…the Journey Continues

After about a 10 month blogging hiatus, I have decided that I need/want to get back into regular updates of the blog.  I received a pretty inspirational email today from an undergraduate student who said he hopes that he can have the opportunities that I have had.  He was a passionate, excited, bold young guy who reminded me of myself when I used to roam the internet looking for people who I thought would be awesome to email.  I wrote back to him as I try to do for everyone that sends me a note.  I have fond memories of how excited I would be as a teenager when I received even the smallest reply back from a CEO and how energized I got from that.  I do not at all mean that I am at that level or that anybody would be really excited to receive an email from me at this point, but I consider it good practice to respond to everyone who took the time to write to me and I hope I will always continue to do that no matter how busy I get into the future.

Now back to the blog that I have terribly ignored for the past year.  Well, a lot has happened.  I have had more amazing travels since South Africa, leading a Stanford GSB study trip to India as well as going to Vietnam and China with a classmate.  I worked a lot on startup ideas over the last few quarters and really tried to work on my interpersonal and leadership skills.  Finally, I officially graduated from the GSB, even though I am still living on campus and working out of the Center for Entrepreneurial studies.

I have been working on three startup ventures with some incredibly people since graduation and see no sign of slowing down anytime soon.  It is definitely a tradeoff not being able to hangout with good friends all the time, but I am learning an incredible amount in the startup realm in the mean time.  More updates to come…

How to become a VC?

“Join the Old Boys Network”

I received an email with a link to a great recent article about the VC industry with a study showing which Universities VC’s have attended and, not surprisingly, more than one out of every three has attended one of the top 5 schools on the list.  According to the report in Red Herring, “42 percent of VC investors went to Harvard (12%), Stanford (9%), University of Pennsylvania, Duke, or MIT.” These numbers, while still disproportionately high, are actually lower than I have seen in other reports.  I believe this study looked at VC’s nationwide and I wonder how the percentages would change if one were to look at exclusively Silicon Valley VC’s, or just top tier VC’s.  I would surmise that the portion from HBS and Stanford GSB would increase drastically (although I have no raw data at this point to back that up).

This study apparently looked at all roles in the VC industry including partners, analysts, principals etc.  The study also has interesting information  on the “road to becoming a VC.”  It states, “Prior to entering the venture capital business, 22 percent were either C-level entrepreneurs or startup employees; 20 percent worked at a larger or middle-market company; 20 percent worked at a different venture capital firm, and 19 percent worked at a law firm, consulting firm or investment bank.”

A few other notable stats:

• 88% of the VC’s were white
• 86% were male

So the good news is if you attended one of those schools and are a white male, you have a good chance of getting into the VC world.  The bad news is obvious.  VC is too much of the “Old Boys Network.”  I do think that it is changing a bit.  They do show statistics that the industry is becoming more diverse, but in general, I think there is a long way to go. In defense of the industry, it is one of the most popular professions in the industry and it would probably take an incredible amount of time to really sift through every person who wants to get in.  Further, some of the best VC’s are identified by their entrepreneurial success and thus are “tapped by VC’s” rather than seeking out the position so it might be a bit of a random fact that they all have come from similar schools.

How can we identify who the next great VC’s will be?  Right now, the great VC’s pick and choose and through their networks figure it out, but can there be other ways as well?

South Africa (VC and Entrepreneurship): The Next Israel?

I was asked to give a little speech this evening to a large group of entrepreneurs discussing some thoughts on entrepreneurship and venture capital in Africa.  It was a great opportunity for me to reflect and synthesize my thoughts on many of the key takeways I have had during my time here.  From discussions with my colleagues and from the many business ideas I have seen, I definitely do not think there is a lack of entrepreneurs or interesting ideas in Africa. In fact, there have been some very exciting ideas and I think they could even make some top American VC’s take a second glance.  One of the biggest challenges, though, is finding the entrepreneurs that really want to take their idea global and be the next huge company.  Many entrepreneurs and companies here are quite happy with their lifestyle businesses, making good money in the domestic market and don’t really see a need to go further.

I would argue that the entrepreneurs here should really dream big.  They are all looking at the domestic market, rather than the global market or the African market as a whole.  For example, the African mobile market is huge and growing at unheard of rates.  As Joe Shoeendorf from Accel Ventures said in a recent VC Insight Report, Africa has the next billion customers waiting to be served.  Entrepreneurs here need to see that market and take advantage of it.

