Investing
Identifying the right venture capitalist for investment: The do’s and dont’s
Kevin Mutiso (Source: Kevin Mutiso)
I wrote an article recently on the key lessons I have learnt so far in the tech business and some people reached out to me to provide some advice when negotiating with a venture capitalist (VC) or an investor. This is from my own personal experience and observations and thus critical feedback and debate are welcome, particularly from investors themselves.
Sun Tzu, one of the greatest strategists in human history and author of one of my favorite books, The Art of War, has a quote that I live by: “If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
Before I go into what to look for in a VC, it is good to understand WHO YOU ARE. In the world of ideas, the probability that you have a unique idea is next to zero. In the big scheme of things generally, you as an entrepreneur are nothing but another person roaming this earth just trying to figure out life. This video is a scaled representation of our solar system: https://www.youtube.com/watch?v=Kj4524AAZdE
When you realize how far the Moon is from Earth, or that it takes 5hrs for the suns rays to reach Pluto, it hits you how small you are in this infinite universe.
Secondly, a conversation with a VC is about an exchange of value. The entrepreneur has a vision and an idea that he believes will have commercial success. A VC has cash and wants to take a risk with this cash and get above-average returns. Usually, in an early stage start-up, the VC is buying into your ability to execute your vision and deliver these above-average returns. So you both have something of value to exchange. You are equals.
With those two points in mind; let go of your ego the moment you meet with an investor and instead start observing and looking for their ability to understand your vision and idea.
What should you be looking for?
1. Does the VC insist that you get your own lawyer – The reality of life is that by the time someone has enough cash to invest in people’s ideas, they have learned that a good lawyer is a must-have. If they downplay the need for you to have a good lawyer, then be wary. This is a clear sign that they want to take advantage of your ignorance. “Lawyers -” as my mentor from CreditInfo once told me -” plan the funeral,” the entrepreneur and the investor usually plan the wedding – they only see the happily ever after. The lawyers usually see what could potentially go wrong in a transaction and thus depending on whom they are being paid by, provide the protections to this party.
Yes, you are a start-up and you may not have money, but by the time you are engaging lawyers you have agreed to begin a relationship with the investor, and they should be willing to add the cost of your lawyers to the investment they are making. If they are not willing to do this, be aware of potential malice.
2. Does the VC understand the risks your business’ faces – An entrepreneur should always know what are the key risks to the success of their business and should strive to de-risk them. The VC too should have an idea of the risks of the business they want to invest in. If they do not, then other than the money they might not be of much use. If you are not aligned on how to de-risk the business then you will have conflicting objectives and this will start affecting the business. A good example of this is usually observable when it comes to allocating resources of the company.
3. Do you want to be in the trenches with this investor – The legendary John Doerr usually asks himself when evaluating entrepreneurs the following question, “If s*** hits the fan, do I want to fight the fight with this person?” I think that question also applies to the entrepreneur. Problems are part of your existence and things will not always be rosy, so when you have a major fraud in your business or the technology crashes, does a blame game start, or is a brainstorm held?
You can see this early on, observe how the investor negotiates their must-haves in a contract or if a junior member of their team accompanies them to meetings. Do they naturally teach or do they instruct them on what to do? Do they apologize if they misunderstood something? These little things give you an indication of the kind of person you are about to spend considerable time with — so can you live with this for the next 5 years?
4. Zero-sum game vs. Positive sum game – The key lesson I learned when I did the master negotiator program at Strathmore Business School (If you can, please do this course – it changed my life) is that negotiation doesn’t have to be a winner and loser experience, it should be a win-win for both parties. If you are raising a sum of money and the VC wants to take anything over 50% of your business, I’d be wary. If an exchange of value is the point of the transaction then a fair price must be met.
Both parties must be striving to solve for each other’s needs when negotiating and the must-haves of both sides must be very clear. If you reach an understanding with the positive-sum game strategy, you have found a partner you can work with through even the most difficult of problems. Mark Zuckerberg is going through one of his most tumultuous times with all the data privacy issues, but when I looked at his board and saw he has the likes Peter Thiel and Reid Hoffman on his board, I was a little envious because the problem-solving abilities he has at his disposal are at genius level.
What I would do to be a fly on the wall during their brainstorming sessions. Both Peter and Reid were early investors in Facebook and have been with Mark from the beginning, and if I was to bet money, I’d bet that they will solve this too, not without some bruising. Entrepreneurship is lonely, and more so during tough times.
Also Read: Meet The Resilient Black Brothers Saving The Planet One Car At A Time
Finally, I’d like to add the final tidbit that another mentor constantly reminds me of. He says, “Good ideas do not chase money, money chases good ideas!”As an entrepreneur, it is always better to give a true and honest picture of your business to your potential investor and demonstrate that you have the ability to execute the idea and vision that will achieve commercial success.
Egypt’s startup BONBELL, the first mobile App in the Food-tech industry specialized in food ordering, digital solutions for table and meal reservations, has closed an initial funding round for $350,000. This is through a Canadian Angel investor, to help further develop the App services and achieve a level of growth in regard to user count and daily orders.
