Sundaymail Editor
Africa Business Insights
Stephene Chikozho
IMAGINE walking into a room full of people and when asked about your profession, you confidently reply: “I’m a venture capitalist”.
The title exudes prestige. It suggests ambition, wealth and success; conjuring up images of Silicon Valley power players who bet early on tech giants like Uber or Airbnb.
Yet, behind the allure of billion-dollar “unicorn” investments in Africa lies a reality far grittier — 60-hour working weeks, a 90 percent startup failure rate and the emotional toll of rejecting hundreds of hopeful entrepreneurs.
Venture capital is not for the faint-hearted, but for those who thrive on high risk and high reward. It remains one of finance’s most coveted careers.
Here is what it takes to break into this cutthroat industry and survive.
Understanding the role of a venture capitalist
At its core, a venture capitalist is an investor who provides capital to young companies with high growth potential.
These investments are made with the expectation of significant returns if the company succeeds.
Unlike traditional equity investors, venture capitalists often use third-party funds to enhance a startup’s potential, offering not just financial support, but also strategic guidance and valuable networks.
The role of venture capitalists is to nurture the dreams of African innovators, providing the resources and support they need to thrive.
Paths to venture capitalism
There is no single path to becoming a venture capitalist.
Many venture capitalists start as entrepreneurs or investment bankers, but backgrounds can vary widely. Some come from the financial advisory field, while others transition from the academia or the world of technical business expertise.
A common misconception is that venture capitalists must be personally wealthy. In reality, many venture capitalists manage funds from other investors, though personal wealth can facilitate entry into the investment world.
What distinguishes venture capitalists from other investors is their ability to leverage third-party assets to drive growth in startups.
Private equity firms, for example, focus on enhancing financial metrics like cash flow and profitability through strategic interventions.
Challenges and competition
The venture capital industry is highly competitive. Aspiring venture capitalists face stiff competition in their bid to access third-party equity financing.
Even with the necessary skills, breaking into the industry often depends on networking — knowing the right people can be as crucial as having the right knowledge.
Venture capital firms can range from large, established entities to smaller, independent operations.
Wealthy individuals might even start their own funds. However, new firms must prove their worth to attract significant third-party investment, which requires expertise in areas like infrastructure, human resources and technology.
The realities of venture capital investment
The venture capital world is not without its challenges. Not all investments succeed; in fact, about 90 percent of startups fail. Thus, choosing the right investments is a critical and difficult task.
While the venture capital industry saw a record US$164 billion raised in 2020, competition from alternative funding methods like crowdfunding remains fierce.
A venture capitalist must be comfortable with rejection, often saying “no” to potential investments more than 99 percent of the time.
The role involves long hours, with 60-hour working weeks being typical and a significant portion of time spent in meetings and networking events.
Essential qualities and experience
If you are still drawn to venture capitalism, it is essential to recognise the importance of experience and reputation.
Many venture capitalists hold Masters in Business Administration degrees, particularly from prestigious institutions like Harvard or Stanford. Experience in technology, consultancy, investment banking or media can be advantageous.
A strong social media presence, especially on platforms like LinkedIn, is also valuable for networking and establishing credibility.
Venture capitalists must be well-versed in their chosen industries, often sticking to sectors they understand deeply.
They must also keep abreast of industry trends and maintain a successful investment track record.
The rewards of venture capitalism
Despite its challenges, venture capitalism can be highly rewarding.
Most firms charge a 2 percent annual management fee on committed capital, in addition to profits from successful investments.
Building a strong reputation can lead to better deals and opportunities to work with top-tier firms, where compensation can reach millions annually.
A day in the life of a venture capitalist
A typical day for a venture capitalist involves staying informed about industry developments, meeting with potential and current portfolio companies and evaluating investment opportunities.
Mornings often start with reading industry publications, followed by meetings to discuss potential investments.
Afternoons may involve meetings with portfolio companies to assess their progress and the effective use of invested capital.
Evening engagements often include dinner meetings with entrepreneurs seeking funding.
Becoming a venture capitalist is not a simple endeavour.
It requires a long-term strategy, significant networking and substantial capital.
The role demands constant vigilance for new opportunities and a keen ability to identify profitable investments. For those who succeed, the rewards — both financial and professional — can be substantial, making the challenging journey worthwhile for the few who thrive in this demanding field.
Stephene Chikozho is the chief executive officer of Africa Business Inc. He writes in his personal capacity. He can be contacted on WhatsApp: +263772409651 or email: [email protected]
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