On Friday last week, Chika Nwobi spent an hour with startups at the CC-Hub in Lagos to answer questions about the 440 fund and accelerator program. He also gave some insight into what 440 looks for in an startup when reading through applications.
This is a transcription of the Q&A, Q= questions from entrepreneurs at the event A= Answers by Chika Nwobi or another 440 person onsite K= some extra thoughts from Kresten Buch added later.
Q: Why is Don Jazzy a mentor?
A: Although he is well known in the entertainment industry, he is also a very successful business man with a world of experience. He has insight into what it takes to run a successful business and will be a great support system for our startups. A blog post with more details [about that] will be released soon.
K: We try to gather as diverse a group of mentors as possible, so that if we have a startup looking at a particular industry, like music or radio, we have someone on hand to mentor them, also a wealth of backgrounds and perspectives is really important for a dynamic and interesting accelerator program.
Q: What happens if you already have something you’re working on and also have a place you’re working out of but want to take part in the accelerator program?
A: If I understand your question, you’d like to know how the program reconciles with your present schedule. Well, the accelerator program is not meant to make you to leave what you’re doing and start out with something else. You’re meant to apply with the startup you’re already working on and if you get accepted into the program, that [would be] the same thing you will keep working on. As regards office space, you’ll be working out of our office space during the 3-month program and subsequently can return to your previous schedule.
Q: For people who already have spaces they work out of, would it be possible to continue [to do so] and still be a part of the program?
A: The reason for asking the startups to come work out that space for these three months is we believe we can provide some resources to all of them directly. If any of them have questions or challenges, they can just walk up to myself or Kresten and ask. Also, if we have some other impromptu opportunities or something it’s a little difficult to provide startups outside the space with the same kind of resources basically. That’s why we insist on them being with us for those three months. Something else I’d like to mention here is what we have planned for people who believe they have advanced startups. For such companies who already have staff and an office, we might be able to structure something different for them such that maybe they only have to come in once or twice a week and also for important events or meetings.
K: Investors invest in people, if we are to recommend you to bigger investors after the program, we need to know who you are and how you deal with challenges. Being at the office as much as possible ensures that we can do this. The same if we are to recommend you to clients, or potential next hires. One of the main benefits of these programs also seems to be around the peer-to-peer interaction, the spontaneous comments, and unplanned drop-ins by key people, which you obviously don’t get to experience if you are not there.
Q: I know that 440 NG is a JV between L5lab & 88mph. What is the benefit here for both parties? What do you stand to gain?
A: Well yes, 440 is a JV between L5lab & 88mph and what we’re hoping to do through 440 is build successful companies and make some ROI. So out of about 10 startups we take in, we’re working towards having maybe 3 or 4 or even 5 very successful companies that become billion-Naira businesses over say 5 or more years.
K: Being good at investing in startups, and helping them grow into companies, is dependant on the network and experience of the people running the show. Having the best team running the fund and program, results in more and better entrepreneurs seeing the benefits of having us as investors. Attracting good entrepreneurs is vital for our success as a fund, and the added value we bring as a JV also increases the chances of success for the entrepreneurs who we invest in. Its good for everyone.
Q: What does 440 have in store for startups that are beyond seed stage? Are there any extra benefits or concessions for advanced startups?
A: That’s a very good question! *All laugh*. For startups that believe they’ve advanced beyond seed funding stage, meaning that they don’t really need the money but they feel that achieving their goals can be greatly expedited by working with us, we also encourage them to apply. In cases where they already have staff and working out of our space poses a challenge, we can allow for them to maybe come in once or twice a week for general updates and also for events. So basically there are three things that we can offer them. The first is access into industries or corporate sectors which would have been otherwise very difficult to penetrate. The second is direct support from me, Kresten and other mentors. Thirdly, although there are exceptions, raising rounds of investments in the millions of USD is rare and can be very difficult to do in this ecosystem. So for advanced startups which need this kind of money, working with us and receiving our own investment increases their credibility and chances of getting other series of investment. This is because those investors will see that I have put in my own money into this business and would be more willing to also put in their money.
Q: So I’m wondering, what are the odds for someone who only has an idea or an MVP (Minimum Viable Product)? Do I stand a chance of getting in?
A: Yes you do. When we consider startups that apply we’re looking for people both the people who already have business and those who only have an idea. Those who have businesses might seem to have an edge over those who don’t, but much more we strongly consider the team. If it’s a strong team, even if they don’t have a very good business of idea they could still get in. For instance when I invested in jobberman, Deji and the guys didn’t have any business acumen per se, but what I looked at was some of their previous achievements. Deji had been a TED fellow and had done an internship at Goldman Sachs. The other guys too had very strong profiles so for me even if it wasn’t jobberman – which in itself is not a very novel idea, I still would have invested in whatever they wanted to do because of the team.
K: If the team is not so strong, but you have a simple product in the market, its an interesting market, you’ve managed to get people using it, and learned something from your customers, then we would consider it. Experience shows that it will be really hard to make the most of the 3 months in the program if you don’t have a great team, or have many years experience in the industry you are trying to disrupt, or a simple product out there that has had some contact with the market.
Q: What kind of startups does 440 invest in?
A: We have a focus on investing in tech startups which is basically defined as a business that leverages technology to scale. Scaling here has to do with growing reach and impact.
Q: So I’m curious to know, given the 440 JV between L5Lab & 88mph does this mean that L5Lab ceases to exist? What happens now?
