“The very idea of VC money is at odds with the success of the founder.” Interview with Founder Institute founder Adeo Ressi.
The Founder Institute prides itself on being the “largest startup accelerator in the world”. Since it was founded three years ago by serial entrepreneur Adeo Ressi, it has helped 670 startups launch around the world. This fall, the Founder Institute will increase its footprint in Europe, with new chapters opening in Zagreb, Helsinki, Istanbul, Rome, and Kyiv.
Whiteboard met with Founder Institute founder Adeo Ressi, who is on a tour in Europe to meet with the founders and chapters. He talks about his goal of launching a thousand companies each year, about “graveyard ideas” and the horrors of raising money. “Anyone who thinks raising money is cool obviously never tried it. It’s terrible, it’s brutal, and it can kill your business.”
But first things first: why the increased interest in Europe as a hotbed of entrepreneurial activity?
Adeo Ressi: “We’re expanding in Europe for 2 good reasons: one, there are a lot of fantastic entrepreneurs in Europe that we can help. Two: there are also lots of Europeans who are interested in opening chapters.
In fact, I think we currently have more chapters in Europe than in the US. Of course, you can’t compare the two, as the US is a much more homogenous market. But if you look at Europe as an entity, there’s a lot happening. Even in the so called troubled countries like Spain and Portugal. We get phenomenal turnouts there. And we just opened chapters in Turkey, Helsinki, Croatia, Rome. Here in Belgium we launched 25 startups in a year and a half, we’re now starting our third semester.”
Do Europeans start different types of companies than Americans, or Asians?
Adeo Ressi: “No. You get the usual blend of B2B, B2C, with some hardware here and there. Actually, the largest number of hardware startups I ever saw was in Croatia where I just come from. There was a submarine startup! Another one was woking on a ticketing service that relied on special hardware, and still another was starting a machine imaging company.
That’s not very common, to see four or five out of twenty who are in hardware. But as a rule, you know, you’re not going to see much difference between Europe and Asia or South America. Or Africa for that matter, where we’re rolling out chapters too. We’re now in all inhabited continents!”
In internet speak that sounds like it calls for the use of the hashtag #worlddomination?
Adeo Ressi: “(grins) Honestly, it truly is just about helping companies succeed. We’re very good at something that’s very very important.
We are able to help new founders and repeat founders set up businesses in whatever environment, with a much higher chance of success, by avoiding deadly mistakes that are common among non founder institute companies. 90 percent of the companies that we helped get off the ground are still alive. Three quarters of those are doing well. And a little less than half of them got funded, even in very hard funding environments like Belgium, or Vietnam or Colombia.
Our view is: if we can help create a great company, the investors will come. And that theory – for it is only a theory – is proving correct so far.
Before launching the Founder Institute, you were already interested in the startup ecosystem: you launched The Funded, a the infamous ‘TripAdvisor for VC’s.
Adeo Ressi: “Yes, in a way it was a natural next step. When we started the Founder Institute, we had about 16 000 CEO’s who were member at The Funded. So we had a very good view of the global entrepreneurship market, and the numbers were approximately the following:
- 25 000 companies were started each year around the world
- 11 000 failed straight out of the gate; by which I mean that they might get a little business going, but they would fail before anyone ever wrote about them, because one of the founders quit, or something would happen and the team would dissolve.
- 9 000 got anywhere
- 3 000 got decent funding by angels – and then I’m not talking about your parents giving you some FFF money, but a real round, like north of 200k $
- 936 got venture funding, so that’s an even smaller amount
- and only a handful would become something like Mint – have an impact on the world, right?
One in a thousand might have real impact. That was a travesty to me, a problem of giant proportions. If you believe that startups are the economic engine, that they create jobs for society, innovations that make the human condition better, and only one thousand of the people starting a company succeed. That seemed like a a worthy problem to try and solve.
If you want to solve it, and make a dent in that ratio, you have to think BIG, because you’re up against 25 000 companies worldwide. So part of our design has always been: we want to help start a thousand companies every year. I can safely say that we will hit that goal. We barely missed it this year, but in the next twelve months we will almost certainly launch 1000 new companies.
I always say that the Founder Institute mines diamonds, while the others make jewelry. We help founders with the very genesis of their journey, very early on. The vast majority of programs helps existing companies get more traction.
