Are You Approaching A Funder? First You’ll Need To Know Grotech’s 2-6-2...

Are You Approaching A Funder? First You’ll Need To Know Grotech’s 2-6-2 Rule


Grovest and Grotech are Venture Capital (VC) funds, Clive Butkow views investments through the eyes of a venture capitalist, however, the lessons apply to all funds and funders.

“Most funding is either capital light or capital heavy. Do you need to build a manufacturing plant (high capex) or do you need cash for product development, marketing, sales, business development — in other words things you can invest in that will take the business to the next level.

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What is the 2-6-2 Ratio?

“At Grotech, our focus is the technology sector because we like capital light businesses, where investments of between R5 million and R10 million can go a long way. We’re looking for hockey stick growth. We want our cash to be the fuel to a tech-company’s fire.

“Technology companies are great because you can build it once and sell it forever, which means high returns, and that’s a VC’s mandate.”

“It’s called the 2-6-2 ratio. Often businesses that a VC invests in, two will fail, six will give you one or two times return and two will go big. Those two will give you the ten times return you need to make the fund as a whole profitable. This is why we’re always looking for those companies that we believe will give us the biggest returns; the ten times returns, because we know that one, at most two out of every ten investments will do that.

Investing in 1 out of 50 Businesses

“This means that we don’t like services businesses, or high capex businesses. That’s not our mandate. It’s not what our fund does. We invest in one out of every 50 businesses that pitch to us, but the reality is that the 49 businesses we don’t invest in aren’t bad businesses.

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Some of them are very good businesses. They’re just not in the tech sector. Or they want money to build a new building. That’s not what we do. A lot of time and energy is wasted by business owners and funders alike because the entrepreneur doesn’t take the time to adequately research the fund, its mandate and what it’s looking for.

Nadine Todd
Nadine Todd is the Managing Editor of Entrepreneur Magazine, the How-To guide for growing businesses. Find her on Google+.

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