though, you’ve got to build the story bottoms up too. CAC (Customer Acquisition Cost), GP (Gross Profit) margins, operating cash flow – these all matter.
I saw this article this morning - a BCG blast - and it was talking about less than 0.6% of the unicorns out there are actually cash generative. That's a scary number. Anyone can be a unicorn if someone gives you a billion of cash and you just buy your market share. I think we've really come into an interesting phase where it is so much back to basics in terms of your capital efficiency and I think founders should be judged on that right? One of the best ones I can think from Australia is something like A Cloud Guru - practically bootstrapped and multi billion dollar exit, super profitable business, and brilliant founders. For every overhyped unicorn story in the media, there's a quiet achiever that's done it properly and I think they're the really interesting ones to study and think about.
How are you faring in this current phase of investment markets?
It's been really tough the last couple of years. Every single company in my portfolio has asked for money at least once, sometimes twice, sometimes three times. You put a little bit away for follow on and contingency, but I don't think anyone probably could have prepared for just how difficult the last couple of years we're gonna be from a liquidity standpoint.
We’ve come from an era where it was okay to burn a million a month in a startup because you could always raise another round to a point where you're only raising money if you don't need it, and you have to get the business profitable. In one quarter the wind changed and there's unfortunately a litany of corpses, of people that didn't adapt quick enough. They haven't been able to fix their burn and they are no longer fundable, such as WeWork, the most textbook example of a fall from grace.
I think these days it’s really making sure that the capital going in is a bridge to somewhere. There's a clear path to profitability, the unit economics are defensible.
What sectors do you focus on?
Most investors tend to follow what they know, right? I like to think I've got a front row ticket to this health and wellness wave. We certainly have reached a level of education where people are mindful of what they're putting into their bodies, trying to become the best version of themselves. This can cover the drinks they consume, shoes they wear, apps that exist around health and wellness and monitoring your data. Wearables.
It would be remiss of me to not to talk about generative AI, I think so many opportunities are going to come from that. The big sort of asterisk there, is there's so much speculation hype and bullsh*t. There’s some pretty cool people doing some real things that have utility but there are also a lot of things out there that won’t ever make any money. AI as a backdrop is probably the biggest revolutionary change we'll see in our lifetime. But I would probably counter that saying, 90% of the ideas there don't have even a revenue model. So, that's a bit concerning. And I think the bets will be, is it like an Instagram sort of thing where it's get the users first, worry about monetization later? Or is it about making sure there's a utility from the start? One I invested in is called Wybot. Started in Sydney, couldn't get a lot of traction so he went to Miami and got funded in the US, and has an amazing list of blue chip clients: multinational transport companies and health companies out of the gate. But this is a good example of one providing a real utility and solving a real problem, which means it gets paid users from day one.
What sectors are you avoiding?
I'm still quite bearish on web3. If there's no utility, I struggle to see value. I don't like speculative stuff. I do think that there's a place for decentralized computing, but if there's not a revenue model or not a utility, I don't think it has intrinsic value.
What do you look for in a founder?
I'd like to think like-attracts -like and you can see the qualities at a soft skills level that are identifiable. For me number one has to be tenacity. Start-up life is this up-and-down yo-yo, and you’ve got to be able to handle that level of stress. It takes a resolute sort of drive to be able to say, no matter what is thrown in front of me, I'm gonna be able to bulldoze through this.
I've had the great privilege of meeting some absolute exceptional entrepreneurs over the years. And whether they're extroverted or introverted or the technical or commercial, the one thing that you will find as you meet these people, they just have this resolute focus on what they do. It's almost like a tunnel vision that this is the one thing I'm totally focused on to the exclusion of all other things. And sure, there's going to be challenges and some things aren't going to work out but long as you can pivot quickly. Because failure is part of the journey, but it's learning how to fail, you know, fastly, cheaply to go with the cliche. So I think first is that sort of tenacity.
And then I think the second thing is coachability. If you're 25 and you think you know everything in life, you definitely don't. I'm 40 now and I'm like still learning every single day. Some of my investors and mentors and board members that are in their 70s, they're full of nuggets of wisdom. You start to talk about this financial situation we've had the last couple of years and these guys are trading notes like ‘it's got flavors of 2008 with a sprinkle of 99’. Yeah, so I think just making sure people are coachable. Also if you're a founder and you have 10 advisors, you're going to get 10 different bits of conflicting information. It's the ability to listen, to absorb, and then to take the relevant pieces, then apply. Because at the end of the day, most of the advice you're going to get probably going to be wrong, but there'll be lessons there that have relevance, and you have to be able to absorb and adapt and execute on that as well. So a big red flag is always the person that just can't be told, because sometimes it's like, you know, there's some very obvious things that are going to cause problems. And this can be simple things like managing cash flow, hiring, like just business 101. And a little bit of advice I once got was like 80% of businesses are exactly the same. It's just the widgets that you sell are different. But you distill it down. You're going to have revenue. You're going to have COGS. You're going to have expenses. You're going to have a GP line. You're going to have an EBIT line, like vanilla. So it is understanding the nuances of your business and how that might be a little bit different.
I've always tried to be really forthcoming with here's all the things that have worked. But more importantly, here's all the things that haven't. Little simple things like not trying to focus, like not trying to fight the war on too many fronts and managing cash lines. In retrospect, a lot of these things seem simple, but sometimes when you're a first time founder, it's like a tug of war. It's like you'll have one lot of investors say drop everything comes to the US, then your European investors go, no, no, Europe's more important. And then your Australian investors say don't forget about your home base. And you're just sitting in the middle going, what do I do?
