Lifting the Venture Capital Skirt

Looking under the hood and kicking the tires

- Henk Kleynhans

- founder

- CEO CTO

- 3 parts

- - my past

- - my (short) VC experience

- - Venture Capital Aptitude Test

- my past

- student

- financial aid

- UCT

- internet junkie

- internet junkie

- YouTube, I

- 2003

- wifi

- adsl

- becoming mainstream

- ADSL cost R1200 per month

- Capped at 3GB usage

- SHARE

- adsl

- wifi

- $

- looked far and wide

- SHARE

- the problem was

- time

- big problem

- movies

- slow down

- hit my cap

- only what they eat

- NOT how much time they take to eat it

- simply didn’t exist

- So...

- I decided to

- build it!

- scratch my own itch

- solve a problem

- broadband

- share

- neighbours

- $$$

- laptop- cheap- convenient- no modems- no line rentals- no contracts

- end-users

- end-users == Skyrovers

- start their own Skyrove hotspot

- virally

- spread affordable and convenient internet access

- income

- 100s

- 1000s

- small entrepreneurs

- around the world

- ?

- who does NOT think

- this was a brilliant idea?

- just a BIG IDEA

- competition

- Big Ideas

- National Innovation Competition

- my buddy Al

- marketing student

- this thing called

- a Business Plan!

- Al was busy writing his thesis

- “If you want something done...

- ask a busy man!”

- worked days and nights

- this thing called:

- Market Research!

- & a thing called...

- Financial Projections!

- VERY CLEARLY

- VERY CLEARLY

- by Year 2

- 100 Million Dollars

- Dr Evil Picture

- i’m not joking!

- business plan

- brilliant

- world-changing

- earth-shattering

- paradigm-shifting

- business plan

- fancy event

- 3rd place winners

- 2nd place winners

- So...

- clearing a path to the stage

- ...

- someone else won!

- cried a little

- hugged each other

- moved on...

- and on!

- market research

- financial projections

- we were onto something big!

- looking for funding

- raised $20,000

- overseas investor

- hired first programmer

- launched 2006

- raised a million 2007

- 9500 20,000 customers

- 300 600 hotspots

- 8 employees

- Honours or Masters Degrees

- except for me...

- community

- largest Hotspot network

- continent

- 2005

- Top ICT Entrepreneur

- Business Report / Enablis

- 2006

- TT100 Minister’s Award

- Most Promising Emerging Enterprise

- 2008

- Mail & Guardain

- 200 Young South Africans

- You Must Take To Lunch

- Department of Science and Technology

- trip to Germany

- (thank you Minister)

- overseas investors

- proved

- young South Africans

- leaders in innovation

- technology

- commercialization

- but

-

- Rotterdam

- Berlin

- Vancouver

- Silicon Valley

- part 2

-

- My meandering VC experience

- have raised SOME money

- failed to raise MUCH more

- first investor: Silicon Valley

- $20,000

- 3 year period

- but get shares upfront

- upside

- family member

- R100k

- venture capital

- mentor capital

- zero money

- flirted with big VC

- term sheet

- pulled out last minute

- when principal left

- *phew*

- got lucky

- (or smart)

- found investor

- zero bullshiitake

- “gets it”

- one bar

- WILLs and WON’Ts

- will NOT accept an offer

- gives majority board control

- to minority shareholder

- I know my market and my product better

- I will NOT accept an offer

- for more money than I need

- especially in tranches

- = stock options

- I will not accept VC before

- 2-minute noodle profitable

- I will

- phone the founders

- BEFORE

- serious talks with any VC

- I will

- GRILL the VC at first presentation

- portfolio companies

- successes

- experience

- I will not...

- pay for Due Diligence costs

- spending time with you...

- is more expensive to me...

- than it is to you!

- I will not...

- give shares to “Mentor Capitalists”

- will work harder for you

- give better advice

- keep your interests at heart

- if it puts its money

- where its mouth is

- part 3

- the Venture Capital Aptitude Test

- (credit to Guy Kawasaki)

- “You know you’re in a bubble when young people get into VC”

- “VC should be your last job, not your first.”

