A VC 101 Masterclass

I always wondered to myself is there something that helps the entrepreneurs that succeed that they have which other entrepreneurs don't is it something they know is it how they run their businesses is it the people they hire is it where they went to school is that their social I say shows their background their education their mental spaces what is it that makes the entrepreneur succeed welcome to my master classes where I share with you everything you need to know about how to become a high growth high scale entrepreneur I'm joined by guests we break down the myths the ideas the lengths the legends everything you need to know to become a high-growth entrepreneurs Warren this is the high performance zone [Music] [Applause] follow me because this is so important so somewhere here is my mother 60 manholes won this year 64 years old lovely woman always smiling at my sister never me but my mom and by the way she's not the skinny this is but my mom is a pensioner right so my mom worked let's imagine 30 years and every year in the 30 years my mom worked she saved every single month 250r and it's an ocean notional amount this amount of money was going into something called her pension provision the money was taken and given in my mother's case and it's different companies to a company you might have heard of called Alexander Forbes Alexander Forbes took this money and gave it to a company which is an which is called Ellen gray Ellen gray took this money and bought shares of companies on the JSE guys this is why there's a fight about the P I see right now because the P I see is the public Investment Corporation which manages money for the G EPF the government employees pension fund the largest employer in the country is the government so every single month literally hundreds of billions of rands is being paid by government employees over to the government employee pensions fund but the government employee pensions fund is a fund it's not an asset manager so it gives the money to the P IC to manage the P IC is what we call a fund of funds because it pulls money from the government employee pensions fund the uif and several other sources but money sitting in the bank generates nothing so what do you do with the money you invest it but the P I see doesn't the P I see is clear we're in the business of collecting money from funds we're not in the business of investing who is in the business of investing old mutual says fen San LOM abscess stockbrokers etc cetera makes sense so this is the ecosystem so so Alexander Forbes or the I see would be what you call a fund of funds they pull money together from other funds and they manage it they give it to someone we call an asset manager this is what we do so our license for instance those of you who follow our story on social media would have noticed that we power the company called RH managers or H managers as the stood on the Jamesburg Stock Exchange we've grandfather owned a license which means today we are raising money so that we can manage money and to manage that money I will charge the people I'm managing their money a percent of the fee this is so important you understand this so these asset managers manage the money they make the decisions on what share price to buy at which point went on guard Hewlett doesn't publish his updates and the share price Falls these guys have to report it so what they do is they hire these people called analysts usually people who trained in finance I started my career in private equity and I'll explain to you where does this is important right but these guys are analysts they're easy to spot so easy to spot they speak big English these words like your boots I brew oh cheese sir so their aides are always very flat that's the first thing they're always very they always wear slim fitted colleagues suits you can't you can't miss them the military spot to me like I know you you busted you can't miss them right and they sit behind a desk and usually if you see it in movies they have two screens with charts everywhere you don't know what you're looking at right right so that's analysts and traders they every single day are making decisions the analysts have a job and it is to analyze so they literally spend their time going around and meeting with CEOs of companies that are listed and saying tell me your story tell me about your business tell me about your plans tell me about what you're doing tell me what you're investing and they will take that and publish a report and on the back of that report the stock brokers will buy the share of that company or not that's how that economy works that's why in South Africa today 25 years into our democracy we have done dollar load transformation because the money hasn't moved from where it's circulating it's sitting on the financial market it's not in the real economy this makes sense okay at any point we don't sell what I'm saying please stop because it's so important now to your point about this money thing so the money flows this way right and then you buy shares on the journal of stock exchange and every single day their instruction says the allsey is up which is an index of off shares right the top 40 is up that what what is up all of that is simply a system of managing money flow guys this entire system I've just explained to you all of this yeah is what we call the traditional asset class it means for God in your lives as real entrepreneurs dolo law here's what you need to know the South African economy is a three point two trillion Rand economy the South African economy the government the p IC manages I am I understand two trillion rand is it one or two - standings - is it one one point summit so the p IC manages something between 1 and 2 trillion around in funds yeah most of that money is circulating here