Lifting the Venture Capital Skirt: Insights into Funding Startups

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

- student
- ﬁnancial aid

- UCT

- 2003

- wiﬁ
- adsl

- becoming mainstream

- ADSL cost R1200 per month

- Capped at 3GB usage

- SHARE

- adsl
- wiﬁ

- $

- only what they eat

- NOT how much time they take to eat it

- So...
- I decided to

- build it!

- laptop
- broadband
- cheap
- share - convenient
- neighbours - no modems
- no line rentals
- $$$
- no contracts

- start their own Skyrove hotspot

- virally
- spread affordable and convenient
internet access

- who does NOT think

- this was a brilliant 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!

- by Year 2

- 100 Million Dollars

- brilliant

- world-changing
- earth-shattering

- paradigm-shifting
- business plan

- clearing a path to the stage

- cried a little
- hugged each other

- moved 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

- 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

- proved

- young South Africans
- leaders in innovation

- technology
- commercialization

- Rotterdam

- Berlin
- Vancouver

- Silicon Valley

- My meandering VC experience

- ﬁrst investor: Silicon Valley

- $20,000

- family member

- R100k

- pulled out last minute

- when principal left

- found investor
- zero bullshiitake

- “gets it”

- gives majority board control

- 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

- phone the founders
- BEFORE

- serious talks with any VC

- GRILL the VC at ﬁrst presentation

- portfolio companies
- successes

- experience

- pay for Due Diligence costs

- is more expensive to me...

- 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

- the Venture Capital Aptitude Test

- “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

- 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

- tools and knowledge may help

- e.g. 25% of $1.6 billion

- is $400 million

- 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

- with your OWN money

- plus 2 points

- understand the responsibility of
investing other people’s money

- 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

- call Sequoia, Kleiner, Perkins

- let them know you’re available...

- send your resume to

- 2,000 VCs

- work until you score more

- and in the meantime

- 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

Lifting the Venture Capital Skirt: Insights into Funding Startups

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