Chanzo Capital @ 10: Conviction, Execution Risk And Leap Of Faith
Eric Osiakvan
Chanzo means “early” or “beginning” in Swahili, and the company chose the brand to highlight our unique ability to help founders build smart new ventures into commercially viable businesses. So, in the beginning, Angel Fair Africa (AFA) was the predecessor of Chanzo Capital (CC). In 2013, the first AFA was successfully held in Johannesburg, South Africa and was well received. 24 startups were pitched to 68 investors and 3 deals were completed during the event. Since then, the African Venture Capital Association (AVCA) has included the AFA. Its historic event week was held in Lagos, Nigeria in 2014.
The AVCA was ready to host the second AFA at the Intercontinental Hotel 48 hours before the three-day summit, and they offered us the opportunity to attend for free. Many AVCA representatives at AFA@2 choose to invest personally in the startups with the best participation. That’s when I came up with the idea of ​​building a vehicle that would accept third-party capital, and Chanzo Capital was born. An Africa-focused technology venture capital firm that invests in African founders who are using mobile web technologies to build digital economies that solve critical issues in communities and societies, potentially across Africa.
I started with the concept of mentorship capital, which provides mentorship as well as early checks that I write to these founders. In most cases I will guide them over a period of time to set up conviction before doubling it with a check. AFA becomes a breeding ground for these founders as we enable African innovation hubs, incubators and accelerators to nominate them for our annual event. As a former founder, my first focus when I started investing was with the founder—building a relationship that engendered trust as the basis for our engagement. Building relationships takes time, so trust doesn’t come quickly. Trust brings a core of belief, which also takes time. It’s one thing to trust someone, but it’s another thing to make them believe they can start a business when, in most cases, they’ve never done so before. Guidance, therefore, serves as a bridge—consisting of steps that build belief.
Once we convince the founders or founding team that they can build the future they plan for us, which is the total addressable market (TAM), we move to the next stage of the ladder, where we calculate execution risk. Early-stage investing is an extremely risky enterprise—industry statistics show that nine out of 10 early-stage investments fail, and one of them more than makes up for their mistakes. This is a shocking statistic that I first heard from my mentor Esther Dyson, who inspired me to invest.
That night, I lay in bed and told myself that I would try to reduce the high failure rate of startups because I didn’t believe I was willing to make ten investments and only get the one right one. With this assumption, predictions are derived as to its relation to execution risk. In other words, there is a huge lag between vision and reality if investors fail to calculate the execution risk they take. Over the ten years we have been around, we have come up with a formula for calculating execution risk – this is our secret sauce, but is beyond the scope of this article. Evidence of this formula is seen in the fact that of our first 16 investments in 2014, only 5 were unsuccessful – 11 were operational and 5 were profitable. We ask founders to aim for profitability, not growth at all costs.
After calculating execution risk, we take leap of faith By deploying the capital and resources needed to turn the vision into reality. The first iteration of this reality is the Minimum Viable Product (MVP). An MVP is a preliminary version of a product that is slightly more market-ready than a prototype. Sometimes a prototype is enough to serve as an intermediate for an MVP. Building an MVP is an iterative process where you make an initial version, send it to customers to use, and wait for customers to give you feedback before incorporating it into the next version of the product. This process can continue for several rounds, with the product improving in each iteration based on actual consumer feedback. Done well, this iterative feedback loop leads to product market fit (PMF), which generates revenue and ultimately cash flow. We then focus the founder on the unit economics of their business model to establish a path to profitability, with the basic principle being that the company needs to produce at price X and sell at price X + 1 – otherwise there is no sustainable business .
In the picture above our framework has timing and toughness lower than team Make 3T. Any startup is only as good as the team behind it, and the team must pay attention to market timing. Sometimes waves take longer to form, so the team needs tenacity (stamina) to form the wave so they can get on their boards and ride it smoothly. Therefore, 3T forms the central region of the model.
In the ten years of our existence we have mastered the art of architecture conviction,calculate execution risk and take leap of faith and teamand then help them obtain timing Rights that may sometimes be required toughness. Since 2020, we have used this framework to invest in an additional 24 startups during the COVID-19 pandemic, bringing the total number of startups in our portfolio to 35. We make these investments from three offices in Accra (Ghana), Nairobi (Kenya) and Johannesburg (South Africa), and our funds are domiciled in Mauritius. We are a team of six, with two staff members in each of our three offices, plus 42 former founders, investors, VCs, and ecosystem participants. Our advisory board consists of six members with a 50/50 gender split. Our 35 portfolio companies come from Kenya, Côte d’Ivoire, Nigeria, Ghana and South Africa, making KINGS Countries our first fund. We expanded our second tranche of investments to Uganda, Senegal, Tanzania, Zambia and Mozambique. These are the countries where we have hosted AFA events over the past 11 years – investing in the AFA footprint. To celebrate our 10thth On our anniversary, we hosted an intimate dinner with some of our team members, consultants, and partners in Johannesburg, South Africa. Cheers to the next decade…:-)
