Eitan Stern: 0:00

This is what it's like working with pros guys ,

Alexandra Matthews: 0:01

Your microphone sounds really fancy. <laugh>,

Eitan Stern: 0:04

My microphone is, well , I'm gonna sound the best, obviously <laugh> , that's all that really, all that matters for me is that I sound good in this thing, for you guys. It doesn't, it <laugh> . This

Louis Buys: 0:13

<laugh>.

Eitan Stern: 0:13

<laugh> .

Louis Buys: 0:15

It was like this grainy, like average, like voice on the other side .

Eitan Stern: 0:24

Welcome to Legalese Big Fish Stories, the podcast where we showcase local South African entrepreneurs their stories and their big relevance to the world around them. As lawyers working with startups and established businesses in the tech and creative industries, we get front row seats to some incredible business adventure rides. The problem is that as lawyers, our work is confidential with big fish stories. We're going inside the room with some proud south entrepreneurs to talk about their airy highs, lonely lows and creamy middles of the road to success as a country. Deep in economic development, there is massive potential for smart entrepreneurs to build something great. Join us as we meet some of these big fish and find out how they're looking to make their ponds even bigger. I'm your host managing director of Legalese Eitan Stern . Cool. So, so welcome. So for anyone listening to this, from sitting here with , uh, with the two founders of The Delta, it's very rare. This will be the second episode that we've done with two people. So we'll see how this conversation unfolds. But do you guys wanna kick off by just introducing yourselves and what you do for a living?

Alexandra Matthews: 1:28

Cool. I'll go first and then , and then Louis can go. So I'm Alex, I'm the COO at The Delta. Um, so background came from being a software dev and data nerd. Everyone at the company knows that I love, I love data a lot and I think that that's kind of how I got into like the system side of Delta. I build all of like our systems and internal processes and underlying data model that like powers our , our business, I like to say. And yeah, as well as that, I like , I do quite a lot of work doing the early stage kind of strategic work with, with new ventures that we work with. But most of the time now, now as we've started to get bigger, focusing a lot on the operational side of , of Delta itself.

Eitan Stern: 2:05

Awesome. Okay. Cool. Thanks Alex. Nice, nice to have you here. And Louis?

Louis Buys: 2:10

Yeah, I'm Louis. I'm the, the CEO at Delta. My background is in a very long string of unsuccessful startups .

Eitan Stern: 2:17

Okay. Same <laugh> .

Louis Buys: 2:18

A lot . A lot <laugh> .

Eitan Stern: 2:21

Okay . I'm very curious to hear about the string. I've , I've got one or two real gems in my background. Yeah, yeah,

Louis Buys: 2:26

I got some, I got some gems and some shockers. Uh , it's hard to tell the difference between the two, but yeah, so , uh, yeah, I mean, I guess what I do at Delta is at the moment mainly working on kind of the overall strategic vision. We have a lot of cool things in the pipeline and just making sure that as we try and get them done, it makes sense. Cool to everyone in the business, which seems easier than it actually is .

Eitan Stern: 2:50

<laugh> no, so, so you say you've had some real gems in the background of things that didn't work. The Delta is not one of those that's working exceedingly well. So maybe do you want to ex explain what The Delta is?

Louis Buys: 3:00

Yeah. Cool. <laugh>, maybe we should have started there. Um, yeah, I mean The Delta, The Delta's what you call a venture catalyst. I mean, we go , catalyst is kind of a new term in this market, right? But effectively what we have is , uh, we're building an ecosystem that helps ventures grow. We have five main parts of this ecosystem. The first one is what we call the studio, where we basically work with top founders to co-found ventures or, or , or like start ventures and invest in them at kind of the earliest stage. That's kind of the middle of the ecosystem. We have a services pillar where we basically help ventures go from zero to a hundred. So that's anything to do with product, product strategy, product management, tech building, and mvp, going to market marketing, pulling , uh, implementing CRMs like you name it. So that's kind of on the services side. So the motto there is really just building value inside ventures. Uh , the third pillar of the business is a capital arm where we basically, it's effectively the asset manager where we basically invest in ventures. And then there's two other pillars that are in the works, which I don't think we need to go into, into, but effectively they all form a, a ecosystem that is designed towards venture success. Okay.

Eitan Stern: 4:08

And, and I mean, I , yeah, I mean I , I've built my business as part of an ecosystem, so I understand the value, but maybe I can just dig in with that for a second. Like , why , why would a company use a venture builder as opposed to, you know, just doing it step by step alone or, or being part of an accelerator program or an incubator? Yeah . Why , why a venture builder?

Louis Buys: 4:26

Yeah. I mean, I , I think there's a lot of, a lot of different terminology flying around in the market , uh, around kind of new ventures and helping new ventures and founders. Right. So I guess why a venture builder? It's a good question. So , uh, first I'd like to distinguish between an incubator and kind of an accelerator and venture builder. Mm-hmm . <affirmative> . So incubators are usually kind of scaled programs where people can apply to, to help start a venture. I'm not the biggest fan of incubators as a term because I kind of feel like that application process drives kind of adverse selection and you get people that are not the kind of top founders that are gonna execute, right? Sure. So, so what a venture builder is, is kind of more of an approach of taking or identifying top founders and helping them more actively to build out the company as opposed to just investing them in the beginning. Accelerators come in in many shapes and sizes as well, but they're usually from when the company is founded and trying to solve any problem, including capital later on, usually around network. So why I work with a venture builder is you get much more, much deeper support in many more phases or more phases of the venture lifecycle than you would get an incubator or an accelerator.

Eitan Stern: 5:34

Okay, cool. I mean , that explains it. And I mean, I'm , I'm quite curious about you two personally. So I mean, we've heard about Alex, you said your background is in software. Yeah. I mean, what , what is your founding story? How did you guys get to the point of, of starting The Delta? Did you guys meet and then start it together or what's the origin story here?