BONBELL launched its own App in early 2022, to offer a wide range of food ordering services in Egypt. The App offers many food ordering solutions, from food delivery to restaurant’s reservations and Dine-in ordering through a QR Code on the tables, as well as take away services. The App offers various payment solutions through cash or credit cards.
BONBELL has partnered with many restaurants and cafes, as well as clubs like Heliopolis Club and Smash Club. It also offers its services in Malls and Cinemas, to offer a smoother food ordering experience, reserving tables and food delivery, for mall and cinema goers. It has also strategically partnered with many leading major companies and institutions. Most notably the German University in Cairo (GUC), and Raya Telecom, in order to offer its services in their respective headquarters for employees and visitors alike.
The Food-Tech startup targets raising its partnered restaurants to 750 by the end of 2022. The company is also negotiating with two venture capital funds from Europe and the Gulf, to close a $10 million fund in its seed round by the end of the year.
Doaa Abdel-Hameed, the Chief Business Officer of the company said: “we aim to help restaurants in offering an easier food ordering experience to their customers. Either through food delivery or reserving a table in the restaurant, as well as taking away orders and also the special orders made by customers in their restaurants.”
“We pursue a better experience for the Egyptian user in food ordering. We see a lot of potential and opportunities to do that through developing the App constantly based on the user reviews. And adding more restaurants in all of the Egyptian governorates.” She added.
BONBELL has earned the trust of more than 12,000 customers, who used the app in food ordering in all the ways offered through the App, in just 6 month.
Doaa Abdel-Hameed emphasized that the success of BONBELL App, in offering the best experience to its users can only be done through strategic partnerships with many more restaurants. In addition to the constant development of the technology used in the App, as well as relying on offering inventive solutions to the Egyptian user such as (Robotic Stations) service.
This service will offer customers the experience of food ordering and serving through a Robot, without any human intervention. It is expected to launch in Egypt at the end of 2023.
Dream VC breaking down the numbers and representation in its programs
A year ago, Dream VC quietly launched its first inaugural cohort applications with the hopes of closing the investing knowledge gap for check-writers and ecosystem builders across the continent. Fast forward one year later, they have received an overwhelming amount of interest from people curious about investing and contributing to the African startup ecosystem. Across two cohorts alone, they have processed more than 2000 applicants from 30 African countries. With fellows dialing in five continents and multiple time zones.
That being said, they’d like to share some interesting findings they have extracted and learned from the whirlwind that Dream VC has been in from last year to now.
Cohorts
By the end of 2022, Dream VC will have 2 cohorts under its belt with 3 programs run. There has been an increase in total applications despite the difference in price point between the 2021 program and this year.
Breakdown Of The 2021 Cohort
For its inaugural cohort, they received a total of 1002 applications and had an intake of 31 fellows, with an acceptance rate of 3%. The average age of its fellows was 25, with most being in their mid-twenties to late twenties. And exploring VC as a new career pivot after a few years of full-time work experience. After 4 months of rigorous and community-driven engagements, a total of 19 Fellows graduated from the program with an issued certification.
When looking at the specific demographics of Dream VC’s inaugural fellows, findings show that 90% of the fellows were homegrown. Which they classified as having been born, raised, and educated on the continent. They also had 12 African countries represented and 16 different Nationalities in total.
Although its initial intake consisted of 33% women, the final certified graduating fellows consisted of 60% women. Meaning that all of the female fellows who joined the fellowship finished the program.
This is a strong indication of the perseverance of its female fellows in particular. And they are committed to making a strong push to convert more women into its talent pipeline. Especially given that only 15% of the 2021 applicants identified as female. At Dream VC, they urge more women to apply for its programs and also reapply for future cohorts if they were not accepted initially.
Breakdown Of The 2022 Application Cycle
For 2022, Dream VC opened its applications on March 8th and had then remained open for over a month and a half until its final deadline on May 1st. In total, they received a total of 1,375 applications for its Launch into VC (“LIVC”) and Investor Accelerator (“IA”) programs.
Around 81% of the total applications were for our Launch into VC fellowship, and the remaining 19% were for the Investor Accelerator. We received a total number of 1,113 applications for Launch into VC, and 262 for Investor Accelerator.
Gender Breakdown
Out of the total applications for 2022, 31% of the applicants identified as female. When taking a closer look at the gender breakdown for each program, Investor Accelerator had a higher percentage of female applicants with 37% of total Investor Accelerator applicants, while Launch into VC had 29%.
Nationality Breakdown
When reviewing the nationalities of the applicants, it was found that for 2022, Dream VC has exponentially expanded its reach of applicants in both nationality and location. However, most of the applicants are still overwhelmingly from the continent and diaspora, which accounts for 86% of the total applicants. The remaining 14% hail from non-African countries such as India, Singapore, and Germany with non-African backgrounds.