The last piece of the puzzle is passion. Because you can be tenacious, you can have a cool market, but you've got to drink your own cool aid. You have to really believe in it. And for me, I only try to invest in things that I can be excited about and talk about and advocate for. You want to see that they've got that passion; it's a subset of that tenacity and drive I spoke to earlier. You’re going to live and breathe this for the next five to ten years so you want to make sure they not only have the domain expertise but they're really passionate about the problem that they're solving because that's what ultimately translates into traction. When a founder walks through the door and you see that - - you go hot diggity - give me some of that. That’s a very important thing to translate into product market fit. Love going after really commercial founders, they know this stuff so well and translate the value or the unique selling points of what they have to the every one, investor and customer alike.
What’s the magic number of founders?
Hence why there is a lot more success when there are co-founders and you have like a technical founder or a product led founder and say a commercial founder that might be able to better articulate it to stakeholders or customers or so forth. You see the the opposite of this as well, where there's potentially too many founders. I've seen situations of four to eight and that never ends well, because like, some people are going to work harder, some people are going to work not as hard. Unless you've got a rock solid vesting agreement and a bit of Darwin is inflicted in there, it’s probably going to lead to conflict. So a lot of data now shows that more than four typically is something that doesn't normally work out and two to three often is where the magic really happens. And one can be a bit lonely.
What do you wish founders knew about investors?
Often investors, particularly in angel worlds, have been founders first, so it’s good to remember you don't need to sugarcoat things. Just be honest. There's good days and bad days. Talk about the problems way earlier…no investor wants a message like, we've got two weeks of cash left or runways under three months. Flag that a year in advance, because it's a lot of hard work to go out and raise and do these things right.
It all comes down to transparency. You don't always need to give the good news. That’s something I definitely do with my investors, just try to have warts-and-all conversations really early on because, again, sometimes it might be that they've got a connection or a bit of advice that can dig you out of that hole quicker than you might be able to do it yourself.
What do you think people get wrong about angel investing?
I think that there is a lot of people that will invest in something because they like it. So they do it with emotion, not necessarily looking at the opportunity on its merits, the data, the economics, you know. So I think you always have to be a bit... calculated is probably the right word and just set your business rules of engagement and then certainly just make sure you stick to those. It's sort of like no different if you're buying a house as an asset class. You know your suburb, you set your price range, you know what rental yield you are targeting, you know your cost of debt etc. But if you go to an auction, get carried away and pay half a million over your maximum price, you've just blown your unit economics out of the gate and it probably not going to have the commercial outcome that you were seeking. So you have to take the emotion out of these things. I think this is definitely why I went a little bit hard after my first exit. So next lot of liquidity, I'm probably going to go a bit deeper on dividend producing assets, because I've deployed a lot of things in early stage. I’ll be more thoughtful around asset allocation and set a percentage for early-stage/high growth assets - whether that's 10% or 15% - and just stick to it.
You also have to take a portfolio approach. If you do one angel investment, and you “pick the wrong horse”, you're probably not going to get the return profile. But if you look at some of the more successful and larger syndicates, they're talking about 100 plus deals, with consistent little cheque sizes. And then following on in the ones where the traction is there. So you might decide to invest $10k at deployment <first cheque>, but then reserve $50k for the next 2 follow on rounds; or you might put one cheque of $100k for the one out of that cohort showing the most potential. Then it’s all about your blended entry price from a cash perspective because you might have some stuff that comes in really early where you 10x your first $10k and then $50k might be 5x. So I’d say make sure there's a bit of follow-on reserves; I think that's where a lot of us haven't anticipated this current economic cycle well – how hard it is to raise external capital for most earlier stage businesses and hence the role that existing <internal> investors need to play.
It's probably also worth thinking about who else you have in your network that might come in later stage. I actually like being first money in if I can help bring it to market, but I’m already thinking what fund do I know that might be second money in and what’s their mandate (i.e. $1m ARR) and how do I help this company build to hit those mandates. So and all of a sudden that may like unlock someone that can take it to the next phase, right? Because on your personal balance sheet, you can probably only take it so far. And then it's just understanding at what stage do you start to potentially try and bring a bit of cash back. This is increasingly happening a lot in the US; it's becoming not uncommon that each round there might be a little bit of sell down to sort of recycle liquidity back to earlier stage investors. It doesn’t have to be a 10 year lock-up, every round could have a little bit of secondary, and it would be good to start to see that as more common practice. I think we all have jokes at lunch these days saying, oh, you know, we're sitting on some amazing unrealised gains, but whether we will ever realize them, time will tell, I guess.
What are the traits of the best angel investors?
Oh, we're all a little bit crazy. That's for sure. I think we're all a bit entrepreneurial and risk takers ourselves or we're okay with risk. I think genuinely speaking, people that like the asset class are people that enjoy the journey in terms of creating and potentially even thriving into that early stage chaos. Like it's fun and often it gives people purpose. Having your investors advocate and try to raise awareness, that's awesome.
What’s your advice for any aspiring angels?
You've got to be in it to win it. As an asset class, if you source well, if you set some ground rules, put the right percentage of your overall portfolio, think about your follow on reserves, and try and actually help the founders without getting in their way…it can actually produce you some of the best returns you'll ever see in your life. So I think it's just trying to think where you can add value. There’s amazing stories out there like the Canva story with Bill Tai. Sometimes it might be someone who comes in as an angel that brings legitimacy or brings an open door that might be the first customer or the first institutional capital or might help course correct something that would have otherwise hit rocks. So you're sort of helping something come to life, you're enjoying the returns, but you're probably learning something through it as well.