Uber Eats on Monday announced that it will now delivery groceries to households across South Africa during the lockdown. “Traditional supermarket delivery services have…
What do you perceive as success? Is owning a lifestyle business sufficient for you? Are you prepared to make changes to your business?
These are some key questions that tech entrepreneurs looking to sign up to the Grindstone Accelerator programme should ask themselves before they apply, says Knife Capital co-managing partner Andrea Bohmert (pictured above).
The Cape Town based venture capital (VC) firm last week launched a call for its fourth edition of the year-long programme – which aims to assist high-growth South Africa tech startups to scale up. Applications on close on 31 August. The call was launched in partnership with management consultancy Thinkroom.
Knife Capital launched the first Grindstone programme in 2013 — at a time before the influx of accelerators hit the local market. In this interview Bohmert responds to a number of questions from Ventureburn.
What is the aim of the accelerator?
Many entrepreneurs have been quoted in saying that they want to “take their business to the next level” but amidst the many opportunities, they simply do not know how, paralysed by the fear of leaving the just recently attained sustainability comfort zone.
Knife Capital launched the first Grindstone programme in 2013 — at a time before the influx of accelerators hit the local market
While there are many support structures for startups, scale-up entrepreneurs are struggling to find support that is meaningful.
What kind of entrepreneurs should apply?
Grindstone is aimed at entrepreneurs who are prepared to work on their business to strategically and operationally prepare the business for growth.
Funding readiness and exit-readiness are sub-components but the main focus is on strengthening the building blocks of the business to really take the business to that next level.
How many companies have you assisted so far? And how many of these have received funding?
Interestingly it is a bit of a paradox as we actively assist these companies to grow and often that boost enables them to bootstrap through the growth funding gap.
But to date, 30 companies (See the list of names at the footer of this story — Ed) have participated in Grindstone. Of these, to our knowledge, 12 have received funding.
(While 32 have participated in the programme so far, Knife Capital adjusted its averages on revenue calculation and job numbers created to reflect 10 on an adjusted basis for comparability — as per the chart in the article).
We were in mid-process of investing in iKubu when the Garmin opportunity came up – so we changed tack and assisted the founders with the exit in an advisory capacity. So, that was mutually beneficial.
We stay close to many of the Grindstone alumni companies, and are currently in due diligence (to prepare for a funding round — Ed) with three of them.
Have you had any exits of startups that participated in any of the cohorts?
Why was the revenue growth in the last cohort (44%) slightly lower than that of the first two (61% and 64%, respectively)? Job creation was also – way down, why?
South African gross domestic product (GDP) grew by 1.3% in 2017, so 44% revenue growth is therefore not particularly bad.
The 44% growth rate reflects the average across the 10 companies from the cohort. So, if you have two out of 10, not growing at all, the others need to make up for it. The revenue growth rate was therefore more of a reflection of the mixture of companies in the last cohort.
Employment creation on the other hand was a direct reflection of the wait-and-see attitude that most companies had in 2017 looking at South Africa’s political situation at the time and assessing the impact on business strategy. But comparatively – all these growth numbers are impressive.
What is then chief to you selecting a businesses for the accelerator – does a good entrepreneur take preference over just a good idea?
It goes in stages. For the initial evaluation to decide who gets into the top 50, we only have the information at hand that describes the company. From there onwards, the entrepreneurs themselves start playing a more and more important role.
Grindstone does not accept idea-stage businesses. All companies have to be post-revenue. We look at the industry, the growth potential, initial traction. Once these boxes are ticked, it is all about the entrepreneurs.
Do they have subject matter expertise? What do they perceive as “success”? Is owning a lifestyle business sufficient? Are they prepared to make changes to their business?
Can they execute? Can they lead and motivate a team? Can they sell? Are they prepared to invest the time? Are they open to network and participate? Do we like them?
How do we check these personality traits? By spending time with entrepreneurs and doing reference checks.
Do those entrepreneurs who enter the programme come with certain unfair expectations on what an accelerator like yours is supposed to do?
Some entrepreneurs enter the programme with the expectations that we will provide funding. And while Grindstone is a pipeline for investments for Knife Capital, we will definitely not invest in each of the companies.
Another expectation is that we, or the subject matter experts that make themselves available to assist the entrepreneurs, have an unlimited amount of time. And that they will fix the problems rather than guiding the entrepreneurs in how to overcome these challenges.
As Grindstone is aimed at scale-ups, we expect these individuals to embrace the support they receive and then proactively act on it.
Looking at the previous programmes, the most successful entrepreneurs were those who actively participated, engaged with the network and implemented the changes that were required to close the gaps in the business. All coming down to engagement, reflection and execution.
Have you ever had to ask a company to leave the programme?
We have never removed a company from the programme but not all engagement levels by the participants are the same throughout.
Some do drift a bit with the priorities of fighting fires in a small business taking precedence. Those who embrace Grindstone and use it as a growth opportunity get the most out of it.
As with most things in life – what you put in is what you get out.
What should the role of an accelerator be? Is it to necessarily to create jobs?
There is no “one size fits all” role for an accelerator. Or for any entrepreneur development programme as this is what incubators and accelerators are.
Whoever runs or pays for the programme has a different agenda or objective: job creation, skills development, point allocation for enterprise development (An element on the BEE scorecard — Ed), access to innovation, funding pipeline, PR or branding. The SMEs are the objects to achieve this.
So, while it is important that the funder of these programmes achieve their objectives, it should not be at the expense of the entrepreneurs. There should always be a value-add for them. So, the question is, what should the role of an accelerator be for an entrepreneur?
How should accelerator’s measure success?
The challenge for the ecosystem is to match the expectations of both sides and create a win-win (solution).
Everyone is launching an accelerator these days. Has it become a fad?
Yes, there are plenty of programmes out there and it is definitely some kind of fad. But the right programme can add value to the right entrepreneur – it is all about correct matching. And there are plenty of good ones out there at all stages of company development. From ideation to later stage growth.
Is Grindstone different to your usual accelerators?
We don’t see Grindstone as necessarily competing with other programmes. We co-operate and also mentor on many of them to ensure that the entrepreneurs get value out of the process. Grindstone’s target market and objective is different.
We are looking for established businesses with entrepreneurs who are serious in taking their business and growing it by more than 50% year-on-year. There is no demo day or pitching competition. It is about working on your business.
The objective is to engineer measurable growth. Once this is achieved it might lead to funding, market access, strategic partnerships.
We also subscribe to the philosophy that “Every Journey Ends”. So, we do focus on developing an exit strategy. Many people have criticised us for this approach which is fine… Interesting things happen to entrepreneurs who are prepared.
List of past participants
Here is a list of past participants of the Grindstone Programme:
Grindstone 1 (2013/4)
Grindstone 2 (2014/15)
Grindstone 3 (2016/17)