wineglass reflection

From Banker to VC – A reflective moment

I don’t want your money. No, really I don’t. After 10 years of running our country’s oldest bank, I’ve kicked the habit of looking after other people’s money. It’s not that I’m not grateful for the more than R300 billion that you deposited with us when I was CEO. I really am. It’s just that after many years of countless Board, Audit, Compliance, Transformation and Risk Committee meetings it was time to stop sitting in boardrooms and start doing something real.

You see there are few things that really create the future. Most institutions protect what is, instead of creating what should be. Of course big business and government want things to improve. But they also benefit from the status quo as long as they are making money or staying in power. The only institution that really creates dramatic change in society is the humble little start-up. This is nothing more than a small group of people with a cool new idea and a plan on how to execute it.

Unfortunately start-ups are risky ventures with high failure rates – certainly not the way to risk the savings that fund a bank. So I decided to become a venture capitalist to fund great ideas and exceptional people.

It may sound glamorous but it is actually not. Removed from my ivory tower I was immediately confronted with basic challenges facing any new business. I had to find a name. Montegray Capital – for the grey mountains around Stellenbosch -sounded good. Then came the tough part: finding customers.

Actually that was easy, application for huge amounts of funding for crazy ventures streamed in almost immediately. As Warren Buffet once opined: “If you misprice risk, the world will find you.” The same seemed to apply to chancers seeking venture capital: there’s no downside in asking for a lot of money, maybe some fool (in this case me) will invest in your impractical dream.

Most applications for funding start with the following line: “I’d like to have a cup of coffee with you”. Now I really do like a proper cappuccino but if I had a cup with every applicant the caffeine overdose would permit no sleep. So I tweeted that I’m actually a wine lover. Big mistake. Now the applications came with invitations to share a bottle of vino. Lack of sleep and insobriety was not going to be a promising start and I knew I had to find partners. AngelHub Ventures knew how to ask for a business plan and to sift the promising ones from the crazy, lazy and hazy fundseekers. With their help I started a steep learning curve.

In Silicon Valley they say it takes $60 million to educate a venture capitalist. Those are the losses one has to make to learn how to balance cynicism with optimism for new enterprises. Fortunately there are a few principles that help minimize losses and I am happy to share what I have learned so far.

Suits are bad news. Don’t invest in entrepreneurs who arrive dressed in Hugo Boss or Gucci or even suits from Woollies. It’s true that you are looking for executors but not of the James Bond variety. Formal dress mostly compensates for a lack of substance. Real entrepreneurs know their stuff so well and love their topic matter so much that they do not feel the need to impress with fancy clothes. For long periods Steve Jobs didn’t even wear shoes to work.

High salaries are a no-starter. True entrepreneurs intuitively understand that it is equity and not monthly pay that leads to outsized returns over time. In any event the right founders are working so hard that there is no time to spend money on lifestyle anyway.

The biggest trip-up though is when people are fixated on an idea but have not implemented it yet. I personally love ideas but have learned that even the greatest idea is worth very little if badly executed. Successful startups are 10% about the idea and 90% about the blood, sweat and tears to make it happen. We simply ask about “market traction” – do you have some minimum part of your product out there and do customers find it useful already. In other words go to market fast and be ready to adapt even faster.

In a way it’s easy to be a successful entrepreneur. Just come up with something completely new and make sure people are willing to pay for it. If you think you’ve got something sufficiently differentiated and need money to grow, I may be the one asking you for a cup of coffee or a glass wine. You see what I really want is to invest in a business poised for dramatic growth.