it's not in the real economy if you want to guys if you want to support Elon Musk you don't buy Tesla shares you buy a Tesla that's so important I'm gonna say it again buying Tesla shares doesn't mean you support Elon Musk buying a Tesla does and this is what our government doesn't understand you can have money circulating in the traditional asset class in the listed system it does nothing for entrepreneurs because even if you unless we are in that system that money doesn't come to us right make sense so then you go why is the economy not growing when it's very simple it's cause you're circulating the money in the same places and sooner or later these big businesses just can't grow any more it's terminal right now so so some years ago if you've never read there is a fascinating book I read this book many years ago changed my life called barbarians at the gate the book tells a story about a company called RJR nabisco the company RJR nabisco created a tiny little biscuit and the idea behind the biscuit was the wafer of chocolate with cream in the middle and I wanted to find a way to express it and the child of the art of RJR nabisco used to say the word oreo a lot and the biscuit became Oreo follow me comrades I am living in a revolution here so anyway so this happens and this company grows to become a massive mammoth business and a couple of people lined up like barbarians at a gate seeking to take over and they bought that company for cents on the dollar then it was called a hostile takeover today it's what we call the alternative asset class or private equity the company was listed so important it was listed they bought the shares and delisted it so the equity was in public it was private private equity basel are you follow so this if you buy a share today at ShopRite you're playing in the public equity space which means private equity is what is that which is not listed but you see the great thing is if I buy shared shop right and I'm having dinner with a friend of mine at I'm having lunch with a friend of mine at a wimpy I wouldn't but let's imagine I am I'm not the LSM know I'm below I'm below I am [Applause] so I got it I gotta tell you guys something so off to these muscle classes we send everybody a link to like rate them and one of the things people say is like your [ __ ] serves buzzer yeah buzzer no I mean it's just my sense of humor please don't take any umbrage anyway so so if that were the case right so I'm sitting with a friend of mine like at lunch over at wimpy and I'm having the wimpy Deadwood which I have I love I can't eat it now because I'm on diet but oh man that wimpy Deadwood that wimpy Deadwood is so good it has human rights that wimpy Deadwood is the truth and I mean old-school wimpy Deadwood not the new-school wimpy day what I'm talking when wimpy used to make Deadwood's with real bread bread that will be Deadwood so anyway and this friend of mine says he says dude dude check this out you know you've got some shares at Steinhoff I'll go yeah he says they there's an accounting scandal a friend of mine who works at company X told me about it fouls you I'd sell my [ __ ] so the following morning I call my stockbroker I'll call my banker now go is do we have any Stan of shares not put funny he says this I so seldom yeah and I sell the shares he can it's an OTC he goes to the market he says what's he selling shares che is selling at a hundred bucks somebody on the other senses I'm willing to pay a hundred bucks they pay me again 100 bucks they take the shares two weeks later the storybrooke's goes from hundred bucks to zero yeah that's the thing about the public equity class but private equity is different what's the first thing about private equity that jumps to your mind yeah it's exclusive it's locked yeah so if you buy shares in his business what's your name sir who are you I mean see clearly limited so I buy 40% of seekers bills I give him 100 million a million rand of my money for 40% of his business yeah then you sir what's your name on gamma comes to me and says hey chief you know sickness running this business badly and we just got sued by one of our suppliers they're taking us to the cleaners if I was you I'd sell my shares how do I answer we're we're we're gonna sell these shares because there's no OCC system makes sense to buy shares in his business he would issues me with a certificate before that I did a valuation there was a due diligence then we issued contracts he sent me back contracts guys like I look at the companies were invested in just the contracting stage alone is a nightmare and so I was saying to the team was like can we not find a standard template for every single transaction we do where we can introduce a few variables but so we can educate the entrepreneurs we're teaching about a standard term of contract so the guy does need a professional lawyer he has to pay a hundred thousand ran to to raise a hundred thousand rand like his system is broken right so I can't sell his shares because I can't sell he shares I am locked in and so because I'm locked in there is something called a premium that my shares have to generate that's why a lot of small entrepreneurs don't raise business don't raise money it's because if I know the information and I can sell the share immediately it means where there's a risk I can liquidate the risk if I'm locked into your business and I can't it means the return has to pay me for the risk of the fact that I can't get out you have to generate results better than I can get in the public stock market so the way the asset manager evaluates your business asset manager VC firm evaluate your business when you're raising money is he uses exactly the same model typically we would use for a listed as a class we'll use something called beta which is a valuation of risk and