I’m Yele Bademosi, Founder & Managing Partner of Microtraction, ASK ME ANYTHING!


#1

Hi Everyone, I’m Yele Bademosi, Founder of Microtraction.

Super excited to be here!

Microtraction funds Africa’s most remarkable teams with technical founders at the earliest stages of their venture and helps them build enduring companies.

Microtraction is backed and advised by top local and global investors including Pave Investments, Chris Shultz, Michael Seibel, Monique Woodward, Lexi Novitske, Dotun Olowoporoku & Dan Marom, collectively they have invested & advised startups like Airbnb, Paystack, Tizeti, Flutterwave, Printivo, Cruise, Walker & Company, mPharma and many more.

Our mission is to accelerate Africa’s economic growth by enabling innovation and supporting technology entrepreneurs. Our principal role is to increase the number of venture bankable startups across the continent, creating the market for venture and growth stage capital to follow on and ultimately bridging the pre-seed funding gap that currently exists

I wrote about why we started Microtraction on medium which you can read by clicking here.

Since we launched last month we’ve received close to 150 applications and hopefully should be making our first set of investments next month.

I’m super excited because I believe we got the timing right — the quality & ambition of some of the founding teams we’ve gotten so far have been inspiring and I can’t wait to be of service to the entrepreneurs that chose to partner with us.

Ask Me Anything!

AMA runs from 2 - 3:30pm!


#2

#3

What is one thing that you believe to be true, but most people disagree with?


#4

Hey Yele, a quick one: What has changed about Microtraction (objectives, target startups, etc), if any, from the point of conception, through launch, to this moment? And how much has a firsthand experience of proceedings influenced these decisions?


#5

Which startups have impressed you the most since coming to Nigeria?


#6

You have received 150 applications so far, what are the common threads/ similarities you have noticed as far as Nigerian founders are concerned? Based on these, what would be your general advice?


#7

Hi, Yele

Congrats on launching your fund and thanks for doing this AMA.

What’s the investment philosophy of microtraction. I know you’re looking for technical founders, anything else?

What’s the logic behind the fixed terms. Are you willing to hand out more money or take a lower stake?


#8

what’s the most interesting pitch you have received since you launched Microtraction


#9

And another one:

How much equity do you take when you invest in a company


#10

When you say you fund startups with technical founder, you mean you fund only startups that has technical founders OR you mean you provide startups with a technical cofounder in exchange for equity? Sorry my English has failed me here.


#11

The Interswitch IPO was suspended ostensibly due to FX shortages. It is arguable that it was essentially a vote of no confidence in our macroeconomic growth rate, which raises a few questions including:

  1. Do you see a similar lack of investor appetite in late stage African xyz-tech tech deals?
  2. Do you have any evidence that the elusive African unicorn will ever reveal itself? When and in which sector is it most likely?

Cheers.


#12

Hi @yelebademosi – Thanks for taking the time to do this.

Was just curious about these:

1 – "why"did you decide to go after technical founders

2 – has the local ecosystem gotten to a point where there are enough technical founders to make a dent

3 – will you (Microtraction) be doing anything to increase this capacity

Bonus – Will Microtraction invest in a team where the technical co-founder is foreign and the business co-founder Nigerian/African?


#13

The infamous Peter Thiel question — the problem with most answers to this question is that people try to think of response for the sake of it whilst missing the true point of the exercise.

I believe the question is aimed at identifying a “secret” about any specific mental model that you can take advantage of because most people don’t know about it yet.

In the context of startups & founders, I believe the most successful startups do not create markets - rather they find innovative ways to serve that market thereby redistributing how value is captured in the favour of their own ventures.

This is our principle belief at Microtraction - We have a market first approach i.e. we focus on the size of the market, the dynamics of the market, the nature of the competition and the timing of market exploitation i.e. why now.

It’s impossible to build a $100m revenue startup at scale in a market that’s worth less than a billion dollars, unless the markets is growing really fast.

Uber didn’t create the “public transportation” market neither did Airbnb create the “travel accommodation” market

In summary most successful startups do not create markets but exploit existing markets early and usually address non-consumption.


#14

Our objective hasn’t changed — we want to be the first gear for ambitious founders.

However the biggest thing that has changed so far is our application form, we initially started out with more open-ended questions but now the majority of our questions are multi-choice — we realised that it took founders a long time to fill the form and on our end founders weren’t answering questions succinctly and usually had clarify with follow-up questions after reading the form.

With multi-choice it’s easier and faster for founders to fill the application and we also get a better sense of who the founders are, what they are working on and where they are at currently on our end.

We are constantly iterating our processes and we believe we’ll be able to achieve our goal of being a hassle-free funding option for pre-traction startups.


#15

There are loads of startups but if I could single out one it would be Paystack — I first told Shola about Microtraction in November 2016, at this point it was just an idea and we didn’t have a name yet - and he gave me a lot of good advice. I knew we were on the right path when he said he would have applied to Microtraction when Paystack was just getting off the ground.