Louis Buys: 5:55

Yeah, so I was working on something before this in the kind of payment space, which was, I mean, one of those ones that went

Eitan Stern: 6:01

One of , one of the gems <laugh> ,

Louis Buys: 6:03

One of the, it was definitely a gem experience-wise. Um, and then kind of out of that I ended up just kind of working on a , a range of ventures at once. Right. Um, and one of those ventures ended up being something Alex was working on. Okay. Um , which now is actually, it was kind of yeah. Effectively where we met mm-hmm . <affirmative> . So at that point, like I was working on two or three ventures, one of which is, is now RevX , well is Revs effectively, which is another South African startup that's kind of known. And then one of those ventures was via , which Alex was working on. Okay. And basically at that point, Alex, actually Alex can tell the story the other way, but I think Alex kind of picked to, to join Delta or, or to stay on the venture builder side effectively as opposed to stay on the venture side. And from there, I think our kind of other co-founder Jared, joined around the same time there. And then we took what had by accident formed as this thing that helps ventures into realizing this could actually be a real thing. And

Eitan Stern: 7:02

Alex, maybe you can tell me, I mean, was The Delta an immediate success or, or did it resonate immediately? I mean , it's been around for not that long and it's a And you guys, I mean, you , you told me the other day you got about a hundred people on the team. I mean, was it immediately a success or did it , uh, was it a slow build ? How did that work?

Alexandra Matthews: 7:18

I think the first year was a relatively slow, well not slow build , we probably went from, when I joined there were probably about six or seven people and we were 30 at the end of that year, which was a lot slower, relatively to the next year where we went from about 30 to a hundred <laugh> , which was actually over Covid really interestingly. Um, so the first year I , I think we were really figuring everything out when we started. We were, we were considering focusing more from a corporate perspective and trying to build a corporate venture builder. Um, that was kind of, we've, we've kind of pivoted and continuously iterated , um, since the beginning trying to figure out the right, I guess, framework and blueprint. So we've done some work with corporates, we try to start ventures internally ourselves. We try to , um, start ventures without founders. We try to start ventures with founders. We've had a lot of like, you know, experiments which have failed and which have have informed where we are today essentially. Sure. So, you know, we, I think at the beginning we definitely weren't like growing as fast as we did in the second year when I think we started to really kind of nail down like the best kind of operating model for ourselves.

Eitan Stern: 8:20

Shame , it took you guys one year to find the right operating model . It's , it, it sounds horrific.

Louis Buys: 8:25

It was brutal, brutal journey . <laugh> , those, those first three weeks were

Eitan Stern: 8:30

<laugh> , which is a real act . And then you found product market first and the rest Israeli history. So yeah, I mean, I , I think there's more of a story in that, but I , I want to kind of lead us down the path a little bit. Maybe, maybe we're touching on it as we go. So it's clear that you guys do ahead of a lot. I mean, Louis, you said that there're these forearms and still two more to come. I'd love to unpack all the areas, but I think we're gonna have to pick, and the , the way I , where I'd like this conversation to go into focus and to , to really hear your guys' views is around the funding side and around funding startups in South Africa. Because I think, you know, I think that if you did a poll of South African startups of what they needed to make their business a success, well , you know, I think if you've been in the venture building side, like all the legal side would say you need to have some compliance, you need to have client base , like, I think pretty much nine 90% are gonna say, we just need some funding to get this thing going. So I think that that's a big need, whether it's the correct need or not. And so I'm kind of interested in your, I think like if, if we think about this podcast as something which can inform people listening to it, like I'd love to get into some of your views on funding in South Africa mm-hmm . <affirmative> . So I mean, as a start of question , um, like what , what do you think the state is of South African startup funding? If you kind of probably took, you know, Silicon Valley or something as the, the gold standard. Like, like where are we,

Louis Buys: 9:46

I guess , uh, the comparison I often find is , I guess the European market in the South African market and then the European and the American market. So having built a decent base in the European market, like it's very interesting to view from here how Europeans compare themselves to Silicon Valley <laugh>.

Eitan Stern: 10:01

So what are you saying ? The , the , the , the comparison's not helpful. It's not a correct, it's not a correct thing to compare. It's

Louis Buys: 10:06

Not, it's not, I don't find it mega helpful. Okay . Um, having kind of now seen or gotten really deeply into the European funding market as well. Um, I'd say it's very different and it's very different for the following reasons. The first reason is just the addressable market size , um, is one of the biggest indicators of how much VC capital you're going to have in a market. Mm . And one of the really tough things about South Africa is the size, like the , the market is quite fragmented. So you've got kind of a very small portion of the country that's gonna be consuming solutions that are akin effectively to your more international type like Silicon Valley led investments. Gotcha . So in Cape Town you've got companies consuming kind of monday.com , things like that. So you've got that market that exists and in that market technically with no hard currency and also just because of the size of the country is tiny Yeah . Relative to the rest of the world. So if you think about what you're gonna get in, in the form of SAS investment, like you're already playing at one 100000th of the market size,

Eitan Stern: 11:07

Small market , small amounts of money.

Louis Buys: 11:09

No . Germany itself is, Germany is like nine 90 million people. A very similar demographic. Yeah . Uh , from an income perspective and an education perspective. And the currency is worth 20 times and it's similar to three or four markets next to it. Whereas South Africa from that kind of product is very tough. Then you've got kind of more your like different LSMs, which are very, very difficult to scale into in general just because of the availability of various infrastructure and also the difficulty of kind of accepting payment and also just the volume of that payment for the effort. The other thing that's interesting about the South African market is also just the prevalence of corporate in the main markets. Right. Your banks from a financial services side, and just because they're so prevalent from a brand perspective, they're very hard to compete again . So you'll often find VC being less likely to back a company really hard unless it's got a corporate partner mm-hmm . <affirmative> , in which case your CVC model makes a lot more sense. So you'll see your, some indies, your kind of Franks , those ones coming together with corporates more for the initial scale and access to customer.