Israel is an interesting case as it is the country with the greatest amount of VC funds as a percentage of its GDP in the world…even though the Israeli market in itself is miniscule.  Israeli entrepreneurs are coming up with great ideas and unmet needs not for the Israeli market, but for America, Europe, Asia etc.  There is a great opportunity for a country in Africa to follow this model of being the place bringing about amazing innovations and a large amount of venture funding to take great products all over Africa.  South Africa is the natural home for that, in my opinion, as it has developed infrastructure, a strong stock market (Johannesburg Stock Exchange is the 10th largest in the world), a mature private equity industry, top notch educational institutions, and innovative technologies.  Now, all it needs is for the entrepreneurs to dream big and target the whole of Africa as their market and it will be off to the races.

Amazing Stanford GSB Summer Experience- 50% Entrepreneur/50% VC

Tonight I reflected on my last couple of months, thinking about my summer experience between my first and second years of Business school.  I don’t think I truly realized how lucky I have been with two phenomonal experiences, both of which I secured just a month or two before the summer began (so GSB’ers don’t stress out if you are a bit of a late-bloomer in getting your internships).  I began the summer working to help on different aspects of three startup companies in industries all over the place (from retail to security to high tech) and ended up really joining the team of the hi-tech startup as we began the process of fundraising.  We pitched to a number of VC’s on Sand Hill Road (mostly, meetings were setup through the strong Stanford network).  By the end, we were simply comparing the different VC’s by the type of snacks that were in the middle of the table.  I preferred the chocolate mints that one particular VC had ( I actually didn’t have time to eat breakfast that day so I think I ate about a dozen in the hour meeting).  It was very educational and helpful to see exactly what it is like to pitch VC’s with an idea as I know it won’t be long when I (hopefully) will be bringing my own idea to them- mostly so I can get more chocolates. In general, the experience with the startup was everything I could have hoped in the summer and I had a very difficult time leaving the company and the team.  They were a brilliant group of people who worked extremely hard- exactly the kind of group of people I want to pull together when I start my own venture.  Thankfully, they let me stay on and I have been virtually working with them since coming to South Africa.

The second portion of my summer is what this blog has been about.  I went from asking for money at a Startup to hearing other people asking us for money as a VC.  Again, an amazing team and an amazing experience.  Since the firm is pretty new, we have a lot of activity both from the company standpoint and our standpoint as we have funds ready to start delving out.  The team has also really believed in me and given me responsibilites all over the map…sitting in on pitches and giving feedback, sourcing dealflow, helping with valuations, talking to customers, talking to experts, discussing investment opportunities, due diligence, getting tea and coffee for guests (we ALL do that up to the managing directors which is exactly the type of shop I want to run), you name it!  It is an incredibly stimulating environment where we see new ideas, and meet dynamic new people every day which keeps things interesting.  Most importantly, I really feel like I am getting into the mindset of a Venture Capitalist, figuring out what things are most important to think about in a startup and an entrepreneur, especially when in the fundraising stage.  I think this experience and knowledge is vitally important and will definitely be valuable going forward.

Today, I had a day that summed up my summer experience quite well.  It began as another exciting day at the VC firm…I had a couple of customer interviews with a potential investment, then we had an all-company meeting to go over a term sheet and discuss next steps of due diligence for a couple other investment opportunities.  In the middle of this, we had a quick ‘break’ where I picked the brain of my brilliant colleagues about a business idea that I have been working on recently.  Of course, there was also dozens of emails and phone calls from people with ideas, journalists with questions, and people trying to figure out what a VC firm in Africa actually does.  When work at the firm was finished, I went home and prepared for the start of the business day in San Francisco ( the time difference is 9 hours which is PERFECT; when I leave the VC firm around 6pm, it is 9am on the West Coast so workday part II begins for me ).  The startup hi-tech company that I am working with had a conference call to pitch to a well-known VC firm in the U.S. (I had a chance to put some of my new VC knowledge to the test in revising our slide presentation to be more VC-friendly)  We had a one hour phone discussion that went very well and are looking to setup a face to face meeting as the next steps.  After the call, we had a discussion as a team to talk about strategy going forward and other investors we are speaking with.  It is now almost 2pm in Cali (but 11pm here) so the emails are starting to roll-in from people I have emailed on the West Coast and at Stanford.  I’ll respond to them for a couple hours, read for a bit (I just began reading “The Monk and the Riddle” by Randy Komisar who is a Rockstar VC for Kleiner Perkins and somebody who I think has a similar outlook on entrepreneurship as myself), and head to bed around 3am, getting ready for another incredible day tomorrow.  Carpe Diem!

