Caleb Maru, a GP at Proximity Ventures, a pan-African VC firm talks about the African VC landscape and his career as a venture capitalist.
I was dressed in full regalia, with a senator wear and hula cap. "This is my first physical interview with a VC. I have to look extra." So I thought. But my guest, Caleb Maru - GP at Proximity Ventures -, proved otherwise as he appeared in a simple black t-shirt and shorts.
By his appearance and chilled gestures in the first minutes of the meeting, I could sense Caleb isn't a traditional Venture Capitalist (VC). He is a disruptor.
Our conversation cemented that conception as we touched on his journey before VC, his novel approach to the venture business, and specific advice for founders.
What compelled you to launch a fund?
My reason for co-founding a fund stems from my childhood in Australia. Although originally from Ethiopia, I was born and raised in Australia. My environment gave me life-changing opportunities, such as a university education and a fancy consulting job. However, the same couldn't be said for most of my peers who grew up in Africa.
I deemed that disparity in outcome unfair and wanted to close the gap. To do this, I first worked for non-profits but quit after I saw how limited funding prevented them from making significant changes. After quitting, I spent a month and a half in Ethiopia with startup founders I found interesting. Compared to their peers in western countries, they were actually solving fundamental problems. Unfortunately, lack of funding mostly marred the pace at which they solved those problems, making me resolve to start a VC firm.
Was this when you launched Proximity Ventures?
No. Following my short stay in Ethiopia, I left for Australia, where I joined Ajay Prakash to build EntryLevel as Head of Programs. I did this because I needed solid startup experience before building a fund. Fortunately, EntryLevel succeeded as we exploded in Africa. Armed with a quality experience that can make us relate better with founders, Ajay and I started writing small checks to startups, birthing Proximity Ventures.
Interesting. Were your deals Africa-focused from the onset?
No. Our first set of deals was western-centric.
Yes. Initially, our investors weren't keen on investing in Africa as it seemed like something other than an attractive hub. And so it took us a while to get them to see African startups as VC-backable businesses. Thankfully, we’ve made progress as we’ve invested in over seven startups, including Payhippo, Chipper Cash, Spleet, Gigmile, and Mecho Autotech.
Now I'm curious. What exactly convinced them otherwise?
EntryLevel's success. Our LPs are the same people who invested in EntryLevel, an African startup that has surpassed their expectations. We simply used our results to prove our hypothesis that African startups are VC-backable. Also, the success stories of Chippercash, Flutterwave, and Paystack are proof of Africa's credibility as an investment hub.
What’s Proximity Ventures’ thesis in one sentence?
We invest in founders, regardless of their verticals, solving big problems with a great understanding of their industries.
Why don’t you concentrate on specific verticals?
Ultimately, the opportunity is too small to focus on one vertical. If there will be another 50 unicorns in Africa in the next 5 years, you will miss most of them because you’re hyper-focused on verticals. Africa’s startup ecosystem is too small to be too specialised.
What is a major lesson from your career as a VC?
No VC knows what the heck they're doing. I know every tom, dick, and harry swears by their thesis and process, but the truth is, sometimes your portfolio company's success has nothing to do with your thesis. It could be sheer luck.
Indeed, there are a few universal rules you need to adopt as a VC, but at the end of the day, the venture business is essentially betting on enough businesses and getting lucky on a few that deliver outsized returns. It's gambling (a game of luck) at the end of the day.
Hmm. How can investors expand their luck surface area?
To get lucky at VC, you need to meet many excellent founders. Going to several startup events and seeking intros is a great way to start. But even smarter, you should ask the best founders around you, "who are the best founders you know?".
High-performing founders often hang out with other high-performing founders, so that's a sure hack that could help you meet a potential unicorn founder. Also, you need to be ultra-proactive by staying on the pulse of everything happening in the ecosystem. Always be in the know.
Let's talk about the not-so-rosy stuff. How do you handle missed deals?
I keep my cool, as panicking only leads to bad decisions that might cost you in the long term. More importantly, I find comfort in knowing even the best VCs miss about 90% of their deals. The venture business is a game of numbers at the end of the day.
What's your go-to deal sourcing mechanism?
First, I have access to a pool of startups who were once Entrylevel's clients (we helped them with talent sourcing). My network also comprises VCs well-connected to African founders. In addition, I always ask excellent founders for referrals. And as a cherry on top, Proximity Ventures has a newsletter exploring trends in the ecosystem that attracts inbound requests from founders.
Why did you decide to specialize in media?
The VC industry is becoming saturated by the day. For this reason, having authority is key. This is majorly why we decided to focus on building a media arm. There is also a huge misconception perpetuated by the western media about the African market. And so, publications like ours are important to educate people, particularly the international audience. Above all, Prox Weekly has proven effective for the firm and my personal brand. Take my online following. Despite only investing in Africa barely 7 months ago, I’ve quickly built an active community on LinkedIn by sharing my thoughts on the ecosystem.
Has your lack of wide VC experience affected you in any way?
Yes, particularly in trustability. Some HNIs are usually sceptical about giving me money because of my "inexperience." On the other hand, certain VCs believe I'm a young guy simply exploring Africa with money to throw around. They don't see me as a worthy competitor.
Do you feel bad about this?
Not at all. Being underestimated helps me make mistakes and explore without so much scrutiny.
What are your thoughts on the recent market downturn?
Markets always go up and down. So the current happenings aren't out of the blue per se. And yes, valuations are reducing. Rounds aren't as juicy as once. But companies with strong units of economics, regardless of their growth stage, will keep thriving.
What are the possible trends you're excited about?
I foresee the gap between the seed stage and Series A closing within the next two years. Currently, many African seed startups rarely progress to Series A, but I'm hopeful that will change. We'll most likely see a rise in Series A startups.
What do founders need to do differently?
Many founders need to align on their mission. Why did they start their startup in the first place? Is it for glamour or fame? Or did you once struggle with the problem you are trying to solve? Answering these questions is necessary because you need conviction to solve hard problems.
Additionally, founders need to know when to preserve or quit. For instance, staying patient in building a validated product might make sense even if it takes over a year. However, if there's zero interest and traction, it is probably wise to quit your model and try something else. Keep testing until you get it right.
What do you think the ecosystem needs to do better?
We need to invest more in educating and equipping our homegrown founders. Currently, half of Africa's unicorn founders are white, which isn't a good sign. Most homegrown founders aren't able to achieve as much as their foreign peers because of a knowledge gap.
To bridge that gap, we should consider designing a curriculum teaching founders how to build a successful startup in Africa. To add, successful founders should learn to pay it forward by investing in the angel rounds of small companies and providing mentorship. Already, we have founders like GB of Flutterwave and Iyin of Future Africa taking a step in this direction. But we need more successful founders to show up.
What's your piece of advice to aspiring VCs?
To start with, know the actual reason why you want to be a VC. Are you doing it for a genuine, impactful purpose, or do you simply want to take a piece of the glamorous cake? If it's the former, then ensure you gain startup experience to get an edge.
Also, consider writing about VC online. Share your thoughts, ideas, and feedback on the industries you care about the most. This way, you'll land a VC job in no time, as investors and even founders will be open to speaking to you.
More than that, ensure you're proactive about getting a job as a VC. Keep sending cold emails, and continue applying for jobs. Keep going until you get a yes.
What would you do differently if you could go back in time?
I'd have built a startup instead of attending a university.
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