By Andile Masuku
Isn’t it fascinating how some things need time to grow, mature, and truly flourish - even when the evidence of progress seems scant - while others must be swiftly deemed unworthy of further investment and decisively cut off?
VC Ponzigate?
In November 2019 I had the pleasure of hosting a spirited episode of the African Tech Roundup podcast titled, “Is Venture Capital a Ponzi Scheme?” with guest co-host Rushil Vallabh from Secha Capital.
Secha Capital is a South African growth capital impact firm that employs an operator-investor model and invests in traditional industries. Our conversation also featured Grant Phillips of PhilTech Consulting, who is now CEO of e4 Strategic.
At that time, Phillips was collaborating with Convergence Partners and Stockdale Street, the Oppenheimer Family’s South African private equity firm, to curate strategic tech venture capital (VC) investments.
Our discussion turned to the provocative assertion by Chamath Palihapitiya, the American-Sri Lankan Founder and CEO of Social Capital, that VC is essentially a Ponzi scheme. By then, Palihapitiya was a billionaire and had previously boasted that Social Capital had outperformed Berkshire Hathaway’s returns in its first eight years.
Despite Social Capital’s impressive outlier performance, Palihapitiya had become disillusioned with the traditional VC model and was in the process of transforming his firm into a holding company focused on investments based on solid business fundamentals and "value to humanity", while offering financial and growth support to its portfolio companies.
Liquidity eventing
Looking back from 2024, it's intriguing to see how Palihapitiya's critiques and the scepticism surrounding the Silicon Valley VC model have unfolded, alongside the evolution of the African tech investment landscape.
I recall the buzz around Rocket Internet’s dubious exit from its investment in the struggling online shopping platform Jumia, via a US stock exchange listing stirring considerable debate about the viability, sustainability and true exit potential of VC-backed ventures in Africa.
The Jumia listing ignited discussions about whether such liquidity events were genuinely commendable, irrespective of whether they created true business value. In essence, should we accept an asset class that allows founders and investors to create and exit ventures profitably, even if they haven’t contributed to real-world value creation in a traditional, dare I say, boring sense? Palihapitiya argued against this, and I largely agreed with him.
VC-worthy ventures
Now, to be fair, while there are plenty of greed-induced, Ponzi scheme-esque vibes in these streets (notwithstanding the current trend towards ‘a return to fundamentals’), I do sense that accounting for how some things can only grow, mature, and flourish given time, there are still ventures worth supporting generously, even if progress appears modest or slow.
Some such ventures may well warrant backing with bucket loads of cash to be spent like money ain’t a thang. This presents a significant challenge for General Partners (GPs) worldwide, especially in Africa, who must balance short to medium term portfolio performance with long-term growth.
In a recent stimulating WhatsApp exchange with a venture-building support specialist from one of Africa’s leading early-stage VC teams, she humorously suggested that GPs who embrace the idealistic blend of commercial and impact sensibilities we both subscribe to, should be honest and label their efforts as Research and Development (R&D), and ditch the trope of chasing unrealistic ‘outsized returns’ on Limited Partner (LP) funds.
A GP is a senior executive within a VC firm who manages the firm's investment activities, including identifying, evaluating, and managing investments. Meanwhile, an LP is an investor in a venture capital or private equity fund who contributes capital but does not participate in the daily management or decision-making of the fund.
During the WhatsApp chat with my venture builder connection, we bonded over our admiration for the Calm Company Fund’s investment thesis. This Miami, Florida-based VC invests in software and software-enabled businesses, advocating for sustainable growth over the high-risk, high-reward model typical of traditional VC. They support "calm companies" that focus on profitability, capital efficiency, and a diverse range of successful outcomes, rejecting the blitz-scaling approach.
Blitzscaling is a startup growth strategy that prioritises rapid expansion and market domination over efficiency and profitability in the early stages of a company.
Calm Company Fund’s thesis is based on the belief that the software market is entering the “deployment phase,” where widespread, incremental adoption of technology is key. This phase requires a shift away from traditional VC models to support businesses that can thrive without heavy reliance on external funding. They emphasise long-term ambition, sustainable growth, and alignment with founder values, aiming to redefine success by balancing profitability with steady, sustainable expansion. What’s not to admire?
Humble pie a la VC
However, just last month, Calm Company Fund’s GP Tyler Tringas admitted the following in a public letter: "I’ve come to the conclusion that the thesis of Calm Company Fund absolutely works, but the business model does not."
Turns out the fund is taking a break from investing and raising new funds due to a combination of challenges. Their business model, which relies on management fees from small funds, is proving insufficient to support the scale and complexity of its operations. Despite what they deem to be the success of their investment thesis, efforts to raise larger funds and diversify revenue streams have been inconsistent, and ongoing litigation has strained resources and complicated long-term planning.
Tringas has indicated that Calm Company Fund will pause new investments and fundraising while reassessing its strategy and operations, though it remains committed to managing and supporting its existing portfolio.
Over the past five years, since Palihapitiya’s controversial VC Ponzigate statements, the early-stage investment ecosystem in Africa has matured significantly. There is a noticeable shift towards more sustainable and impact-driven investment approaches.
The issues Vallabh, Phillips, and I debated on the African Tech Roundup podcast in 2019 now seem particularly relevant. Happily, the emphasis on aligning investments with broader, long-termist social and environmental values has gained considerable traction, influenced by a growing nuanced awareness of the limitations and challenges of the traditional VC model.
It's clear that class remains in session for the African tech investment community which must continue learning not just from international tastemaking markets like the US, but from deliberate, introspective reflection on what truly works for us and why.
Andile Masuku is the co-founder and executive producer of African Tech Roundup. Connect and engage with Andile on X (@MasukuAndile) and via LinkedIn.
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