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Clive Butkow, Venture Capitalist
Clive, former COO of Accenture South Africa, has 28 years consulting experience. Now CEO of GroTech, venture capital company, focused on disruptive technology.
Part 1: What it Entails to be a Venture Capitalist
Elevator Pitch – Who is Clive Butkow?
As a venture capitalist, it’s Clive’s mission in life to make entrepreneurs more successful. Venture capitalists help grow small businesses in order to sell them at a later stage.
The very first business Clive started when he was just eight years old, was making and selling kites. Later Clive worked in a clothing store to put himself through university where he completed a BSC in Computer Science and Applied Mathematics. Right after starting a technology business, Clive was offered a position with another company in their consulting division. This opportunity allowed Clive to travel abroad and to apprentice under great mentors. He retired 28 years later. Although he was working in a corporate environment Clive worked directly with entrepreneurs and small companies.
Making Mistakes and Learning from Them
Ideas don’t equal good, investable business. Ideas don’t make you money, people make you money. Get the very best people for the job. Build a team around yourself of people whose skills supplement your own.
How Your Business Works
Grotech is on the second capital raise at the moment and they focus exclusively on disruptive digital technology. They do not invest in asset-intensive businesses or any business that needs a lot of working capital. The reason they focus on technology is because these types of businesses are capital light and capital efficient. Their fund in South Africa is a Section 12J fund, mimicked off the Venture Capital Trusts in the UK. It is about stimulating economic growth through investing in startup entrepreneurs. The investments are tax refundable and becoming quite prevalent.
Differentiate Yourself From Your Competitors
On the Grotech board there are various business builders. They have first-hand knowledge of the entrepreneurial world. Financial capital is, in Clive’s opinion, the easiest to supply. At Grotech they aim to provide mentorship capital – valuable advice and guidance to the entrepreneur to realise his potential quicker. Social or relationship capital is the other type of support offered by Grotech – access to a relevant market. Clive also mentions human capital where they can put you in contact with the very best person for a particular job.
Inbound interest: every person on the Grotech board has an exceptional track record, so entrepreneurs tend to seek them out for their capital.
Outbound interest: the company actively seeks entrepreneurs to sell their capital to. They identify these people through their network and offer them the necessary capital input.
The Purpose of Many Board Members
Clive and his colleagues picked people with a diverse set of specialties to serve as members on the board – entrepreneurs, accountants and marketing and sales experts. With their collective knowledge on these different fields they can mentor their clients all the better.
The Skills of a Venture Capitalist
Many South African venture capital companies are run by accountants and people with a finance background as opposed to the ex-entrepreneurs in Silicon Valley. Clive feels that entrepreneurial and business-building skills are the most important factors that add to the success of a venture capital company.
There is a capital raising charge, in their case 3%, as well as a 2-3% management cost that is ongoing for the duration of the fund. Grotech only makes money if they make money for their investors.
Reset Button: If you had to start over in a different industry. What would it be and why?
Clive would use his Computer Science degree. He feels that entrepreneurship has become democratised. The barrier to entry is so much lower today – you can start a business with very little initial capital. If you choose technology you can go global with your business, yet be situated in any part of the world.
Part 2: Businesses looking for Funding
Your Ideal Customer
Grotech focuses on technology startups where the initial capital required is relatively little. They invest growth capital to take companies that already have customers and a product that works to the next level. They take customer, channel and market risk, not management or technology risk. Clive prefers to invest in generalists rather than specialists.
Requirements to Apply
It is not a requirement for a company to be profitable for Grotech to consider investing in them. The board looks at the growth of the company to come to a decision.
Business Plan vs Business Model Canvas
Clive doesn’t want to read a 50 page business plan, but rather a 2-3 page executive summary. That highlights your USP (Unique Selling Proposition), your barrier to entry, your value proposition, and that shows your financial projections. Remember that a venture capitalist’s time is valuable and you need to keep your proposal short.
When to Talk to a Venture Capitalist
Clive suggests that entrepreneurs first try and bootstrap the business. Use your own funds and customer funding to grow and build it to a certain stage before you approach a venture capitalist. When you need to scale the business you can speak to a venture capitalist – when you need growth capital as opposed to startup capital. The best way approach a VC is through an introduction, so find someone who knows the person. You will appear before an investment committee and given a term sheet with certain conditions if they decide to invest in your business. Never over-value your company to the VC.
After you agree to the terms the VC company will do a very thorough due diligence on your business where they look at your financials, they find out if there are any legal cases against you, they research the members of your team and they check if the technology is scalable. If every aspect of your business checks out, you enter a long-term agreement with the VC and you are then business partners.
What Happens After Successful Funding?
Firstly the VC would have a strategy session with the company where they look at all the different components of the business. Different VC specialists sit in meetings and take you through the whole process until they get a signed contract. After investment the VC will help with sales, marketing, product development and tech development – active, hands-on capital.
Get to know your VC company. Understand what stage the investor needs to invest in and what type of investment they offer. Speak to some of the other entrepreneurs to confirm what the VC tells you. You will spend 5-7 years with the VC and you need to do due diligence on them as well.
Capital is just a means to an end – paying customers are the only things that validate your company.
Solve a big problem, make a ‘need to have’ instead of a ‘nice to have’.