we'll go the beta for this industry waste management industry listed companies if the beta was flat at zero you are young plus one you've never run a business before plus two the risk of failure cycle is the prototype plus two etc so the premium is beta plus five which means if you can't generate a return at flat plus six I'm not buying the shares I'm not investing in your business that's why a lot of entrepreneurs go nobody's running how come I'm not raising share I'm not I can't find funding and you go to the bank in the bank says yeah because they're doing that evaluation of going the risk is not worth to return this make sense so this is the reason this is important is because it's because it's because because your question was so unreal the money need to be careful right but there is private equity and there is venture capital typically we use the same model but we are very different very quickly cognitive time I'll tell you the difference a private equity firm goes and raises money and uses the money on something called a leverage so what the private equity firm will do is it will find a company that sells clothes that brands themselves with a red box that has a name let's imagine a name for a company that sells clothes at brands and saw ed gays and the private equity firm and I don't want to mention them they know who they are we'll go and buy edgar shares follow this very important so the goal ed gets is listed there go we're gonna buy ed guess and delist it which means it went from public equity to that's why they call the private equity firm now it's a private equity hold the private equity firm holds the shares what are the private equity firm do first thing typically is it'll deploy members of its own team into the board go and oversee the operation of the business but the private equity firm raised money I just told you we managed money on behalf of people the private equity firm raised money from this fund of funds it raised it if they want they didn't have a hundred billion rand sitting in their bank account they went and got it from someone makes sense which means they must return it with a return it makes sense but so they buy this company called edgers they delist it very important that you follow this this is what i used to do so very important that you stir that you follow this so they D list the company right and they say we're gonna hold the shares of the company for five years at the end of five years we should have made money more money than it costs us to buy the shares but we raised a hundred billion and of that hundred billion we took 50 and bought this company called edgers so edgers you need to pay us our fifty billion back but we're not going to wait five years for the 50 billion so we're gonna use a straight line model and edgers every single year you're gonna pay us back ten billion rand in cash in cash so we can take the ten billion and put it back to pay the people we raise the money from this is called a cash sweep now y'all see Soph the question does edgers generate ten billion in cash usually it does that's why they bought it they went sawed into a lot guys this company actually generates a lot of cash there are typically three targets for companies that private equity targets the first is it's got a whole significant assets the second is got to generate a lot of cash and the third is it's got to be inefficient in how its investing that cash yeah so in other words if you buy it listen to this because this is so clever so I bought you I'll put in a hundred billion or fifty billion and over five years you're gonna pay me back my fifty billion when you pay me back 250 billion - I'll give you back the shares no which means you bought yourself it's clear buyer I must follow white people right people one of them white people that's a joke that's a joke so so so over five years we put the 50 billion into the business and actually the 50 billion didn't go into the business this is why this is important the 50 billion went to paying the people who held the shares in the business it didn't go into the business my comment if you support Elon Musk you buy the car not the shares but somebody was owning those Edgar shares yeah somebody was owning those Edgar shares on behalf of my mother so if I'm going to take the shares away and take the company private I must pay them right so I take the 50 billion yeah and I pay back the company that was owning the shares on behalf of my mother it doesn't go into the business but now the business must pay me back this 50 billion now here's what it does and this is why this is Yahoo Yahoo or the Reserve Bank governor doesn't like the private equity class and I'm not being an ambassador for the asset class because the asset class actually does do some amazing things it really does it actually sometimes it saves businesses especially businesses and business rescue but so here's what it does for the next five years whereas Edgar's generates revenues and from those revenues generates free cash flows and should be using those free cash flows to reinvest new stores brands new teams new people marketing campaigns they can't they've got to pay back the debt so what happens is their business suffers which is why at the end of a period people go why would I bite edgers and can't attract new customers and it's beginning to suffer make sense that is a part of the challenge people have with the private equity asset class why is this important for you guys because now that edgers is not listed there's a cash sweep Arietta this model is kind of the same model VC firms use when they look at your business the traditional model they look at your business and they'll go cannot buy shares and if I were to buy shares can I hold for five years and at the end of the five years will the shares generate