Meet the Investor: Paul Cook, Silvertree Capital

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It has been a busy year so far for founding partner Paul Cook and the rest of the team at South African VC firm Silvertree Capital.

Founded in early 2013, Silvertree has invested over ZAR20 million (US$1.47 million) in South African tech companies in the first seven months of 2015, including over ZAR 10 million (US$730,000) in Cape Town-based organic e-commerce startup Faithful to Nature and an undisclosed amount in development agency We Are Monsters.

The firm, which also has the likes of CyberCellar, WineCo, Sprout, Click n Compare, PinPoll, HealthCart and Aythan in its portfolio, is certainly one of South Africa’s most active VCs, with a proven track record of success. Silvertree said at the beginning of this year that its portfolio businesses achieved gross profit growth of 14 per cent during 2014, and were now ready for aggressive scaling.

Price comparison site Click n Compare has taken the lead with this, last month launching in Kenya and Nigeria. But according to Cook, who was an engagement manager at McKinsey & Co in Johannesburg and London before launching Silvertree with Zando co-founders Manuel Koser and Peter Allerstorfer, the firm is not actively looking to build a pipeline for investors.

“Mostly we find things by personal networks, sometimes it is via cold contacts. We are not actively going out and trying to find every e-commerce business in South Africa.”

“So we do have a pipeline in a sense that there are businesses that we are looking at but we spend little time on that in general, and a bulk of our time on operations.”

Silvertree’s investments are still focused on South Africa, and on e-commerce. In a previous interview, Cook had suggested the company would be looking to make investments in other African countries – most likely Kenya – and would look for opportunities outside of e-commerce. This has yet to be the case.

“The big problem at the moment is that we’re not strategically going out to build a pipeline, things keep coming to us, and they keep coming up in South Africa so far,” he said.

“It is still pretty e-commerce heavy, and most of the opportunities we see are in e-commerce. We have made peace with the fact that we know e-commerce well and we’re going to stick with it.”

Silvertree, which Cook said is now focusing on looking for synergies between its portfolio companies, has raised its funds primarily from foreign, wealthy individuals, though there are some institutions that have invested. But Cook said it does not function as a traditional fund.

“We aren’t structured as a fund, we raise money in some senses as a startup,” he said.

The amounts the company invests in startups qualified as Series A on the South African scale, according to Cook, who said Silvertree’s highly active approach to its portfolio companies meant it could not afford to put small amounts of cash into a lot of businesses.

“The reason for that is because of our model of being very involved, we can’t do many deals and it wouldn’t make sense to do small deals. We either go big or we go home,” he said.

Thinking of getting in touch with Silvertree Capital looking for funding for your startup? Cook said the team looks for three main things when it comes to analysing potential investments.

Firstly, they need to deduce whether or not the idea makes sense. “That’s a combination of looking at market, model, revenue streams, all the usual things,” Cook said.

The second factor is the team, and whether or not it has proven to be effective. Given the larger amounts of money Silvertree invests, it is not in the mood to take risks on unproven entrepreneurs or teams.

According to Cook, “Are they able to get the job done? Do we think they are executors?”, are the key questions Silvertree asks.

The final factor is whether or not the firm feels it can add value to a potential startup, and part of that is the concept being in an area where Cook, Koser and Allerstorfer have expertise.

“It has got to be something that we understand. There has to be at least a piece of it that we understand and can add value,” Cook said.

Looking back on his decision to leave McKinsey and enter the world of VC, Cook – who must also be one of the only tech investors in the world to have a PhD in theoretical physics – said he had become tired of coming up with what he thought were “fantastic ideas” but being unable to get them done.

“I always wanted to be building something that was long-lasting myself, rather than achieving through others,” he said.

If the figures and the level of activity so far in 2015 are anything to go by, something “long-lasting” is certainly being built at Silvertree Capital. And the rest of the year looks set to continue in much the same vein.

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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