Trading in boardrooms for the sweat of humble start-ups

I don’t want your  money. 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 R300bn you deposited with us when I was CEO, it’s just that after many years of 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 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 creates dramatic change in society is the humble start-up. This is nothing more than a small group of people with a cool 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.  Application for huge amounts of funding for crazy ventures streamed in almost immediately.

As Warren Buffet once said: “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: “I’d like to have a cup of coffee with you.” Now, I 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 in sobriety were not going to be a promising start and I knew I had to find partners. Angelhub Capital knew how to ask for a business plan and sift the promising ones from the crazy, lazy, ones. With their help I started a steep learning curve. In Silicon Valley they say it takes $60m 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 minimise losses. Suits are bad news: don’t invest in entrepreneurs who arrive dressed in designer gear. 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. 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 learnt that even the greatest idea is worth very little if badly executed.

Successful start-ups 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.