Kudzai Mubaiwa The Hub
I am continuously inspired by how Y Combinator (YC), arguably the most successful seed fund/accelerator in Silicon Valley, California; started.
Alittle over 10 years back, two friends were discussing the possibility of starting a small angel investing/venture capital fund which would give seed money to some great ideas and invest in young people’s ideas with some structure and have them fully commit to work on the ideas over a long holiday.
They put in personal money, and one of the co-founders, who had an investment banking background; agreed to work full time on it. It started out as an experiment for them, a platform for them to learn how to invest and their methodology of investing in several ideas simultaneously seemed to work. They have since then funded two cohorts of start-ups in a year — funding various sectors with most of them being soft or hard technology.
The Model
Y Combinator’s payoff line is simple but profound: build something people love! This certainly informs their choice of projects to fund each year, and their methodology inspires building fast — once selected from online applications, the short list is invited down for an interview (with reimbursement of some of the travel expenses) and they pitch the idea and get feedback that same day — yay or nay and details on how much Y Combinator requires as shareholding which averages about 7 percent. Selected companies are required to move to the Bay Area where Y Combinator is based, get help to incorporate if not already registered, are given the funds and have to find themselves a living and working space. Three months of intense building ensue, with selected businesses meeting up every Tuesday for that period for dinners where various expert speakers on start-up subjects are brought in. They are given access to useful connections as per their sector or idea and alumni are a very active part of such introductions and linkages. At the close of the period, a Demo Day is hosted allowing the candidates to pitch to potential investors. This model has yielded great success to date with notable graduates from the program being Weebly, Dropbox and Airbnb.
The Secret Sauce
In a recent interview, the current YC President Sam Altman indicated the three things that has made their model work:
1) A lot of the best entrepreneurs in the world want to join Y Combinator. This is a reputation they have built over time and thus would be entrepreneurs work very hard to make the grade because once you are in — your ability to succeed practically multiplies!
2) Their network is very strong. The alumni, other YC companies, are expected to help other YC companies however they can.
The YC community, even more than the YC brand, is their most valuable asset. A lot of things happen at YC conferences and on their alumni forum that really help the companies they fund.
3) They usually (but certainly not always!) give good advice. This can be surprisingly hard to get for start-up founders.
The team at YC spend time advising their start-ups and guiding them and they probably have, after ten years, perfected that art.
I would also add that the YC recently announced fellowship program aimed at creating a pipeline of the best ideas — aiding those with mere ideas to focus on establishing them before applying for a proper YC cohort.
It’s in the test phase, by their own admission, and they may not do it again or they may — but such an investment is clear proof of commitment to making innovation happen.
Learning points for Zimbabwe
While I am a stickler for context, I believe there are a lot of practical takeaways and opportunity to easily replicate the Y Combinator model in speeding up innovation in our own country.
Here are my observations
Innovation needs investment. Some of the best ideas just need a chance. Often they cannot be unpacked or pursued fully due to economic and bread and butter constraints. We need funding that is so inclined to cover the cost of getting a great innovation registered and two or three founders given enough money to focus entirely on building and validating the idea in a short time. If they are successful, the impact and jobs created will be well worth it. Some of the best youth I have trained and incubated who have done well have done so because they literally focus on only that start-up and it grows such that they practically live on it and are self-employed then later employ others. I am of the view that in Zimbabwe the living costs of such founders over a similar period will be so much lower and they can easily find a desk at one of the several co-working spaces we now have in Harare (and hope they will soon be available in other cities too).
Founders must be open to partnership. Very rarely can one scale a start-up all by themselves. We need to learn to work with other minds and share the burden as well as have access to ideas. Finding a co-founder is not easy in terms of the fit and level of motivation, but even after championing the cause, one will need another person to focus on the aspects they are not great at. Once a framework has been set, it is feasible. Family, a spouse, a good friend or former schoolmate/workmate can be a start. I have seen two brothers do very well in running an engineering and manufacturing company together, as have a couple in the fashion industry who are our friends; and two classmates who have built an e-commerce site together. One can chase a thousand, but two can put ten thousand to flight!
Investors must be not be greedy or interfere. Very often angel investment can be found but the strings attached deter many from accepting it. The idea is to achieve a win-win situation, where the one with the purse gets good value, but acknowledges that the real work is done by the founders who get their hands dirty. Put in the cash and hands-off: allow them to build. It is quite impressive that the YC team invest more in picking the right project and people then let them be — that is the greatest due diligence. Frankly, up to 10 percent sounds great as shareholding in what will be a huge cake when launched. This means that investors don’t need to put in huge amounts but just enough to build reasonable traction, and such innovation funds can fairly easily be put together by Zimbabweans living in countries where access to finance is easier at low rates. Obviously, this will be underpinned by honesty from both sides in terms of the costs and growth in revenues as the company progresses.
Start-up founders need linkages. You may build an awesome product, but the critical thing is getting it to market. Connections will help to find users, off-takers and mutually beneficial partnerships. Advice from other start-up owners in the same environment is a powerful thing, and they can give introductions to important and supportive people to enable one to build their start-ups ecosystem. A lot of entrepreneurial energy is released in being part of a community of other founders. We are endeavouring to do the same in our program and are glad that in Zimbabwe we can still find folks that are willing to help someone move to the next level in enterprise.
What can we do?
The idea of YC has often been described as so simple yet functional, it’s a wonder more countries don’t replicate it as is.
My opinion is there is much scope in an economy like ours to invest in similar models that select the best ideas, fund the founders at idea stage over a short intense time with the key determinant being full time building coupled with the relevant advice on the go.
Put them up in some accommodation. Find them desks at local co-working spaces.
Ensure they have all the ducks lined up in a row by ongoing advisory services on the business and technical ends.
All of the resources we require to do that are already available, they just need to be accordingly structured. In fact, we may just pivot to pursuing that format in the near future and partners are welcome.
Care to join the innovation and entrepreneurship bandwagon? Zimbabwe needs dedicated full time innovators to drive economic development, and the innovators need our support.
Kudzai M Mubaiwa is an economic development professional and managing consultant of InvestorSaint (Pvt) Ltd, a financial education company. She is also a certified incubator manager and co-founder of iZone. She can be reached via email on investorsaint.co.zw or Twitter handle @kumub