Eitan Stern: 12:14

So that's not just, that's not just access to capital, right? That's not, I always assume that would be, that's

Louis Buys: 12:18

Access to market. Okay, sure.

Eitan Stern: 12:20

You've got Sunna's database behind you, you can actually launch a product.

Louis Buys: 12:23

Yeah. But it's really tricky cuz like the amount of growth potential you need to really make sense of let's say a hundred million ran round . Like you need to be able to pay that IRR back over seven years and scale into some sort of market that's gonna generate that in actual return. And the , the problem I see, or the difficulty I see in South Africa is that that market size is very difficult to achieve outside of very particular niche products. Right? So you will see it like the yoko's and that, but it's

Eitan Stern: 12:53

Tough. So what does that tell us about the status, right? Like, I mean from, from that description it's a , it's a pretty grim market for South Afghan startups or is there , is there a silver lining somewhere?

Louis Buys: 13:03

Uh , there is definitely a silver lining. Uh , there's no , there's no doubt, right? I guess the comparison question, that's what always comes up for me. When you look at just the volume, what I've seen from a South African funding perspective is that you've got probably like 10 to 15 proper investment shops, right . That are kind of kicking off and that's increasing quite rapidly, particularly actually faster for the rest of Africa in my opinion. I don't think there's much acceleration in the South African market with regards to that just because of that market size and the difficulty of leveraging a big enough homogenous market is one of the toughest parts about South Africa from a fundraising perspective. But I do still feel, and you know, there's always these , there's always people that are saying like, is it the lack of capital? Is it the lack of investible startups ? And in the line of what I've just said, I think it is actually a lack of investible startups because you have to be able to view that market size you're building into as one of the factors that an investor's gonna consider. And there are very limited startups in the South African market, in my opinion, that are addressing a big enough market to make it enticing enough to invest. But isn't that, I think that's the main challenge. I I think

Eitan Stern: 14:14

That's a , that's a really succinct and and good answer. I mean, it's something that I really considered in that way, but I mean, isn't that a question about startups focusing on the wrong areas? I mean, if I think, I mean the load shedding example comes up like South Africa is a gold rush at the moment in terms of, of energy, right? Like if I was gonna start a startup today, I suppose I would look in that area. So isn't that just a question of South African startups need to focus on high value areas if they need to, if they want to attract investments .

Louis Buys: 14:42

You're right. That is it, it's like, it's, it's, and and often there's good times to enter markets and there's bad times sometimes. And I think the challenge really is about, and like one of the real tricky things about the size of market is you, it it's kind of counterintuitive. Like you want a very focused product so that you can scale quickly into a market and you don't have to build a lot. Really. Like that's what like VCs are gonna look at. Like how good is your use case for your initial beachhead customer? And the challenge is like, how deep is that? So energy is a great example. Like energy is very deep right now cause everyone's feeling the problem and it's very topical. You will raise well off that. So you'll be able to bake a , a typical VC ticket off that case if you execute well. Okay . Right . And the thing is like, that's just way easier and bigger markets, like you can almost stumble into a great market got way easier in, in, in bigger jurisdictions like Europe, like in America, like a China.

Eitan Stern: 15:37

Gotcha . So , so you said that South African startups is what, 10 to 15 , uh, uh, VCs or funding houses and in South Africa, I mean if you're a South African entrepreneur looking to get funded, do , do you think you should be looking at the local ones or is there, do foreign VCs invest in Africa? I've seen from a legal perspective how we structure those sorts of things and it's tough, but yeah, I mean, what's your view on, on foreign investment into south startups?

Louis Buys: 16:00

Spot on . There is a lot of investment from external markets into Africa in general. That's definitely, definitely happening. Increasingly it's happening more and more, like a lot of the kind of bigger brand VCs from Europe or America have some sort of alignment. And the thing with investing in the VC cases is often based on trust and it's based on network trust. So you'll see a lot of a axis of access to some of these bigger names. Right. So you'll see like your early stage pree , angel networks really becoming feeders or scouts to these markets. Okay . So there's like the rabbit we've assisted kind of on the speed of air side to bring into the local market. The tough part really is, I guess South Africa has challenges with regards to just IP domicile, all right . With exchange control. And the thing is right, that it's, it's really tricky because often it's not fully understood mm-hmm. <affirmative>. And if you ever try to raise money when things are uncertain and your product is uncertain and you're trying to convince an investor that I at least know what I'm doing with regards to my market, which is hard. Now there's this other thing which is like a legal risk of ip. They just don't need to look at it . They just don't care to be honest. They just look at it and they're like, oh, there's a thing about ip. They just don't, they just don't get into it. Isn't

Alexandra Matthews: 17:19

It something that's being appealed at the moment or I know that there's like a collective of lawyers who are trying to fight against this <laugh>

Eitan Stern: 17:25

Yeah, it's, it's an interesting one, right? Because, because it kind of flies exactly in the face. And maybe this is, I mean this might be a quite an interesting discussion that for some point, but it kind of flies exactly in the face of, of where like, like the rules are there to ensure value stays in South Africa, right? Like to ensure foreign companies don't come invest in South African startups , which are then the , the value goes to other countries . So in some ways I agree with the regulations, like the problem with it is that like all complex problems, they are complex and it's, and it seems to be a stopping investment coming in. I mean, maybe I can ask you guys, do you , so Alex you are saying you see investment being stopped for that reason. What about the startups that you guys have worked with? Cause I know you've got some startups in your portfolio that have attracted foreign investment or local investments. I mean, what was it for them? I mean, how , how did they go about doing that? Or what were some of the factors that you thought were interesting for funders about the, the success stories that you guys have seen?

