Investment Notes – Auror
We are excited to announce Movac Fund 5’s investment in Auror. Movac led the company’s $30m Series B round, alongside Folklore, GD1 and Shasta Ventures. Auror provides a crime intelligence system to brick and mortar retailers. It’s used by front-line store employees, headquarters staff and the police to help prevent organized crime, reduce loss from theft and make store employees safer. The company was founded 9 years ago by Phil Thomson, Tom Batterbury, and James Corbett. It honed the offering in New Zealand where it captures over 80% of all retailers (by spend) before expanding, first to Australia, and then to the US. Some of its well-known customers include Walmart, Woolworths, Coles, The Warehouse, and Z Energy. It’s hard not to be proud of what they have accomplished so far, but the growth ahead of them as they expand into the US makes Auror poised to become truly iconic.
The Market: Crime is omni-channel too
I am sure we can all remember being tempted as kids while standing near a loose tray of lollies in the local dairy. But retail crime is not kids or teenagers opportunistically pocketing candy. It follows the 80/20 rule and the vast majority of it is caused by organized crime rings that steal across multiple retailers in our towns and cities. Police have not historically spent time investigating since any individual incident looks small. This means store employees don’t always bother to report crimes since they don’t expect anyone up the chain to take it seriously. It’s a big problem for retailers who lose $140b globally due to “shrink”. For retailers operating in low margin environments such as gas stations, grocery and department stores this can represent up to a 30% reduction in their gross margin. Nowadays, retailers face a raft of pressures including COVID lockdowns, difficulty in hiring staff, increasing security costs and competition from online retailers. Profit lost from theft is not their only problem, but it can be the difference between keeping a store open in a community vs shuttering its doors. Retail theft hurts not only the retailer’s bottom line but also the communities that risk losing these services. But most importantly Auror’s solution is respectful of people in the community. It has taken a privacy-by-design approach to help retail organisations better capture, manage, and share data in safe and secure ways (and Auror doesn’t use CCTV cameras or live facial recognition like other solutions). Rather than letting retailers use biases to accuse shoplifters, Auror helps retailers focus on organised retail crime groups and empowers frontline workers and police with real-time information to make critical decisions and keep people safe. It’s this ability to recognize and respect the needs of all of their constituents that marks the management team out as special.
The Product: Invest behind Raving Fanatics
The tried and true criteria VCs look for in investments are the addressable market, the team and a moat. However, as technology becomes more dispersed it’s hard to find breakthrough products that stand out from the crowd. How do you know one when you see it? The best way is to talk to the company’s customers to get a measure of their conviction. Auror’s customers can only be described as raving fanatics. What stood out in the customer interviews was the depth of pain before Auror and the delight after implementing their solution. One customer described their solution before Auror as “a steaming pile, in front of a dumpster truck, riding on a train wreck”. Now that’s an underserved customer. Another customer claimed that when they saw how easy to use the Auror solution was they almost cried. Hard to imagine such sentiments coming from senior execs at Fortune 500 companies but that’s what we heard. Auror’s customers not only feel that way about the product but also about the Auror team themselves. A product is not just lines of app code but how the company builds a trusted relationship with their customers, how they roll-out the solution smoothly and how they support the customer over time. This total package Auror has completely nailed. Not just “good enough for New Zealand” but global best-in-class.
The Moat: Layers of network effects
The other thing we VCs love are network effects. Many start-ups claim them and this often does not hold up to scrutiny. In the case of Auror we found three layers of legitimate network effects in their business. First, there are network effects at the individual retailer level. Their app makes reporting easy for frontline employees and provides the head office with structured data so they can find the patterns indicating organized activity and act on it. Second, it allows this data to be shared between trusted retailers who elect to collaborate on investigations. Last but not least, all of the data is aggregated and presented to police. Once they can see the size and scale of certain crime operations it helps them prioritize the investigation work and pulls all the evidence together to make them more productive. When store employees see both police and headquarters staff taking store incidents seriously, it increases their rate of reporting the crimes. It’s a network effect with a flywheel which is a winning combination in the game of bingo that we VCs enjoy.
Nga Mihi: The NZ VC village
In closing, I wanted to thank some people for helping make this deal happen. Because the thing about our country is that it’s a village, and many hands sometimes touch the ball in small and large ways before it crosses the line. Thanks to Phil, Tom and James for believing in the NZ venture ecosystem and inviting Movac to partner with them on their journey. Thanks to my fellow Movac partner Jason Graham who tracked Auror faithfully for 5+ years and worked with the founders on shaping up the round. Thanks to Peter Taylor for working up the investment case and thanks to Bruno Bordignon from Avid Legal and Sarah-Jane Lawson from HGM for being tireless and positive throughout.