more value than the cost to acquire the shares and every fund and every investor wants an exit there's no such thing as an investor that's invested perpetually not unless their pension fund every fund every investor wants an exit at some point my mother has to retire everybody wants to exit right so if I am going to give you money and I'm going to invest it in your business there's a point that's going to come I'm going to want to take my money out typically in our space is five years so we have a tech company for instance here in Cape Town we're four and a half years in we're really talking to them about guys how do we exit now and there's a few ways to exit I can exit by selling the shares back to the entrepreneur at a premium of what I bought them for I make a return I can sell I can take the shares and sell them to another guy who's another investor at a premium wanna make a bottom four I make a return oh I can wait for the company to do a revaluation gets valued higher and when it does a new capital raise rather than participate I sell my shares at the higher value that's why you will notice companies perpetually going up in valuations but the fund underlying fundamentals aren't changing it's not getting new customers it's not making you money how do you think Facebook Facebook for the first seven years of its existence didn't charge a single customer is sent but it was raising money and every time it was raising money the valuation was going up because it's not real the loss is not real unless I sell the share and if I'm an investor an investor the Facebook for the first seven years and the valuation goes up if I mark to market what is called mark two evaluation then the value of my investment is going up even though I'm not getting shares I'm not getting cash in so you're approaching guys in saying invest the guy you're approaching saying give me 4.6 million he's gonna look at your business in this way he's gonna go can I get my money out and at what point that's ultimately the conversation when I have with him is what's your exit strategy let's imagine he's gives you 4.6 million for 50% of your business that evaluates your business at 9.2 million you keep the other 50% or whatever right what he's gonna do is he's gonna give you the 4.6 million if your business is going to generate a return higher than he would have generated if you went and bought a property somewhere bond bought the bonds or the bond market held it in cash or bought equities on the stock exchange then he'll give you the money as the point I'm making is very simple because what we do is so high risk we have to generate much higher returns for the people who invest in our businesses much higher and it's real for a lot of us because a lot of us don't come from ecosystems or your uncle has money and so in soy I'll give your uncle as money or a family member as money now you'd have to worry about it they give you the money you know but if that's not the case then then that's the challenge you're facing one last point I want to make it was true live-streaming this so I know I've got some people watching this who don't like me so I'm gonna make this point this is my fight with deifies development of funding institutions in South Africa because you guys politicize deifies right deer fires can't go to the government and say we're broke because if they do then it's a it's a breaking news item on a newspaper somewhere okay so the deifies they all know who they are you know what they do now they run themselves like fund of funds which no dfi should do in a developmental state if i'm a d fi let me let me think of one i can pick on sefa small enterprise funding agency if I am sefa when Treasury gives me the money what's his name - Tom but when it gives me the money how much does he charge me for the money say that again that's such an important word what it yeah door Lola I get the money and what we call a risk-free rate zero do you know what cephas doing now they taking the money and they're giving it to funds like ourselves and saying you must pay a 6% for the money we give you do you know why cuz see if I doesn't want to go back to government in five years and go you kind of gave us a billion and it's all gone sorry government give us another billion which is wrong people go well you know the Chinese economy is growing look at the Malaysian economy Kuala Lumpur yeah you know why it's growing because the deifies our funding businesses and entrepreneurs at the same risk and risk rate at which they're raising zero they saying here's here's a million see if you want how much here's a million go try just go try and your matrix for success is not whether or not you make a profit your matrix for success is can you get three new customers and can you get those three new customers to commit to buying oh you got that okay here's another million now let's take you to the next stage make sense but we're not thinking that we're thinking no this thing must make money day one that's why you in a country with 55 million people 76% of them black African you've been talking transformation for 25 years and it hasn't happened because where the money should be flowing is going to the traditional asset class and the money that's going into the private asset class business where actual entrepreneurs real people live my mother your grandmother the person who runs a spas a shop they can't raise money at a risk-free rate to scale their business so they don't raise money at all because it's just too damn expensive and that's my story and I'm sticking to it yes sir okay well so no I mean that's it that's a great question for me what do I do just make sure people know because how many of you didn't know what I just told you until I told you there you go so the thing about it is you must remember that