A: Okay, L5Lab was founded in 2009 and since then we’ve invested in several businesses and built some others. Personally, I completely hate failure. I like to win every time and the best way to do that is to minimize risk. When we started with seed investments back then, it wasn’t so popular like it is now and I wasn’t even too sure how it should work and all. There are two models we’ve working with at L5Lab so far: First we invest in businesses that run independent of L5Lab such as jobberman. In such cases, the business is a separate entity from L5Lab but will benefit from my direct influence and support. Secondly, we also build businesses from scratch in-house. An example is cheki which my late partner and I did in Nigeria. So after several years investing in businesses and building some, I realized that it wasn’t possible to scale because it’s just me in the picture and I needed to be able invest in multiple businesses simultaneously. Since I hate failing, I began to do some research on how to reduce the risk as much as possible. Then I found out 88mph had already successfully done something similar in Cape Town and Nairobi. I reached out and also learnt that they also had been considering coming into the Nigerian market. So with 440 here, I (as in L5Lab) would no longer be investing in external startups outside 440, but we’ll continue building companies from scratch in-house.
Q: If you were to pick one out of a number of startups that have similar profiles and ROI potential, what would be the one thing that would distinguish the one you choose?
A: Well it all depends really on a number of things, but one thing I’m big on is the team. Even if the product or idea they’re working on doesn’t really make sense, I’ll pick the one with the best team. The reason is, that I have a thousand and one billion-Naira ideas which I could then share with them and [they could] execute.
Q: What is the highest valuation you’ve ever given a startup and what were the three reasons for that valuation?
A: As regards highest valuation, I honestly don’t recall the figures right now. I remember Cheki.ng had a pretty high valuation, but I don’t really recall right now. Anyways, it’s pretty subjective because there are no hard and fast rules, per se. For instance when Sim first raised investment for konga.com, he got pretty high valuations even though it was his first round. So it just depends, the team is a really strong factor though because Sim had already done dealdey.com and e-motion and bunch of other stuff with Google, so he was in a strong position when raising funds. I hope that sorta answers your question.
Q: Generally speaking what is the basis for valuation for a business as in what are the key indicators that determine if a business would be valued highly of not?
A: Like I said it depends on the amount of work I’d personally have to do with regard to if the team is strong enough. So when we did valuations for cheki.com.ng, valuations were pretty high because I was the one involved, and Carey couldn’t really squeeze on the numbers. Once I told [him] this was it, he basically agreed. Again it’s about the team. If I see that what you want to do cannot be done by either of us, then we’d most likely dump the idea and look for something else.
Q: I noticed Google for Entrepreneurs is also a partner with the program. What is their relevance or input here?
A: Google for Entrepreneurs already had some partnership with 88mph so I guess it just came together and it wasn’t a problem so, why not.
K: Running these programs and especially the hubs has a lot of cost up front, Google help by sponsoring some of that cost. Beyond that they are constantly trying to understand what startups across Africa need to be better at building companies, in terms of the Google business and developer tools. So they speak to the startups during the program, and also help the startups after the program if they have challenges relating to Google Cloud, different tools, APIs, and such.
Q: You keep mentioning billion-Dollar businesses and at this rate I’m wondering what the odds are for being selected for this program.
A: First of all, what I said is billion-Naira businesses and even so it’s going to be after several years. [What] I mean is businesses that have the ability to generate revenue in the billions of Naira after several years if we can get the execution right.
Q: First of all Chika’s first business, MTech, currently has a valuation of over $30 million USD which is over 4 Billion Naira so it’s very possible to build such business in Nigeria. (Applause). That said my question is why is there so much emphasis on just tech startups? There are several other industries where businesses can be built to billion-Naira levels so how comes there is so much focus on just tech startups?
A: Nigeria is a country that’s kind of… messed up right now and in other industries, starting up companies involves things like power, transportation and basic infrastructure not currently available. There are also challenges around bureaucracy, corruption and political stability. Tech however allows us to abstract ourselves from almost all these issues and focus on building great products. Also, because of its very nature it’s much easier to scale and reach a larger number of people quickly than through traditional methods. So the idea is to build several of these highly successful businesses and show to people in other industries as an inspiration to do more in Nigeria and Africa.
K: Firstly, the last 20 years I’ve spent building online businesses. And as far as I know, so has Chika. That means that we can actually add substantial value beyond the cash here, relative to other industries. Secondly, one of the great things about mobile or online businesses, is their relative speed to market, and the low cost of building and launching a first version. So these businesses generally work best for the accelerator model.
Q: I understand that 440 NG is focused on investing in tech startups, but to what extent does the startup have to be dependent on technology? For example, Jobberman was initially built on open source software. So what’s the definition of tech startups here?
A: When we say tech startups it doesn’t necessarily mean they must be like technology providers or something. The focus here is basically on whether the business leverages technology to scale. Jobberman as you said was initially built on open source software but unlike when they just started with about 10,000 users, leveraging technology has enabled them to scale within a few years to over 500,000 users. So the point is, the startup doesn’t have to be a technology business per se but it has to be able to leverage technology to scale via mobile and web.
Q: What I’d like to know is what the odds are for someone who only has an idea that he’s sure will be successful but doesn’t necessarily have a product yet. Is it possible for the person to get into the program and build the product?
A: If you have an idea you strongly believe would be successful, the best way to determine that is to test it. But yes, it’s possible to get in and build the product during the program.
K: After 36 investments one thing we’ve seen, is that for every “rule” we have – like only teams, no solo founders, or only teams with tech founders, only MVPs, no idea stage startups etc… – there is some entrepreneur who will challenge it, and make us rethink the rule.
A big thank you to CCHub for hosting us and this event.