Alexandra Matthews: 18:17

So again, I mean , you're probably gonna be more prime to talk about like the digs Connect and andro and even REO are probably the three examples I can think from , from our portfolio

Eitan Stern: 18:26

Are those three, those are companies in your portfolio.

Louis Buys: 18:29

I , I mean , I can speak to the trend that, that I've seen, which is un unfortunate is that either it's a belief on the South African founder mm-hmm . <affirmative> side or it's, and which is a self-fulfilling prophecy or it is a real requirement from international investors or at , you know, something like, like that. But there is a very large pool for South African entrepreneurs to want to internationalize holding structures even at the point of rebuilding complete ip.

Alexandra Matthews: 19:02

Yeah .

Louis Buys: 19:02

And the problem is, is that, that that pressure does exist. Whether it is completely necessary or not, I don't think it necessarily is, you know, even if you go look at some of the like investment fund jurisdictions, like a lot of these funds are not setting up in South Africa per se, and they're setting up Mauritius or Luxembourg, that kind of thing and investing into it. So the thing is that I would just say that while I think that the exchange control regulations are intended to keep value in the country, and I think the startup market is just a very small sliver of that particularly, right? So I would say that there's lots of other capital that it is keeping in the country and it's working very well. It's just like, I've always felt like it needs to be dealt with in a separate classification startup act to remove it out .

Alexandra Matthews: 19:50

I think it's a massive consideration for startups at the beginning of whether they even incorporate in South Africa to , to start with. So it's something that I think startups consider, like from from the get-go. Um, it's a major strategic decision as to where you're gonna set up because if you do, you , it's, it's such a pity that it's not always implicitly South Africa, right? And like that it's even a question, but it it , if you are planning on going to try to source like , or expand in any way, like the , the decision of where you incorporate can have a massive impact , um, later and having to, you know, do a lot of rework or as Louis said , like bold and started a , again, completely,

Eitan Stern: 20:25

The advice that I've always often given to startups is, is you know, when looking and incorporate, and you've gotta follow the money, right? If you foresee your investment coming from South Africa, then South Africa's a great place to incorporate. But if you foresee it coming from Europe or a specific market, it

Alexandra Matthews: 20:38

Adds so much unnecessary cost and like complexity to an already like complicated, you know, you know , problem or like the kind of responsibilities of the founder at the beginning. They shouldn't be having to, to think about all of these things. But it, it, like, I think that this is , um, you know, one of the things that we,

Eitan Stern: 20:54

So I'm chalk that up, is to, these are regulations that you guys at The Delta don't exactly love you, you would like to see a more investor friendly market

Louis Buys: 21:02

Look, I I would say that like I can understand them. Mm-hmm . I , I can totally understand them. I do think that they, they serve a purpose for a large amount of that capital that is around. Mm-hmm . And I think that it can work South Africa in the large sense over the last years has been much better off for the regulation. I just think that not such a broad brush is required to be able to stimulate this part of the economy because I can actually just, I can just see it just doesn't gel.

Eitan Stern: 21:32

You see that, that red light the time then let me , uh, let me , let me ask you that, let me dig into that then. Like over time, I mean, so South Africa has these success stories now, right? The RIV gets smarter being obviously the big one, MA money , Yoko Peach, there's some big South African companies with big foreign investment or big global markets. Like are you seeing a trend that there's more South African investment ? I mean, any conference that I've gone to in Europe or , or , or Delta foreigners there always like , Africa's really exciting market, exciting market, but in some ways when they <laugh> don't they think about African investment, it's still like impact investment, right? Impact investment for them is , is investing in a payment gateway in Kenya or something like, so I , I guess my, my question for you guys is, is are you seeing with the success stories that we've had, are you seeing a trend upwards or are you seeing the regulations pushing the trend downwards of, of , of South African startups getting invested in?

Alexandra Matthews: 22:26

I think there's something that's probably definitely also probably had an effect in the last few months . So kind of six months is okay , probably reducing investment is actual load shedding , which is sure a major risk, like a major risk to outside investors. I think that we don't realize like the impact, you know, Eli , regardless of the IP issues, there may be I think load she , even for us for ventures that we're working with internationally who are working with South African talent, like it's a major concern for them. Yeah . Um , because you're getting teams switched off for half of the day. You can't, you can't say that it doesn't have an impact on like productivity and speed and efficiency and like, you know, the , the , the , from the conversations we've had with investors in Europe, that's definitely, it's a topic that has been kind of brought up specifically from a South African context perspective. And Lou , I dunno if you wanna add to that,

Louis Buys: 23:13

It's kind of like an economics chat, but <laugh> , there's a few, there's a few things that impact that Investability. Uh , the last one bit of a wild card is that like the SA government isn't , uh, I would say they're reasonably friendly from a geopolitical ax axis to Russia, which I, I'm not even joking, actually call people call me about it. Totally. And people actually call me and ask me, can I talk to the president and just sort this out <laugh> . I'm like , I mean I'd love , I I , you know , I tried, maybe I tried , but like I, he's just not answering my call right now, you know, it's kind like <laugh> and I'm like,

Eitan Stern: 23:51

I didn't realize you had a direct client . Louis , I'm gonna , I'm gonna take you up and take you .

Louis Buys: 23:54

No, no, no, no , no. I mean , I'm , I'm <laugh> like , I , I don't , but , but I mean that's uh , I get you . I mean that's the thing is like some of these, some of these funds are like, they're just like, oh yeah, no , I was thinking about it, man. Like, don't just chat to him and just say like, if it's not such a big deal. Yeah. And I think that's also just another, another reason, like I was at , uh, at start Summit and I think one of the really good like learnings that I had there was just speaking to LPs and, and other VCs and just , uh, understanding just the rate. Like one of the reasons why LP investments or LP decisions into VC is also slowing down, which is one of the biggest reasons why we're actually seeing a bit of a slowdown right now. But they're having to like really rethink a lot of the geopolitical risks in some of these things, right? Like, if I invest here, what is going to happen if this, well , what's this country's neighbor gonna do? Totally. Like what are they gonna do? That's actually just that you don't see that in the startup side, right? You see that if you look at the whole chain from LP all the way through vc Yeah . All the way to the startup . But if you just, at the startup , you just see there's just, you know, like a slowness.

