Navigating the Risky Waters of Venture Capital: Evaluating Tech Setups for Success

But as encouraging and as optimistic as you may sound, I was actually listening to you, who’s also, you know, quite a successful businessman in his own right. He spoke about the fact that more than 50% of the businesses that he’s invested in have actually not done well at all, and those are lost investments. He actually gave the figure, which was in the millions that he had actually lost and sort of like thrown down the toilet. And so there is a risk and it is a volatile industry, and there’s a lot of risk in this business. So I guess that brings us into the next question. What exactly do venture capitalists look for in a tech setup in order to evaluate? It’s, it’s, you know, it’s market evaluation.

So I think let me just go back to your point, you guys, before I answer the question. I mean, it is definitely an asset trust that is riskier than putting your money in the bank to putting your money into, you know, the SMB 500. But the rewards are significant. So we look at returning IRR, internal rates of return of 30% to our investors. That’s 30% cumulated every single year. Now that is a substantial return. Yes, it’s optimistic, but we think we can do it. We’ve done it before. But the risk is you could lose all the money. So that’s the downside of that. And timber, you know, it is a risky acid loss.

We have, we fortunately didn’t have that track record in Chylon. We, we’ve really, we had one blush in Chylon of the 12 companies we invested in. The others are really doing well, just one. So, you know, it’s interesting. I Learned, got a bit of my skills in Silicon Valley and they’re big baseball fans, as you would know. Not a big sport for us in South Africa, but the way they described it to me is a 2,6,2. So you’ll get two home runs, you’ll get six. You’ll go to base one, base two, base three, and you’ll get two strikeouts. And the two home runs will basically pay for your fund and give you the 30% IRR, and some always use that metaphor of the 262 using baseball as an analogy.

But you don’t know. Honestly, we’re not here to lose eight companies. We have to maybe lose one company or maybe two. At worst, we have to make the balance of them actually work. And the key to me is about the involvement of the venture capitalist because these entrepreneurs need not only financial capital, they need mentorship capital. They need people that have seen that drive before. They need human capital, they need access to the best CFOs and product engineers and marketing and sales and finance, and we provide that as well. And they also need access to network so that we provide them those connections with the connections, major capital, where it’s connections to the trade, where it’s opening up a banquist, opening up an insurance company. And we can do that in South Africa, we can do that in Africa and we can do that all over the world.

I spend 28 years at Accenture, and I have contacts all over the world to help these businesses in actually scale. So that, let me get the second part of your question, which is really what do we look for? So I call it the 5 TS. I probably got six TS. So the five TS are No. 1 team. You know, we, if we don’t have the right team, we want to make that investment. So it’s got to be team team. And there’s no iron team, you know, never try and take this journey alone.

You know, if you’re building a tech company, I would always say to the entrepreneur, have at least two people, someone that can build the stuff, the hacker, that’s the engineer, they can build. And then you need the huster, someone they can sell the stuff because you can build and bulls and you can’t sell. You don’t have a business. You can sell, but you’ve got nothing to sell. You don’t have a business either. So you need the hacker and the Hustler. And the third person you need is someone that can really design the solution, which is the hipster. So they can understand the ur of the design and they can build out a brilliant product. So if you’ve got those three types of people in your business, that’s what I look for in the team No. 1. Team No. 2, I look for is the technology. I’m not investing in a Metoo technology. I’m not investing in a payments company that looks exactly the same as another payments or an education company that looks exactly the same as another 20 education companies, I look for a 10 x times better. So the product must be 10 times better than anything else in the marketplace. So that’s very important. So you really, the entrepreneurs need to know they come competition. It’s a critical part of their pitch to me. If you are your competition, what’s your value proposition? Why you better? How you better, how you gonna make sure you beat your competition if they just say, well, we just, we exactly the same as none other companies. It just becomes a race to zero it or it becomes a process, it becomes a commodity and basically just a race to zero on cross and you’re not differentiated at all. So number two is that product, we wanna see something 10 times better. We wanna get a minimum 10 times return on a.