If a VC Fund Were Run Like a Lean Start-Up

Earlier this year, a wise VC mentor with 20 years experience pulled me aside and told me something that had me screaming in my mind.

“Tony, let me tell you a truth about venture capital that only an entrepreneur would understand. You’re a software entrepreneur, right? So, if you are starting a software company, doing 5-week sprints, you’re getting market feedback and iterating every 5 weeks. You learn something new every 5 weeks, make changes, are getting better, and within a few smart iterations, you are zeroing in on product market fit. As a VC, your cycles aren’t 5 weeks, it’s 5 years.  So, the last thing you want to do is raise all this money, deploy it, and come back a few iterations later, very wise… and very broke. Start-ups need to go fast, VCs need to go slow!”

As a serial entrepreneur, I’m a big believer in lean start-up principles. Do smart real-world experiments. Learn as much as possible about exactly what the market is demanding, spending as little capital as possible. And this VC was telling me to apply the same lean start-up principles to my newest start-up, which happens to be an investment fund. You can likely guess the next question I asked: “How do I get the benefit of 10 years of learning in about 20 weeks?” 

As such, Kinyungu Ventures has just commissioned a research study which will reverse-engineer the previous 10 years of other people’s experiences. We’ll focus solely on early-stage deals and how they evolve (good to bad, good to great, vulnerable to rescued, etc) based on the deal’s “structure and culture.”  By structure, I mean timing, amount, instrument type – the “technical” side of the deal. Just as important (and often ignored) is the “culture” of a deal:  values alignment, incentives alignment, and expectations (communicated or not).

Every deal has a structure and a culture

We also hope to uncover numerous unexpected developments and circumstances — things that seemingly came out of nowhere that impacted deals, for better or worse. These so-called black swam events need to be analyzed, synthesized, and shared so all of us can be better prepared.

As African ecosystems mature, early-stage investing in Africa is becoming an increasingly relevant asset class that still suffers from mass misperceptions. More importantly, early-stage investing has a potentially catalytic effect of unlocking mountains of follow-on investments, building long-term value into the economy, and creating millions of jobs. Some of the start-ups we are looking at today will eventually move the needle of their country’s GDP.

While this research will accelerate my learning, it’s really for us all. A rising tide lifts all boats. The more informed investors and entrepreneurs are, the more our investments are value-add, appropriately structured, and strategically aligned – our deals will have better structure and culture.  That benefits everyone, especially the countries in which we operate and her best entrepreneurs. We aspire for this research to help de-risk early-stage investments for Sub-Saharan Africa.

We’ll publish and sell our research report – one version for investors and one for entrepreneurs — at an accessible price for all motivated to learn, while covering our expenses (quite fittingly, this very report is an entrepreneurial venture!).

Our approach to this project is not as academics (though we lean on academics to vet our methodology), but as curious practitioners. Having already made 9 investments in Kenya, we are knee deep in the reality of investing and we value practical, use-this-today wisdom. We value depth and nuance — we want to get at the real insight, not just the top-line “best practice” that’s shared from a conference stage.

As such, the methodology is to drill down deep into dozens of early stage deals done prior to 2016, ideally interviewing both the entrepreneur as well as an early investor. We will focus specifically on the unique dynamics, barriers, trickiness, enablers of early-stage investing in the Sub-Saharan African context.

In the weeks to come, I’ll be sharing more about this project and would love to keep you posted. If you’re interested in participating in this research or just want to stay updated, email me at tony [at] kinyungu.com.

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