Eitan Stern: 24:57

One of the things that's coming up for me, and I , and , and I I I guess it makes sense is that like this question about investing in South African startups, it's like e everything that you're saying seems like a global trend, right? Like it's, it's not just South African startups that's getting harder to, to , to raise money. But you know, I'm sure if you're in America and your politics sways a specific way, like that has an effect Europe being on the brink of war that's got an effect. Like maybe what you're saying is that the greater global context is yes, it is harder to raise money than a few years ago if you wanted to start a social media site, which, which just used toot

Alexandra Matthews: 25:31

A hundred percent. Okay. So the last like 18 months have been, I think for everyone, it doesn't matter where you are in the world, it's been brutal for founders. Okay . I mean

Louis Buys: 25:40

It's been tough.

Alexandra Matthews: 25:41

Yeah. And when you have something like the SPV bank, like situation <laugh> as well. Yeah . Like nearly like tanking the entire startup market overnight. Like thank goodness that didn't go the way it could have something that we've definitely seen what the ventures that we are working with, like it is considerably harder to fundraise anywhere.

Eitan Stern: 25:57

So, so then how do you guys, I mean I'm curious how you , because you guys have, you said that you guys have a fund as well, like, I'm quite curious how you guys have first of all dealt with that, but more, more so like how do you guys think about investing in startups? I mean these problems that you're putting forward make a lot of sense. Are you saying Cool, we're not gonna invest in South African startups for them? Or are you, how are you managing this problem with your own investments?

Louis Buys: 26:20

So, I mean , just split this up into a few parts. They're supporting the existing portfolio and like that's I think one of the things that the ecosystem is specifically designed to do. And one of those things is really about, you know, like assisting ventures to get to follow on investment. Because at the end of the day, like that's where we see a lot of the strain. So, you know, it's not really about those initial first tickets really at the moment. Like those will still flow, they're a bit less, but you don't need a lot of money there . It's kind of like your pre-seed to seed is , is way down in general. So like companies are working way harder for that and raising much less. And then from series A onwards, there's just not a lot of that like capital flowing either. So the is that, I'm finding that there's this, there's this apprehension to invest in a pree company because they are far away from cash positive. Sure. And one of the issues that you will see is you're probably going to need another round of funding before you end up reaching kind of cash positive even if then, right. And one of the challenges there is as an investor, like if I'm gonna chuck money in here and I've got this kind of fund and I, I mean this is thinking from your like fund dynamics, right? So if I'm gonna make 25 investment tickets, right? And I basically have raised this money and I need to now make these 25 tickets and then reserve some for follow on , like how likely is this ticket going to be to either be majorly impaired in a flat round or a down round or that the venture actually just like really waddles on for a while and really doesn't build internal value and then gets basically another round in like a year . That basically really decreases my exposure, my participation to the point when I actually exit my entire fund dynamics are off by an order of magnitude, which is highly possible. And that's why there's so much pressure on first time managers right now because you raised probably in the point where you have money to invest, you start investing and the first tickets you write immediately are like really struggling. The very next money that comes in is at a better valuation or the same, which is not in your calculations whatsoever. And your likelihood of success of one fund returner or two fund returners is now much, much less even when your multiple is basically going to be less for the next three, four years when you're supposed to catch out. Mm . So at , at the end of the day, you're just dealing with like a lot of thinking where in the last kind of era you were not. So that is similar whether it's Africa or Europe or America right now in some cases, right? So that's very little about why we would or would we invest in South African startups . I think the reason why, like from, from our perspective, like we focus on kind of very particular areas. So with , with regards to the studio, it's very early stage. It's almost the first money and that's usually already taking into account the , the market size. Like how big is this vision, right? And usually my experience of late is that it's rare to find South African founders, very many of them that have a vision that understands the context of the rest of the world properly. Gotcha . Because what happens, I find, and this is something that I think Delta's uniquely positioned to do, is cuz we can see the difference between the markets very well, which cause

Eitan Stern: 29:26

You operate in Europe and South Africa. Yeah.

Louis Buys: 29:28

And what happens is usually you'll find people who say, I'm going to do, you know this and I'm going to launch it in, in South Africa. And like that automatically tells me not for you that unless you've got some sort of market understanding of how you're going to scale outside of this market or you're gonna build a unicorn in this market alone, which is unlikely. Or you're, you're really at the cutting edge of something in a niche that you can, you understand internationally mm-hmm . <affirmative> . So if you look at like an ABOs, the reason why they manage to actually raise enough money is cuz their niche is applicable in the US everywhere , Australia, that kind of thing. Are they

Eitan Stern: 30:02

In your portfolio?

Louis Buys: 30:02

No, no, no. So basically like that , I'm just using them as an example where , where you can see like that, if you really think about it, there are businesses in South Africa right now that have that potential, but there are very few founders who gain the worldview to understand like, how is this going to fit into this international market and then come back to South Africa to find ,

Eitan Stern: 30:24

Geez , imagine there was a company which was some sort of a venture building studio with, with knowledge in all regions of the world that could offer support in this sort of thing, which was, I mean, that would be a very scalable idea, <laugh>

Louis Buys: 30:35

To be honest. Yeah man , I've been looking and I've been looking <laugh> ,

Eitan Stern: 30:41

We've been working on it. I can , yeah , I can totally , I mean it's funny, it's , it's interesting. I totally see the , the full level of the ecosystem. It's not just about linking you up with an accountant to a lawyer or something like that. It's , it's really looking. So, so I get what you're saying. You're saying you're not gonna invest in startups unless they have the ability to scale internationally and scale internationally is actually very tough. Very tough because it requires very complex aspects, not just how do you launch a product in another country, but how do you understand ? And