Shola & Ezra are good examples of founders that we want to fund. They are both technical, known each other professionally and socially for years and have worked on projects/startups in the past so learnt from their previous experiences.

Paystack solves a top 3 problem (getting paid) for their target customers (businesses) in a big and fast growing addressable market (Online Payments). At Microtraction we love single use-case lovable products with great design and we think Paystack excels at this.

Another thing I like about Paystack that I hope to emulate is their openness about sharing metrics & teaching the community with their blog. I believe it’s important as an ecosystem to foster the ideology of paying it forward and enabling the ecosystem as a whole.

A MASSIVE mention will also be Hotels.ng due to what they are doing with their internship program, they have had almost 1,600+ people join who are hungry to learn technical skills and it’s definitely something I think about a lot — how do we scalable teach people across Africa to code/design/market despite the infrastructural challenges we face as the folks at Andela say “talent is evenly distributed but opportunity is not”.


#16

Ecommerce is definitely not as popular as it was a couple years ago — I also thought FinTech would be really popular but our most popular categories are consumer & marketplace companies.

Consumer startups are really hard and they are all about retention & growth. The mistake a lot of founders make when building consumer startups is they build way too much “product” in the beginning, you should build the simplest but complete and lovable version of your product and launch fast so you can get real world feedback on what you are building, focusing on engagement & retention in the early stages. Engagement meaning “are users doing the behavior you designed for at the intended frequency e.g. two photos uploaded per week” and retention being “are your users active after 7 days / 30 days after they signed up”

For marketplaces, the key thing is how do you overcome your chicken and egg problem. My general advice is to focus on one niche within the market e.g. If you are building an artisan service marketplace focus on Plumbers or Electricians and ideally in one location e.g. Yaba or V.I and expand from there. You should always onboard the side of the marketplace that is easiest usually it’s supply side but during your “idea validation” phase, think through how you are going to get your customers doesn’t matter if it’s not scalable initially.


#17

Hi Derin,

Thanks for the kind words and super happy to be here.

We are Market first i.e. we are looking for large fast growing markets ($1B+) that we think can be exploited & scaled with technology

Founding teams without a technical founder are a deal breaker for us. It’s very hard to get your product right in it’s first iteration and our initial investment is to give founders enough runway (6+ months) to 100% focus on their business - outsourcing development will be a big drain on the limited capital resources that an early stage team has at this point.

We want founders that have known each other for a while and worked together professionally for a least 6 months — Would I also be excited to join this company if I was looking to join this startup in Dec 2015. Another thing I look out for is if I am learning something new during the conversation and I actually do due diligence on the idea, market by asking the founders questions about their assumptions. We are also looking for “edge” i.e. Why is this team better suited to solve this problem than anybody else in the market

For Problems, we are looking for painkillers not vitamins i.e. is this a problem top 3 problem for customers in their target market and can you capture the value you create by solving this problem — this typically means that you have a clear revenue model because customers are going to pay you for the solution.

We also like to think about distribution, how do the founders currently acquire users and plan to acquire users. Most founders make distribution an afterthought but we know that a good enough product with killer distribution will beat an amazing product with no/poor distribution. There are loads of great products on the internet that we’ve never heard of because the founders weren’t able to figure out distribution.

Since we are looking at Pre-traction startups, here’s how we qualitatively access startups

  • Are we impressed with the amount of work they have done since starting?
  • Have they built an MVP and if so how long did it take?
  • Are they moving faster than their competitors?
  • If they don’t get into Microtraction - will they continue working on this company?
  • Are they dependent on investment to move forward

#18

We are trying to be as efficient as possible to make the process hassle-free for founders. We didn’t choose our deal terms by guessing and I’ll try to explain how we decided on what to offer.

$15k @ N365 is N5,475,000 - if the founders living costs come to N150k per founder per month that’s a total of N450,000 if it’s a team of 3 (average team size is about 2.7). Assuming they spend another 200k on other expenses per month that comes to about 8+ months of runway. We believe a capital efficient team can make this amount last a lot longer than say $120k if you were a silicon valley based startup.

At the stage we invest, we expect a high percentage of startups to die and we also expect more dilution than investors in the US. Think Sam Altman of YC said that they don’t get diluted by more than 50% even at post $1Bn valuation. If the dilution factor for a startup in the US was 100 base points in Africa it will be 250 base points at least until Series A.

However we are open to being flexible e.g. $7.5k for 3.75% — we are stubborn about our vision but flexible on our strategy to fund the best founders.


Just raised seed capital ...how much should be executive team salary
#19

We’ve seen a lot interesting companies ranging from Hardware to Blockchain, AI, Fintech, Infrastructure and Agriculture.

Can’t publicly disclose our most interesting pitches though :yum:


#20

We currently take 7.5%