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


#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%


#21

We are looking to fund teams with 2-4 founders with at least one technical founder who is responsible for building the tech i.e. not outsourced

However a non-technical founding team that has hired a developer full time also counts.


#22

Hey Yele…
what basic assumptions are you making about the African market that significantly influence your investment theses. And what are the variables (micro / macro) that will likely change those assumptions?


#23

I go into detail in my blog post when we launched Microtraction.

But my belief is that more venture backable startups at seed stage will lead to more growth venture funds being formed and that’s our principle role at Microtraction.

Not a fan of the term “unicorns” and it’s obsession but I 100% believe we’ll get multiple unicorns with time.

The focus right now is to seed sustainable high-growth potential startups in very large fast growing markets


#24

Hi Nubi,

  1. There are lots of people with “ideas” than there are “technical founders”, we decided to go with this initial focus because it’s a fundamental belief of ours that’s it’s really hard & costly to build a tech company without a tech founder – also my personal experience as a non-technical single founder vs when I was technical with a technical CTO/founder was mind blowingly different, we were able to ship an app from idea to app store in under a week compared me spending 16 months to recruit/outsource development

  2. We have Andela & Andela DLC, Switch, ForLoop, DevCenter, Ocean Digits, “Forward thinking” Universities and many more creating this pool of talent – we don’t think we are there yet but there’s definitely positive momentum. Special TUALE to the Developer Evangelists across the continent

  3. We are definitely thinking about it, our guiding philosophy is to “Stand on the shoulders of giants but build from first principles” – We want to teach people how to code from their mobile phones at their own convenience, for free whilst having access to mentors/community". Would be great if a startup set out to solve this problem as we’ll definitely be interested in funding a company like this.

Bonus Answer – we want to fund Africa focused or based founders so the answer is yes !


#25

I don’t have a lot of assumptions but we have key beliefs

  • Founders can validate that their startup is venture backable on $15-50k
  • Founding teams with technical founders will be more capital efficient than non-technical teams
  • $100m annual revenue companies will be built by African founders within 10 years

The first bullet point is what MUST be validated in the short term and our success metric is our portfolio companies raising $500k within 18 months of our investments. It’s ambitious but if we aim for the sun and land on the moon it’s not a bad effort.


#26

Yele, hi.

A few questions:

  1. What’s one thing you wish more people work on but not seeing from your application pool?

  2. If you were to build a company today, not Microtraction of course, what problem will you be solving? Put differently, top idea on your mind.
    (I guess that’s variant of question 1)

  3. How tall are you?
    (It’s AMA)


#27

1. What’s one thing you wish more people work on but not seeing from your application pool?

Would like to see more Agricultural companies, Agriculture is a significant % of our GDP and it’s a really big market with problems that are not being solved. SaaS & BPO companies are another favourite of mine, I believe we can build global SaaS & BPO companies from Africa that will have significant revenue potential. In a future post I will be sharing insights into opportunities that founders should look into exploring.

2. If you were to build a company today, not Microtraction of course, what problem will you be solving? Put differently, top idea on your mind.

I’ll would work on a crypto-hedge fund (or what I call a spec fund) – super risky & speculative stuff but it’s on the edge of technology so it’s interesting & combines my original interest in investments with the benefits of having a higher IRR potential than venture investment. I’m also interested in battery packs like Tesla’s powerwall as an alternative to electric grid, having seen the rapid increase in innovation within the space in the last 5 years. Non-tech I would focus on Agriculture or Manufacturing sectors.

3. How tall are you?

Haha! You are right I’m 6 ft 6

Bonus: I play football rather than basketball and captained my university’s football team


#28

Okay that’s it for me.

Thanks for coming and asking really great questions. If you are starting a company, I’ll love to hear from you.

Apply here to get funded by Microtraction.

If you have more questions, I’ll be available via email yele@microtraction.com and on twitter @yelebademosi

Have a blessed day.

YB


#29

Great stuff Yele.

The session gave useful insights into your approach and ideology. Lot of takeaways, key for me though is looking forward to the first $100 million revenue startup.

Big ups to the Cabal team for the amazing AMA sessions.

#Let’sMakeSomethingEpic.


#30

I read your blog post before I asked the question. I understand the popular “increase the size of the funnel” investment theory and I think it works well when there’s a growing middle class that can support growth in late stage companies. The “growing middle class” exception applies to rent-seeking business models such as Gtbank’s 737, etc, but alas those models are rare.

I believe your goal is to provide deal flow to venture and growth stage investors. It makes a lot of sense and we need more companies such as yours, and I am very optimistic that you will succeed.

Nonetheless, the Interswitch IPO failure is still instructive because unless the root causes are understood and fixed, big signature exits that lift all boats by attracting more capital flows will always be mirage. Perhaps we need to re-examine the notion that African tech startups need to look inward and focus mainly on local markets.

I’m curious to know your views.


#31

Hello Yele, In what categories do you seek to fund? Virtual Reality, Blockchain, Artificial Intelligence, Cybersecurity…e.t.c Secondly must a company generate revenue before you invest? thirdly what are the qualities you seek in a founder you hope to invest in? And finally must a founder have a co-founder before you invest?


#32

Great stuff @yelebademosi. It’s a good move you are giving agric a lot of focus in your fund.


#33

Hi Yele.

Appears I’m too late. Nonetheless I have two questions:

  • What’s your order of priority for the following - idea, people, company?

  • Would you invest in founders who are executing project part-time?

Thanks.


#34

Might sound bullish but have no doubts there will be liquidity events in the future, however I don’t place too much focus on the exits at the moment because that’s like putting the cart before the horse.

I believe if we build great enduring businesses that generate significant revenue, exits will come.

I do have theories on how we can get more liquidity events as an ecosystem, you rightly pointed out that there are opportunities/problems that local startups can solve on the global stage where we have comparative advantages an example is what I call “Globalization of SaaS” i.e. doing what the Chinese & Japanese did to American Manufacturing & Automobile industry but for SaaS products. Another industry where we have comparative advantages is in BPO industry which is really huge in SE Asia


#35
  1. We are sector agnostic
  2. You stand a better chance of being funded if you are already generating revenue even if it’s < $500 p/m
  3. We prefer teams to single founders