Alexandra Matthews: 31:06

That really I think is where like network and like an ecosystem can help to Yeah . You know, provide that value. Um, it's very, I think one of the hardest things and one of the, the , the things to help accelerate you is the relationships that you develop as a founder. And it's like one of the, yeah , Louis recently gave a talk with, with Julian and I can't remember which, what , what , what the attribute was Louis about being ch So there's something, it was something about being charming, but I think it comes down to bit , oh ,

Louis Buys: 31:33

The other 10 traits and skills of triple A grade founders and kind of, and number six is about being a , a people magnet. Yeah. It's usually you say networking, but actually networking takes a lot of time and it's not always that useful, but it's about being able to build relationships when you need to. And one of the tough things for South African entrepreneurs is that we're not really well aligned with any other jurisdictions that are really good at this. And we're quite far away, although we're in the same time zone. Mm-hmm . So, you know, very, it's very rare for South African companies to build actual footholds in international markets because it's very expensive. It's like incredibly expensive and I mean, look at the best examples that I've got it right, like Naspers , but did it out of one investment and like 90% of all of the money they ever made came out of like one I I might be, I think it's actual

Eitan Stern: 32:22

Number , I think it's probably much more than more than 90% <laugh> I've heard somewhere it's like 5% of South Africa's economy or something. Yeah .

Louis Buys: 32:29

And they've had this curse of having to recreate that. Yeah . But effectively you need, you need real, you need real traction there. And that's one of the things that I think why for us building this corridor between Europe and now kind of adding a few other jurisdictions as well, you need real shared ecosystem where people actually feel like they can call someone up and say like, I need help understanding this market or I need help with investors. And like that too . You just don't get flying to Europe for a weekend and going to , right .

Eitan Stern: 32:58

No , and it makes sense, right? Like I , I don't think I've taken a flight in the last couple of years where I haven't seen a client or some hustling founder that I know is sitting on a red eye flight to, to Europe to go, you know, an economy class to go and spend three days at a conference. Like it's , uh, it's a hustle . And I suppose that that's why, right? It's, it's because if you're not doing that hassle , you're not gonna be able to build a scalable product from a market like, like South Africa. I mean, I often think it's a, you know, there was, I mean maybe this will sideline the conversation a little bit so we don't have to go into it, but there was every, there was no reason South Africa couldn't have set up a , the the same sort of possibility as Mauritius did, right? Like in making it incredibly attractive for Safka investment . And that would've been the thing which could have pushed the economy further, not necessarily just putting regulations to, to , to keep value. So attracting value instead of block, instead of trying to block it in.

Louis Buys: 33:49

I, I agree that probably will, they'll sidetrack with like the, I guess regulatory agility of small countries, which we ,

Eitan Stern: 33:56

Which we ,

Louis Buys: 33:57

Anyway , that's a different podcast.

Eitan Stern: 33:59

So , so maybe I can ask you this then , Alex, maybe because you , you are more involved in the, in the actual business side, you know, what are some of the , what's your biggest success story from The Delta? What's something that you guys are really proud of having been involved in or, or, or setting up?

Alexandra Matthews: 34:12

I , I think that one of, I guess my favorite , my favorite ventures that we've worked with, and I think they actually also pitched at the , the Innovation cities Top 10 Startups awards this week as well is, is strove . And it's maybe because they're our , one of the, the first ventures that we worked with. And so they're founders, one of our really good friends. And I think it's just such a great like, success story of how, you know, Chris is like a , such, such a hype , like incredible founder. He has an amazing track record and he came to us in to an , at an early stage with his idea and he was really our pilot for like how, you know, how Delta can, can help to like accelerate a startup . So, you know, we worked with him to get his MVP to market and now like we , we are really just there from a support perspective whenever he needs us . He , they're , they're completely independent and go , they're doing so incredibly. I think he's also in the UK and expanding into , into the European market quite heavily.

Eitan Stern: 35:03

It's a great product. Also an old , old clients of ours , uh, in a , in a Ccal product.

Alexandra Matthews: 35:08

It's such an amazing product in a sense that we also as a business use it for our own team. Yeah. So I think that that's something that you can be like so, so proud of is like when you've been a part of creating, you know, such a amazing company but also creating a solution for customers and you actually yourselves can get to use that on a day-to-day basis in such a positive way for your business. So that's probably my favorite, my favorite success story of The Delta. And I think that it's just gonna continue growing and I , I have no doubt that Chris is gonna do incredibly well on expanding. He's a great , great case of a , of a South African venture that does have international applicability and does have this big vision, solves the pain points and problems of companies all like globally. And like that , that's a perfect example.

Eitan Stern: 35:51

Yeah, for sure. I mean, str they're just, for anyone listening, you should go check them out. But they, they've got a , an application to basically encourage wellness in the , in in , in the workplace. And Alex let me , let me ask you this. So this is a question that came out from, from someone in my team who were , were brainstorming , uh, for this interview. I mean, how , how do you guys think about transformation or investing in minorities or investing in female run businesses? I mean, what I'm gathering from this conversation is the question of investing in African startups is just, is complex enough without involving all these other factors in it. So, but, but maybe briefly from your side, I mean how is that a consideration in the startups that you, that you invest in and work with? Or, or is that kind of secondary to we want to just make sure that we have success stories that, that help build the economy?