When looking more closely at each program, 87% of the applicants for Launch into VC applicants were homegrown or African diaspora, compared to 83% of the Investor Accelerator applicants. This year saw 30 different African countries across the continent represented. With a majority of the applicants coming from Nigeria (43.7%), followed by Kenya (10%), Rwanda and South Africa (3.9% each respectively), Ghana (3.6%), Uganda (3.2%), Zimbabwe (2.9%), and Tanzania (2.3%).
Interestingly, the country represented the most by the diaspora applicants was Cameroon, followed by Nigeria, across both programs.
Across the different African regions, West Africa took the lead in applicants with over half of the applicants hailing from the region (58%). East Africa contributed to another quarter with approximately 29% of applicants coming from the area, followed by Southern Africa (6%), Central Africa (4%), and finally North Africa (2%). Dream VC’s footprint can still be solidified further, particularly in the ecosystems in North Africa, and its team will be traveling actively to Egypt, Morocco, and Tunisia to build relationships there.
Locations Breakdown
When looking at the locations of applicants applying from outside the continent (including diaspora and non-Africans), over 50% of them applied from the United States and the United Kingdom. Dream VC also saw an increase of Indian and Singaporean applicants from Asia. And a spread of interesting European countries including Belgium, Belarus, Germany, France, Finland, and Sweden.
Closing Remarks & Reflections
Since launching Dream VC in 2021, the team has been endlessly grateful for the overwhelming interest from the African & International community. As well as the selfless support that has been extended by various ecosystem partners and connections in our network.
Its application cycles have revealed several interesting insights into where the strong interest can be found in various startup ecosystems. As well as certain areas we are endeavoring to have better reach in (ex: North Africa and Arabophone countries).
They also strongly encourage more female applicants to apply AND reapply to its programs. As they are strongly committed to building out the opportunity and talent pipeline for black women in particular focused on investing in Africa.
Investing
Base10 Partners Led By Adeyemi Ajao Becomes First Black-Led VC Firm To Cross $1 Billion AUM With New Fund
Base10 Partners co-Founder and CEO, Adeyemi Ajao (Source Adeyemi Ajao Image: Base10)
With today’s announcement of our newest fund, Base10 now has $1.3B in assets under management, just three and a half years after announcing our debut $137M Fund I.
A venture capital firm managing $1B in assets is not as newsworthy as it once was; many of the firms we work and co-invest with routinely raise multi-billion dollar funds. In fact, the VC industry as a whole raised $128B last year.
What is newsworthy, for better or for worse, is that we are the first black-led fund to cross that $1B threshold, which is both encouraging and a sobering reflection of how much work we collectively still have to do.
And while we are honored and energized to keep pushing forward, we are thankful to not be pushing forward alone. If there is one message we want to focus on today, it’s “thank you”: Thank you to the entrepreneurs that decided to work with us, choosing a new firm like Base10 over much more established groups and deciding to build alongside us. It is an honor and it is a lot of fun.
Thank you to our investors, who took a chance on TJ and myself when we were just two people with a new idea in venture, and have supported us every step of the way. You have encouraged us to embrace principles from venture capital, private equity, and hedge funds, all while continuing to think radically like the entrepreneurs we are at heart.
Thank you to our team, who decided to leave jobs at much larger venture capital firms, promising startups, and well-established corporations to execute on the ambitious (and sometimes bizarre) goals and visions we put in front of them every day.
And thank you to the proverbial Silicon Valley: a truly indescribable cohort of co-investors, mentors, journalists, and advisors. Silicon Valley is, in fact, imperfect, and feels criticized on a daily basis from the outside looking in. But as imperfect as it is, this is a truly unique and wonderful place to be in and we can’t imagine building Base10 anywhere else. If the Base10 Partners story means anything to the broader industry, it’s proof that the Silicon Valley dream is definitely alive and well.
But the ecosystem has changed a lot since we got here. Back in 2010, when I was an entrepreneur going down Sand Hill Road pitching VCs my startup, I was told there were about 20 firms that could realistically invest in my round. Being a VC in those days was fun. It was essentially an oligopoly, and you sat at your desk at one of those 20 firms, waiting for entrepreneurs to come to you with the next billion-dollar startup. We actually ran the numbers and, back in the day, if you were an investor and wanted to see the “entire market,” there were about eight deals each day to consider.
Things are different now. As investors today, we’re competing with nearly 1,110 firms for the honor of being the lead investor in an early stage round, and instead of 8 deals per day, you have 111 to evaluate. So there’s two conclusions we can draw from the way venture works today: first, I picked the wrong time to stop being an entrepreneur and start investing as a VC. Second, to be successful in venture with the way things are now, differentiation and focus are the only things that will set you apart.
Despite things being busier and more competitive than years past, I am more excited than ever about Base10 Partners because we’ve spent the last three and a half years on differentiation and focus, fully embracing who we are and honing in on why we do what we do. We’re doing things a lot differently than most and, importantly, we’re putting our money where our mouth is. We believe that a world, empowered by technology, in which the 99% have as many opportunities as the 1% to build things that benefit us collectively, is a better world for all of us, and one worth working towards.
