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Disruptive technology that is 12 months ahead of the competition. A proven product. A large addressable market. The best team on the planet.
These are four things venture capitalist Clive Butkow looks for when his Kalon Venture Partners — a registered Section 12J Venture Capital Company picks tech startups to invest in.
Butkow’s Johannesburg based VC company already backs some big names — like fast growing Joburg fintech startup i-Pay (which Ventureburn lists among eight Gauteng startups to watch in 2018 — see here and here).
In March Butkow told Ventureburn that investor sentiment had picked up since then president Jacob Zuma stepped down. He said Kalon is also looking to set up a fund to invest in tech startups in the rest of the continent.
This Q&A is part of a series of interviews that the publication is conducting with venture capitalists and angel investors in the SA tech startup sector (see the footer of the story for links to other interviews).
What kind of return on equity do you generally look at?
We aim at an overall return on the capital invested in our fund of between 30% and 38% internal rate of rate (IRR). On an individual investment we look for a minimum 10X return on our capital.
How many of your investments have had exits, how many are making really good growth?
Kalon Venture partners and is just over two years old with four investments and no exits yet (Kalon’s four investments are: i-Pay – see here, The Sun Exchange – see here, SnapnSave – see here and SMEasy – see here – Ed).
One of our high growth companies grew 274% year-on-year (growth) for their financial year ended 28 February 2018 (Butkow confirmed this company is i-Pay – Ed)
This company is currently raising a large amount of capital for global expansion at a circa 50% increase in the pre-money valuation from what we invested at.
Are there say three or four important ingredients to making an investment return good value for investors?
The four key high-level criteria we look at in making an investment are as follows:
- The best team on the planet with execution intelligence and knowledge of the domain their startup is in.
- Disruptive technology with a moat around the castle. The moat being a product with a minimum of 12 months ahead of the competition.
- Traction, they need to have proven their product solves a problem and is a must have, a pain killer, opposed to a nice to have, a vitamin.
- A large addressable target market, both locally and abroad.
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Read more: HAVAÍC holds onto five investments despite two offers, says Ian Lessem [Q&A]
Read more: Jozi Angels wants R8m return from R400k invested per startup [Q&A]
Read more: Market readiness key when investing in startups – 4Di Capital founder [Q&A]
Read more: Startups need at least 10x in 5 years to be good investment – VC, angel investors
*Correction (7 September 2018): We incorrectly reported that Kalon Venture Partners had invested in blockhain startup The Sun Exchange in 2017.
The fund’s head, Clive Butkow alerted Ventureburn that in the end the investment did not come off. “We did invest the R1.6 million as a loan to be conveyed to equity as soon as we had Sars (SA Revenue Service — Ed) approval which unfortunately was declined,” he said.
He said the fund is still trying to find a way to invest in The Sun Exchange “due to some of the legislation not being clear”.