Alexandra Matthews: 36:35

I think it's something that in the, you know, we've kind of been trying to like identify like what our investment strategy is to date in this year. We've really been refining that more and more and it's definitely something that we need . We are busy making a part of our strategy from the founders that we're trying to source. So how kind of typically work from a studio perspective is we work with , um, what we call like studio partners or Delta partners who are these really experienced angels, most of them, the majority of them in the European market. And we work with them to identify high potential founders who we can work to nurture ideas that kind of suit their, like, you know, something that they would be able to provide value in. And I think through them, like part of what we definitely are trying to do is look at more bringing in more female founders, bringing in more diversity. But it is, I'll tell you now, it's still such a major challenge. I think it's challenge , it's definitely d changing. We're seeing a massive, a massive shift if we look at a comparison from like, you know, where we are today from five years ago. I remember two years ago trying to connect with other like female founders and sea levels and I spent like hours clicking through LinkedIn, like looking for them and like every sheet was like nine guys, one girl.

Eitan Stern: 37:40

Probably a global trend as well. That's

Alexandra Matthews: 37:41

Global trend. But it's shifting a lot. It really is . You know, it's, it's changing every single day and I think we're seeing such, you know, positive movement in the right directions across the world right now. So for us it's definitely something that we want to wanna prioritize as much as we can. So if there are any like female founders out there , um, who <laugh> who are looking for a partner, you can reach out to me on LinkedIn directly. I would love to chat and if we have a partner in our studio area who you would be a match for , I'd love to do an introduction.

Eitan Stern: 38:09

That's awesome. Um , I'm gonna ask you one , one or two more questions. The this one is , uh, I I , I get asked a lot when I do interviews, but, and I hate it, but I'm gonna now , now spin it around at , at you guys cuz it , it's quite general, but I , but I'll be interested, I'm genuinely interested to hear your thoughts on it. So I mean, as you see the startup ecosystem in South Africa, like what do you think are some of the biggest challenges that, that our startups focus and how do the startups avoid them or benefit from them? So we've, we've spoken a bit about the funding side , right? Like choose wisely what business model you go , don't choose a business model that's in a non fundable area. Anything else pop up for you that you're like, this is something I see all the time and I already want startups to know this lesson or two to either harness this nugget or to avoid this challenge?

Alexandra Matthews: 38:55

Yeah , I dunno if you wanna go first. Yeah .

Louis Buys: 38:57

<laugh> , I just have a very long list . <laugh> ,

Eitan Stern: 39:00

The answer's 37 <laugh>.

Louis Buys: 39:02

I'll pull up the notepad. Yeah, let's, I'm getting No , go for it .

Alexandra Matthews: 39:06

No , I , I think that we've mentioned the first one, which is just , uh, and we've kind of like touched on it a few times in this, this call is like having that big, big vision is going to really support you from a fundraising perspective. But I think also the bigger your vision, it's like a , a story that you wanna create a story that people can get behind and you , you shouldn't think small. So I think that that's the , the first kind of, I guess, piece of advice is like I've met with a few founders and their ideas, they , they , it could be so big, but they're like packaging it as such a small marketed opportunity. Sure . And I and , and if you really step back , um, you know, often your idea has so a much larger scale of a applicability than what you realize . Yeah. So I guess what one of the first things I would say, Louis.

Eitan Stern: 39:49

Okay, I totally get that . I mean I could probably even identify with falling into that trap as

Alexandra Matthews: 39:52

Well. I know legalese is gonna be a global legal company supporting startups all around the world. Geez ,

Eitan Stern: 39:59

<laugh> . I just , I just gotta find someone to, to to run at someone who doesn't want just walk on the beach in Kochi every afternoon <laugh> . But if I find person then yes,

Louis Buys: 40:08

Comicy is nice. Yeah, comicy is nice. I think you just have to move out of Comicy first and the temptation will go way . Yeah, for sure. Like design your environment.

Eitan Stern: 40:15

Let me chat to my wife about that. Yeah.

Louis Buys: 40:17

<laugh>. Yeah, I mean I think the one you've touched on there , Alex, is I think, I mean I wouldn't say it's a challenge. I think it's a challenge of founders in general, but it is really about, and I guess it depends what your role is, but like one of the key things that an experienced investor is looking for in a founder or looking for is really having serious clarity about the steps you're gonna go through to get to the end goal. Mm . And like often first time founders will say like, there's no way of knowing that mm-hmm . <affirmative> until you speak to a third time founder that's exited a unicorn. They're like, this is how much this is going to take. Yeah . We're going to hire this many people. This is how long it's gonna take to ramp the sales team. This is the probab the a ACV will get. This is when we'll go for extra capital. I've already spoken to this person. Mm-hmm <affirmative> like this is probably where we'll have to decide this or this when the vision is big, but we're starting in this niche. Right . And basically this is how clear it goes. Like one ha one thing that you have to realize as an early stage founder is that you don't know that and like thinking it's not possible to know that is wrong. You can know that there's uncertainty based on thing you don't know which will come up, but experience tells you when those things are going to pop up. Totally . Or when, when you need to check and what are the questions you ask yourself. So becoming incredibly clear from the steps backwards from a really big vision is one of the biggest things I see as a stumbling block for first time , second time founders and often leads to , uh, is no actual right or wrong. Right? Building a business that isn't going to be a unicorn or isn't going to try and scale , uh, to millions of people is okay. There's nothing wrong with that. There's absolutely nothing wrong with that. But at the end of the day, like those are not businesses that often VCs are going to gonna want invest it , invest in because they , it is just a different match. Right. So I would say that's one big thing that I, that I see, you know, is slightly tough. I

Eitan Stern: 42:12

Think that's a very impactful and powerful point cuz it's, it's deep, it's not surface level. And, and uh , and I think that it , it really resonates for me. I mean there's a reason why people get hired as professional CEOs, right? It's because experience matters. Oh yeah . You know, I've got a hair of a lot of value in my business through the, the , the entrepreneurial organization accelerator program, which is a playbook that you, you know, put businesses a science and it's , uh, businesses all experience similar challenges. So if you put that playbook into action, you , you can get good value . So, so, so I I I dig that and I think there's maybe something around the mentality of a founder , like the perception that we think of in the movies of a founder of like this, this renegade maverick is maybe not what investors are looking for and they're actually looking for someone who's got a , who's got a five point plan and, and a and five subpoints in in all of that. You're shaking your head, which means maybe it's a combination of both

Louis Buys: 42:59

<laugh> No, no, no. It depends on the stage. Yeah . And it depends on the, it depends. It just depends. It depends.