Entrepreneurs in Africa.. Can they Do it?

I recently received an email asking a bunch of great questions of things I have been thinking about regarding entrepreneurs and investment in Africa.  Below is the question and my response based on the very limited experience I have had so far.

“…I also heard phrases from Western businesspeople, such as : “Their culture and mentality just won’t let them make good on what they can do”. As much as the phrase stings – I definitely understand the concern (it is kind of a Wild Wild West out there, right?). Yet I feel like the perception of risk is still too extreme. I think you can do business with smaller entrepreneurs if you control for certain factors and make good information flow in.  I am just not sure what would be a good feasibility indicator for these projects? How do you deal with this in your internship? I understand that having a local network and facilitators is key, but can you quantify something at all? Since standard assessment criteria may not work, are there any more exotic indicators that you can come up with, if you are not based locally? I imagine that valuation is still valuation, so would they mostly concentrate on corporate governance criteria and product/consumer assessment? How do you know that the team can succeed if you don’t trust the mentality of local businesses?”

I have definitely heard similar concerns about investing/getting financing in Africa (and I would imagine the same exist in Central Asia).  I am not sure if I would agree so much that it is a cultural/mental barrier as much as a lack of entrepreneurial education and resources.  Yes, there are probably a few more “highly ambitious entrepreneur-types” in the U.S., but I have met a fair share of incredible people in Africa, who, if had access to the resources of silicon valley, would be incredibly successful.  That being said, because those resources are nonexistent, a successful VC investor in Africa would need to be incredibly “hands-on”- much moreso than an American VC would be.  They would need to take almost a weekly (if not daily) interest in advising and counseling the company.  An American VC does not have the time to do this, nor is it even feasible because none of them have local offices in Africa.  We have seen this in India and China recently (many of the top firms have opened branches there as I am sure you are aware of) and I would think that will happen in Africa at some point…but possibly not for 10 years.

It is a bit ‘Wild Wild West-like’ around some parts in Africa, but actually in South Africa where I am, technology and infrastructure is quite mature and the private equity market is solid as well (late stage, though, and not early or seed stage VC yet).  There is a trend toward earlier stage investments, thus the founding of our firm and others recently, but the early stage investment market is definitely still quite young, precisely because of the concerns you raise.

We do use much of the same assessment criteria that a VC in the states would use: the team is incredibly important, the technology, their unique advantage, the market need etc, but to figure out the answers to those questions takes a much more proactive approach of talking to customers, experts, and others as there isn’t nearly the amount of research reports or statistics that we can look at it as in the Western World.  Further, we must consider political issues such as the Black Economic Empowerment movement and how they may impact the company.  You’re right, valuation is valuation, but the exact same company with the same team in Silicon Valley might be perceived as both higher value and less risk because of political considerations, larger market, etc and thus be a better investment opportunity.

To your last question, we really have to figure out what the mentality of the team of a potential investment is- just like a VC on Sand Hill, we are ultimately looking for stellar returns on our investments and if the management team does not have the mentality of hyper growth and large ROI, it may not be what we are looking for.

Rugby and Wardancing!

Yesterday, I feel like I had the quintessential South African experience.  The day began with watching the Rugby game between South Africa and their arch-rival, the New Zealand ‘All Blacks.’  I did, indeed cheer for SA’s Springboks (a nimble, quick animal similar to a deer, I gather) even though they were absolutely torn apart by New Zealand.  I was also a little surprised by how “into the game” I became.  There were a lot of really exciting plays, huge hits, and amazing displays of athleticism.  It reminded me of American Football with an excess amount of laterrolls (which I love- I don’t think NFL teams take enough risk with plays like that).  While my South African friends would probably disown me if I said it, I did gain a lot of respect for the New Zealand team while watching the game.  New Zealand began the game (as apparently they do every game) with a traditional war dance called a Haka.  Some people said it was meant as intimidation to the other team and I am not sure about that, but I am positive that having the entire team engage in such a high energy activity such as that really unifies the group.  They feel like they are all together in this battle and they are in war-preparation together.  Regardless of how it looks, the benefits are what it does to the team performing it.

