It isn’t alien to the ecosystem that one of the very obvious problems most early stage start-ups face is funding. In fact, it is a major cause of the death of these start-ups. According to this article, Africa has experienced a rampant rise of inventions and startups that have gone a long way from the minds of inventors to disrupting the Sub Saharan ecosystem solving very many problems that have been a setback to the growth of the continent for ages. Well, with such growth rate, it is only normal for investors to up their games too but I would say they haven’t done that much. Though, some like Jack MA, CEO Alibaba have come up, Outlierz, iHub and Jason Njoku’s Spark are investment vehicles in the African tech startup scene. Today, our focus is on a new one (well, not so new). Microtraction is a company founded and currently managed by Yele Bademosi. They invest in early stage start-ups with technical founders. The impact of this on beneficial start-ups cannot be overemphasized. In a chat with TechMoran, Yele reveals a lot into what Microtraction has been doing so far, how much work they have done, how impressed they have been with the applications received, what they look out for before investing in a startup and more. But wait… Are you a founder of a startup? You can apply for funding from Microtraction here.
Microtraction launched to invest in early stage start-ups. Why is there a special bias towards “early stage”?
I’m not sure we have a “bias” towards early stage, it’s just where we have chosen to place our initial focus because that’s where we feel the greatest need is. It’s still not easy for founders to raise angel funding, there are obvious caveats but a quick AngelList search of Angels based in the U.S will show 12,000+ angels compared to 112 in Africa. There’s been a lot of improvement in this area in the last couple of years but we are trying to figure out how to direct more risk capital into the earliest stage of venture investing on the continent and get 1,000 companies funded a year. We spend a lot of time thinking about how to make it super easy for two or three individuals to raise funds needed to further validate their business and hopefully raise a venture round later.
Still on special bias, why are technical founders more favoured than others?
From my personal experience I know the importance of having someone technical on your team. I’ve started companies in the past, as a non-technical single founder and later as technical founder whilst also having a technical co-founder. The biggest lesson here is the first version of your product will almost always not have the adoption you think it will have when you finally launch, so it’s super important to be able to make changes to your product as quickly, cheaply and efficiently as possible when you start getting feedback from your customers. Having to outsource your technology really slows you down and is a lot more costly.
Since launch, how much of applications have been pouring in? Have you been impressed so far?
We have multiple strategies to create deal flow not just via applications, till date we’ve reviewed over 400 companies and shortlisted about 40 of them, just slightly over 10%. For most companies it’s a “not yet”, so we look for ways to help them, often it’s via office hours or strategic intros and with the view to invest in those companies at a later date. We hold our next investment committee every 8 weeks so there’s always another opportunity to invest in a company even if we say no this time. Overall I’ve been impressed by some of the companies we’ve seen, we initially set out to do 3-4 companies this month but we’ll end up with about 9 companies subject to due diligence, that says something about the quality of companies we’ve seen so far.
Do you have a sector that you focus on more than others? Which is that?
We are sector agnostic, however we are excited about really big and fast growing markets with hard valuable problems that can be solved with technology.
How do you determine if a startup is worth funding? What exactly do you look out for?
We look for a combination of things, at this stage it’s more art than science. We are looking at the size of the market the company is operating in, ideally it should be bigger than $1Bn and the company should have the potential to generate $100m+ in annual revenue at scale. We are also looking at the problem significance i.e. how much of a pain is this problem to the customer, is the product a painkiller or vitamin. We love remarkable founders who show a combination of determination, persistence and adaptability, it’s a plus if the founders have personally experienced the problem before or have domain expertise in the area. We don’t care about traction at this stage but we want the product to be in market and for the founders to have some users with proof that they are making something people want i.e. users are paying them money for said product. Finally we love it if the founders care about design — unfortunately great design hasn’t proliferated yet in the ecosystem so a startup that has great design almost always stands out from the rest.
What are your short and long term goals? How many start-ups target have you set?
Short term goals over the next 12 months is to invest in startups and successfully get them to the point where they are able to raise follow on funding. A key metric for us is the percentage of startups that raise follow on funding after us. My long term goal is for Microtraction to become the best platform for African technology entrepreneurs to operate and scale fast.
What do you think African startup founders are getting all wrong?
Not all startups are venture backable, it’s not enough to build a website and call it a startup, Venture Capitalists are looking to back high potential businesses. The first thing is to have an understanding of what makes business venture backable — find HARD, VALUABLE problems in MASSIVE GROWING markets and build solutions that customers in those markets want.
Tell us about the team behind Microtraction.
Microtraction is backed and advised by top local and global investors including Pave Investments (investors in Flutterwave, Paystack, Tizeti amongst others), Chris Schultz (Founder, Launch Pad), Michael Seibel (CEO/Partner Y Combinator), Monique Woodard (Venture Partner, 500 Startups), Lexi Novitske, CFA (Principal Investment Office, Singularity Investments), Dotun Olowoporoku (Managing Partner, Starta) and Dan Marom (Managing Partner, Irrational Innovations).
Asides funding, which Microtraction is tackling, what do you think is the greatest challenge African startup founders face?
I think Talent & Advice; but there are lots of people working on the talent gap and I believe their results will be compounding & exponential over the next 3-5 years. With Advice we need a combination of more founders / operators working in venture backed startups across the continent and them sharing their insights/lessons from building those startups, we are working on this with something called Opentraction, which we should hopefully be launching soon.
Do share a piece of advice for young and upcoming startup founders in Africa.
Don’t start a startup just because it’s the cool thing to do and everyone is doing it. Definitely don’t start one because it’s going to make you rich. Start a startup because…
- You can’t imagine doing anything else 2. You are deeply passionate about solving a problem 3. You believe you can create the best solution for it The most important thing when starting out in technology in my humble opinion are the people you start a company with, so find people who compliment your skill set, start projects with them just for fun and build real, strong, authentic relations with those people because that’s how you find awesome co-founders. You can’t build a remarkable and enduring company with mediocre people.
