After a successful career with Accenture, in 2016 Clive Butkow finally took the plunge and launched his own venture capital company, Kalon Venture Partners. He believes the company has a recipe for success that will allow its portfolio companies to survive the current economic climate, and propel Kalon to pan-African relevance.
Butkow was speaking as part of episode two of “The month in VC”, a new monthly podcast series focused on all things venture capital launched by Disrupt Africa in partnership with Katapult Africa, Kalon Venture Partners, and Hlayisani Capital.
Formed in 2016, Kalon Venture Partners invests in post-revenue start-ups with high growth and high impact potential, and has so far backed 11 South African technology companies, including marketing startup Mobiz, payments company Ozow, prop-tech company Flow, and cybersecurity startup Sendmarc.
Its most recent fund was closed in 2021, and stood at ZAR250 million (then US$17.5 million). It began life as a Section 12J company, which incentivised South African taxpayers to invest in local companies and to receive a tax deduction of up to 100 per cent. That was abolished in 2021, and Butkow told Disrupt Podcast Kalon was now seeking institutional investors for a new US$50 million fund, which will be Africa-focused.
Butkow came from what he described as a “humble family”, and said he had been entrepreneurial from a young age. After putting himself through university, and studying computer science and applied mathematics. He had already raised capital to launch his own tech businesses when he was “seduced” by Andersen Consulting – which is now Accenture – at the end of his degree.
“So I decided to put a pin in my entrepreneurial dreams and join Accenture for five years, and really learn as much as I could about sales, marketing, product development… And during that time I really built my entrepreneurial skills. I built quite a few companies in Silicon Valley, I helped quite a few of the top brand companies, building up their sales force.”
But Butkow says his success at Accenture, and continued promotions, actually got in the way of his own entrepreneurial ambitions. It was 28 years before he decided to pursue his true dream – venture capital.
“In 2012 I retired, and then I got headhunted into a company called Grovest, and then two years later I started Kalon Venture Partners. I started that because I had so much experience of building tech businesses, I understood innovation, and I understood how to build a US$1 million to US$1 million business, and how to build a billion dollar business. I’d been there, done that,” he said.
Kalon’s first two funds were South Africa-focused, but it is now making its first forays into the rest of the continent.
“We’ve set our sights much higher, my vision is to become the number one VC company investing in entrepreneurs solving African problems. And we couldn’t do that through the 12J. We’ve built a strong brand, we’ve invested in some fantastic companies, and 12J was just to get out of the starting stalls. We want a fund where we can invest in the best tech companies in Africa. Now we will be able to play a big role in the South African and African VC space.”
The companies Kalon invests in are solving big problems on the continent.
“So we don’t necessarily invest in blockchain, AI, machine learning… We invest in companies that are solving big problems. We invest in companies that solve pain points, and not vitamins or “nice to haves”. Since 2021, the bar has gone up in terms of what enterprises are buying. They are not buying the “nice to haves”, now they are just buying the “need to haves”. They are buying the ones that will directly lead to RoI,” Butkow said.
“And because we’ve always followed that policy of investing in companies that were painkillers not vitamins, the downturn has been great for us. We are seeing our companies actually growing in the downturn, because we are solving problems and we have a high RoI on those companies.”
Butkow has been through a few downturns in his time, and says he has “seen the playbooks” in terms of what companies need to do to get out of the “hole they could potentially dig themselves into”.
“During this downturn, it is about efficient growth. It is about capital efficiency. It is not about just driving growth. Yes, growth is important, but it is not the only thing that is important. The important thing now is to either get to free cash flow, or show that you have a path to profitability,” he said.
This, Butkow said, is the route to raising further capital in the current climate.
“If you get to free cash flow, or you have a path to profitability, there will be another cheque down the line for you, because that is what VCs are looking for, that one per cent of companies out there. And there will be capital for those top companies,” he said.
Kalon is there to help its companies in challenging times.
“We are not accountants, we are not lawyers, we are entrepreneurs. We’ve got two entrepreneurs on our board, and I’m the only GP. I’m on the phone to all of our companies twice a week, sometimes once a day. And these guys are asking my advice. We help with strategy, we help with hiring, we help with product development… We help with everything really,” said Butkow.
Now, the company is scaling its model across the continent. How will that look?
“You can’t just lift and drop something into a new country like Nigeria, Kenya or Ghana. You look at our retailers, telcos, banks, they are dismal failures in those markets. You have to go and re-find product-market fit. There are differences – culture differences, there are differences to the way people buy, there are differences to the ideal customer profile,” Butkow said.
“We are not naive, we don’t believe for one second we’re just doing to drop our company into a new market and it is going to work. We are definitely looking at hiring people in those markets, so we’ve got feet on the streets and boots on the ground. We don’t believe for one second South Africans can go and run a Nigerian business or a Kenyan business. We’ve just seen too much failure when you try to make that happen.”
Episode two of “The month in VC” also saw our partners discuss how African startup founders could ride out the global cash crunch by being more efficient about the ways in which they run their businesses. Listen here.