Eitan Stern: 43:05

If it was easy, anyone would do it. I I I've got one more question. So it's a two part question. Maybe each of you can, maybe Lee you can take the first part and and Alexia the second. So, you know, if you , if you, if you get your crystal born look , what's your predictions for the next five years, Louis? What does the SAF and ecosystem look like in five years? And , and Alex, what , what does , what does The Delta look like in five years?

Alexandra Matthews: 43:26

<laugh>, this is a really like, interesting question just because like , uh, like we , we always have this argument as like as a coo like I'm , I'm trying to keep things the same and I like Luis the one continuously pushing growth. But I think this is a good thought experiment. Like, let me the five year delta, Delta Christian and Louis can do the five year

Eitan Stern: 43:46

<laugh>. I mean, you're pushing your startups to have that strategic plan . I what to heard from you guys as well. Yeah. So Louis, firstly, what is , what does the Afghan ecosystem look like

Louis Buys: 43:53

The South African ecosystem five years from now? So what I think is going to happen is we're going to see the effects largely of, I think a lot of loss of confidence unfortunately from the European market, particularly just in our ability to compete on the international stage. Sure. Not due to it being completely true or anything in, in some cases , but load sharing geopolitical things. Gotcha . Um , it's going to be tough. I do however, see that there's going to be a lot of increased investment in great startups that are going to be able to cross this chasm of, of understanding , uh, or understand how to convey big ideas to international investors. Even if that is gonna be played out on , in South Africa or the African continent. I think energy-wise is gonna be a big toss up . Mm . I'm, I'm not quite sure if we're gonna have corrected this in five years. I really hope we would.

Eitan Stern: 44:48

And it's crucial to get

Louis Buys: 44:49

Right. It's gonna be largely necessary. I mean, I think we're taking the right steps, but yeah. So I think we will experience also a lot of people I think leaving , uh, like a lot more intellectual property flight from a person perspective mm-hmm . <affirmative> as the kind of effect of globalization and being able to work remotely turn into being very easily able to go and actually work for those companies with those things. Gotcha . So I think that we're gonna see a lot of that in the next while and we're already seeing that , uh, a lot.

Eitan Stern: 45:20

And Alex, what does The Delta look like?

Alexandra Matthews: 45:22

<laugh>? So Luis gonna have to tell me if I, if I pass this test after I give you like my overview of how, I guess I envision it. So, so you know, we've done a lot of work on like, you know, what our mission is as a , as a company and really like, I guess what we came back to is like through, through Venable then we wanna aim to try and solve humanity's biggest problems. Mm-hmm . So for us, like our ecosystem, I think right now we like, you know, what is the international competitor or not competitor or another ecosystem we would like to compare ourselves to. I kind of see us wanting to be at a level of recognition as why Combinator is globally. Like at the moment we're very focused on like the European market in South African . I don't think that's the limit for us. We wanna be an ecosystem that's recognized around the world and it's completely possible because especially in this remote world, we are working with ventures actually all over, all over the world right now. From a , um, investor or angel perspective through our studio , um, I think would say in five years we would be aiming to have around 50 angels that we're working with to help them build ventures through our studio arm on a continuous basis. And I think that out of that, one of the, I guess, objectives we had a few years ago, I think we said in 10 years time was to have five to six unicorns. Li I don't know if that's changed and if that's <laugh>, he's shaking his head. Is it too low? Is it too low? Actually , he , he ,

Eitan Stern: 46:35

He both shook his head and nodded . So,

Louis Buys: 46:37

No, no, I was saying yes, not too low. It's good.

Alexandra Matthews: 46:40

Not too low . Okay , cool. Yeah, so, so I think that from the, you know , from the studio perspective and the creation of those ventures, from like the services side of the business, we are not limited to just supporting the , the ventures that come out of our portfolio. About 70% of the ventures that we work with on a day-to-day basis are non portfolio ventures. And I think we really just wanna scale that impact and really be known as like the company of like, if you're struggling with anything with your venture, you can turn to The Delta and we have like the strategist and expertise that can help you whatever stage of your journey that is. At the moment, we are very much focused on that. Like, earlier stage. We actually have a whole area that's focused more on, on the , the scaling side, which we haven't really marketed as much in the South African context. Mm-hmm . <affirmative> . So we really wanna be able to support ventures from beginning towards a series A and beyond. Uh , that , that's kind of like a really, a really big vision that we're working on, is to really become international, recognizes not the McKinsey for Startups , but essentially like the , the , the place that you go when you're struggling with anything. And we can really help to like, accelerate you and, and , and solve any problems that you may be facing.

Eitan Stern: 47:40

I like that. I mean, yeah, The McKinsey for Startups make sense? Yeah. Uh , awesome guys. Uh , well, I'm gonna , I'm gonna be be watching the Journey. Well, I'm sure like a lot of staffing companies, were watching it closely. I mean, we're working with you guys on The Delta do IO project that you're launching, and it's , uh, I'm excited to see what you do with it. And yeah, I mean, thank you. This has been a , a real in depth , uh, I love conversations that go in depth into one topic, so it's been really great to hear your opinions and it's , and yeah, thanks for being willing to, to spend the time. I appreciate your time. No problem.

Alexandra Matthews: 48:08

Th thank you for having us. Thanks for having us. Yeah .

Eitan Stern: 48:11

This podcast is recorded by Simon Atwell . The intro music is by PH Fat . I'm your host, Eitan Stern. For more information about legalese , catch us on www.legalese.co.za or on the socials.