- “When you’re young, you should work 80 hours a week to create a product or

service that changes the world. You should not sit in board meetings

listening to an entrepreneur explaining why she missed her numbers while you

read mail on a Blackberry and intermittently spew forth gems like:

- ‘You should partner with MySpace! I can also introduce you to some of the

losers in our portfolio’

- entrepreneurs

- aspirant VCs

- existing VCs

- 3.1 Work Background

- Engineering

- plus 5 points

- understand technology

- does it defy the laws of physics?

- Sales

- plus 5 points

- introduce a product and

- sell it

- “sales fixes everything”

- Management Consulting

- minus 5 points

- Investment Consulting

- minus 5 points

- Accounting

- minus 5 points

- 3 worst backgrounds

- Consulting, Banking, Accounting

- Management Consulting

- “implementation is easy,

- insights are hard”

- opposite is true in startups

- Investment Banking

- “everything can be reduced to

- cells on a spreadsheet”

- P/Es

- Build companies for JSE, not customers

- do deals, don’t build companies

- accounting

- belief that history not only

- repeats itself...

- but it predicts the future

- financial models are almost totally irrelevant because there’s no financial

wizardry involved in making a good product and selling the heck out of it.

- MBA

- minus 5 points

- upside

- tools and knowledge may help

- e.g. 25% of $1.6 billion

- is $400 million

- downside

- hollow arrogance of someone

- who’s never been tested

- 3.2 The Right Stuff

- (First Hand Experience)

- you may have been in the right places

- but have you been

- KICKED

- in the right places?

- kicked in the groin by

- major, long-lasting economic downturn

- plus 1 point

- worked at a successful startup

- plus 1 point

- worked at a failed startup

- plus 3 points

- you’ll understand 3 things:

- 1. how hard it is to achieve success

- 2. world doesn’t owe you a thing

- 3. what it’s like to be fired or laid off

- worked at a public company

- plus 1 point

- (know the end goal, warts & all)

- held a CEO position

- plus 2 points

- fantasy experience out of your system

- won’t try and run startup from a board position

- been an angel investor...

- with your OWN money

- plus 2 points

- understand the responsibility of investing other people’s money

- 3.3 Necessary Knowledge

- Can you answer the following questions for entrepreneurs?

- How do I...

- introduce a product with no budget?

- plus 2 points

- How do I...

- determine if there really is a market demand for my product?

- plus 1 point

- What do I do...

- if customers hate our first product?

- plus 1 point

- How do I...

- get Walt Mossberg to return my call?

- plus 2 points

- How do I...

- get to the folks who run DEMO?

- plus 1 point

- How do I...

- get a plug in TechCrunch?

- plus 2 points

- How do I...

- dominate a segment with 5 competitors doing essentially the same thing?

- plus 2 points

- How much...

- time, energy & money

- should I spend on patent protection?

- plus 1 point

- What do I do now...

- if I bet on the wrong architecture for our product?

- plus 2 points

- What kind of...

- people should I hire?

- Young, old, proven, unproven, cheap, expensive, local, remote?

- plus 1 point

- How do I...

- get them to leave their jobs

- without throwing money

- plus 2 points

- How do I...

- tell my friend that he cannot

- be CFO

- just because he’s a co-founder?

- plus 2 points

- How do I get...

- the Buyer at Incredible Connection

- to return my call?

- plus 1 point

- How do I...

- handle a customer who wants to send back his purchase for a full refund?

- plus 1 point

-

- How do I ...

- fire people?

- plus 2 points

- How do I ...

- lay people off?

- plus 2 points

- tally up...

- 40 points or more

- start your own fund!

- 35 to 39 points

- call Sequoia, Kleiner, Perkins

- let them know you’re available...

- 25 to 34 points

- send your resume to

- 2,000 VCs

- and pray

- 24 points or less

- work until you score more

- and in the meantime

- fly kulula

- fly kulula

- bottom line...

- only become a VC

- after having the shit kicked out of you

- stand out from all the other

- full-of-**it artists

- who entered VC when they were young

- you’ll be really able to help

- your portfolio companies

- which is what VC is all about

- .

- Henk Kleynhans

- www.skyrove.com

- henk@skyrove.com

- 0861 ROVERS

- Blog: www.geekrebel.com