NZ

As a captain of our Ultimate Frisbee team in college, we would always start with a motivational chant, huddle, cheer etc and it did get us motivated and unify us.  Is it possible to bring this energy and motivation to a professional setting?  Can a company have a Haka?  How about a VC firm?  I can’t really imagine my company starting every morning off with a traditional war dance before sitting down at our desks to have a conference call with investment partners- but there must be more subtle ways to unify the team just like the “All Blacks” haka.  What will I do with my team when I have my company?  One large healthcare corporation Da Vita, is known for having all-company “pump-up” sessions where people scream and shout about their company, but there are many people that simply will not buy into this sort of ritual.

What will be my haka?

Insightful VC Tidbits…

Some interesting things heard around the firm that I think are pretty true.  I’ll try and keep this list updated.

“It’s not about finding the perfect company to invest in.  The perfect company does not exist.  It is about whether they and we can fix their imperfections.”

“The VC/Portfolio Company partnership is an odd one.  It is like getting married but planning out the divorce in five to seven years.”

“A good VC is an expert at knowing and using experts.”

From Hostel to Hotel?

Sadly, I have recently moved from my beloved hostel to a hotel that is much nearer to our office.  I actually did enjoy the hostel and would definitely stay at hostels again as I travel around the world, but the reasons why I wanted to stay there were (see my previous entry) that I wanted to meet a bunch of new people from all over the world.  It turns out that 1)in the Winter, there aren’t many travelers to this area and 2) the only travelers that come in any season are from South Africa.  So it wasn’t the dynamic, cultural experience I thought it might be, but it was a good experience (my first time in a hostel) nonetheless and I would do it again.  I will not be changing the name of the blog to “The Hotel Venture Capitalist” however, as I don’t think it has the same ring to it.  “Hostile” could work, though

The Value of an MBA for getting a job in Venture Capital

Huge.  Get it.

And get it from either Harvard or Stanford. I have found numerous (and source-less) statistics stating facts like:

- HBS grads make up 70% of the VC population with Stanford grads making up the majority of the remainder

OR

-Stanford and HBS grads make up half of all VC’s

While I am not sure the exact statistic, I have noticed that there are some Stanford and Harvard Business School graduates at almost every top VC firm that I have come across.  It really is a relationship-based industry and because there are not many open positions, (and when they are open, they keep them quiet) when openings come up, they are almost always filled by referrals or through networks rather than an open recruiting process.  It may be unfair, but that is how the system seems to work to get an entry level job in Venture Capital.

Another sure-fire method to getting into VC:  start an amazingly successful company… or actually start six of them.  The reputation, network, and knowledge about what it takes for a startup to succeed will trump any MBA in the world.

The Value of an MBA for an Entrepreneur

I recently got a question about how valuable an MBA really is for an Entrepreneur.  There are many people who will adamantly argue that it is totally unnecessary and will share anecdotes of successful entrepreneurs who either dropped out of B-school or never attended (Bill Gates, Richard Branson, Steve Yang, Larry and Sergey…).  While I do not think it is critical, I do think there is value for an MBA to an entrepeneur, especially if you choose the “right program.”  As far as entrpreneurship goes I have heard very positive things about Babson, Berkeley, MIT and Stanford and know there are great courses at Harvard and Dartmouth as well.

The 2 things that I have found most valuable relating to entrepreneurship at B-school are 1) the experiential courses and 2) the vast network throughout Silicon Valley.  At Stanford, I have found many “entrepreneurship-specific” courses that have taught me very relevant things- how VC’s work, how to create and pitch an idea, how to get funding, how to recruit a team etc.  In one class, we pretty much launch a company (in Ethiopia, no less) from idea to market and that was extremely valuable. Another class is specifically about “Managing Growing Enterprsises” top businessmen role-play some of the toughest decisions you will have to make as a leader/entrepreneur.  Of course, you will also have dozens of case studies on what entrepreneurs did right and wrong at their own companies.

As far as the network is considered, I can not say enough about how strong and helpful the Stanford network has been for me (especially in the Silicon Valley area).  There is a huge amount of VC’s and entrepreneurs throughout the valley who are happy to help a “fellow GSB’er” as I am sure is the case with other top schools.  One should definitely consider their future plans, however, as the Stanford GSB network is not nearly as extensive on the East Coast.

Ultimately, I think there is value in an “MBA for an Entrepreneur” but it definitely is not critical as many examples have shown!