injustice thrives in ignorance right who's tweeting 'men twit me money tip me ma someone should be treating me here you know it doesn't injustice strives and ignorance that's why I'm isn't reading a book at the moment about the signs of racism it's a fascinating book actually I bought it at Barnes & Noble when I was on tour and what this guy what the what the author actually proves is that your muster there's a thing about theology and philosophy philosophy needs a theology that's why a part date needed in the entire GAC because if God says then I'm okay to do it and and policy needs philosophy so by the time I put in a policy for separate development my philosophies will not equal my theology is the Bible told me so bow has come blades man I'm lighting this thing up I'm lighting it okay so so so what what am i why am I saying this too I'm saying this to you because where we are as real people in the real world we focus on policy government why aren't you guys giving the money but the philosophy is wrong the philosophy is build big businesses big businesses create jobs they don't and so what is the money circulate in the big business space keep you take partners with us guys Capitec is kind of what's possible when people put their money behind their mouths and build something that's like for me I'm gonna say something I'm gonna say something and I'm sure a lot of you won't understand it I love understanding people rather than criticizing them and that's that by the way is exactly why I had my africanus tell you something 1948 the Nats take power from the British and the Affleck honours go you know the British had a system of economic empowerment called EEE English economic empowerment they built companies like Old Mutual and companies like Standard Bank's bystander Bank is 150 years old it's easy to spot their companies are usually listed and they have English names Old Mutual Mutual and federal yeah and africanus go do we want to buy shares there well if we buy shares then the money circulates and doesn't go into the real economy Afrikaans go no we're not going to buy shares what we're going to do is we're going to create our own businesses and so the goal we need a bank and a couple of banks have started false kasi Rara era they were amalgamated into the amalgamated banks of South Africa APSA they were we need insurance houses okay Santa sanli yeah because remember the British had MMI momentum metropolitan any of you who are feeling offended has a beautiful thing about history's it doesn't care about your feelings it's this history I'm just telling you what happened I'm not making it up this is what happened right and they go and they go we need our own chain of retailers who's that kid you were telling me about studying at Sterling Bosch what's whitey whitey what are you guys doing there with that thing called stop right I want to give you guys some money go grow this thing they built guys these guys but they went into the real world and built real stuff shops product stuff you give me one company I'll pay you just one company that we built in the past 25 years that I can walk into today and go yeah yeah I'm buying this is me yeah so it's no mistake that in the first quarter of this year you lost a quarter million ran a quarter million jobs the real economy 237 thousand jobs gone it's no mistake that stats si tells us that for young black women in the northern provinces their chances of unemployment are 67 percent when they finished University it's because your money is circulating in a system that's not in the real damn economy but yeah then just then this one final note but what do we do right cuz we go we go one fund II know the funding must come give us the funds and then what we do is rather than fight the policy we fight the politics so what you're doing now is you're wearing a banner or a hoodie or of Duke and you're chanting stuff and you're yelling about stuff that's not in the damn real economy if you guys if you if you take a board of 15 people and say we're going to put two black people in it you've done nothing but introduced to people and take two people out what you've got to do is to build a new table and put new people on the table I'm gonna make one final point we're live-streaming this hold on over I'm gonna I'm gonna I'm gonna make one fight I'm gonna make one final point and I know this is gonna land it's not going to land well check this out right check this out a young guy asked me about two weeks ago I was going through the airport young that comes up in so obviously man can we take a picture now I was having a cut day look okay let's take a picture and then he says easy system he's like you know thank you so much for those master classes like they're really really cool then you know he says how come nobody else did it like you're not the first guy in business how come and the real question else is how come no other black person did it and I said to him I don't know how to say this without breaking your heart but because most of the guys who created the wealth didn't really create wealth they bought wealth see if I went and got money and bought shares and sit on a board then I didn't do the thing I told you about be self-employed go through a job really mentally so I can't teach you what I didn't learn make sense to each and every single entrepreneur that comes to these master classes that trusts us with their story their opportunity their struggles we really appreciate it we'll hope that you guys are learning about your business and about yourself as much as we're learning too [Music]

Channel: MyGrowthFund Venture Partners

Views: 118,015

Keywords: Vusi, Thembekwayo, Vusi Thembekwayo, Shares, JSE listing, Fund Of Funds, Public Equity

Id: MYKfgga9glU

Length: 30min 3sec (1803 seconds)

Published: Tue Oct 08 2019