For us, that’s a deliberate choice: the mistakes that kill those thousands of companies happen in the first few months. In fact, I would say that if companies don’t make it through their first two years, you can always bring that back to fatal mistakes that they made very early on, and that just catch up with them.”
What are the most common mistakes that kill companies?
Adeo Ressi: “The composition of the founding team is mistake number one. Sometimes people pair up when they are not well suited to work together. And when the team breaks up, the business dies.
Another common mistake is that people don’t put enough thought into developing their core idea. I saw founders today in my office hours, with people who were already very advanced in setting up a company that relied on income from a specific target segment. But when I asked them: have you asked your potential customers if they would pay, they said no, they hadn’t.
So, wait a minute: you want to charge people but you’ve never spoken to them? Asked if they would pay for that? I understand it, I get it, you think: of COURSE they will pay. But maybe they won’t, and there’s a really easy way to find out: just ask them!
Unfortunately, a lot of founders don’t speak with experienced people. And you need to do that, because of the lack of a record of failure. Those 11 000 businesses that fail right out of the gate: nobody ever writes an article, or a YouTube video, or a website about their demise. Nobody knows what happened, except some people who knew the CEO of that company, or people like me who have been around the block a few times or who saw the CEO speak at some event.
I hear ideas almost every day that I call graveyard ideas, because the founders are standing in the middle of a graveyard: every other company before him or her is DEAD. But they just don’t know it. They’re like: isn’t this a GREAT idea? Yeah. If you want to join the graveyard!
My common piece of advice to these founders is: tell me why a handful of these companies fail and when you can tell me some unique insight of how you will succeed where they failed, sure I’ll believe you can do it.”
Wim De Waele, CEO of the Belgian government funded innovation centre iMinds (Ghent) and also one of the directors of Founder Institute Belgium, said recently that he thought there were too many accelerators altogether.
Adeo Ressi: “Wim is guilty I guess (grins). But creating a startp is the single hardest thing you can do. It takes every fibre of your existence, a hundred percent. If programs like Founder Institute can help you succeed, I think there’s never enough of them. You have to ask the bigger question…”
“…are they working?”
Adeo Ressi: “No, no: could the world benefit from more companies like Facebook, Google, AirBnb and other great innovative ideas? If you believe this, then there’s never too much additional support for founders. From our perspective: if we help a founder launch a company, get into an incubator, get free office space and cash, that’s never bad. Between 10 and 25 pct of government funded programs and incubators have Founder Institute graduates in them. In Singapore we are the primary source of good startups.”
You’ve been around for three years. When will you know for sure that the Founder Institute formula works?
Adeo Ressil “I already know (laughs). What is success? We ‘ve created 10 000 jobs worldwide in 3 years time, from a cold start. These were jobs that didn’t exist. A lot are profitable, we had a couple of exits and a couple more on the way.
That’s how I see success. I believe that the clearest measure is: jobs. Fundraising is not a good metric if you ask me. But the fact that you run a profitable company, you’re creating jobs. In Africa the financing world works very different from here, so agian you come back to jobs. And ten thousand jobs in three years is something I would never have expected going in.”
Going back to TheFunded for a minute. In a Wired piece on TheFunded in 2007, you mentioned a slew of lawsuits coming your way. Are those still coming in?
Adeo Ressi: “Oh, I got a lot of lawsuits when we started TheFunded, oh yeah. Today I get them occasionally, like once a quarter I get one. My relationship with VC’s is complex, right? In a simple way, the good ones like me, the bad ones hate me.
For the most part, TheFunded has eliminated most of the bad ones. Most of them have been ripped from the system. Not all. What you’re left with is a smaller but higher quality group of invesotrs, who are fairer and nicer to founders. It’s a dramatic difference with how it was before.
But inherent in the model of venture capital is an investment philosophy which is at odds with the success of the founder. VC’s may not own the majority of the equity, but they do own the majority of the value created. The outcome of raising VC money is that investors take a pound of flesh – preferred stock. And the preference part means that they get the majority of the value that is eventually created by the business.
What happened at the time when I started TheFunded is this: I had started five companies or six – my job was being a serial entrepreneur, right – and I loved it, but there was no way I would start another company until some of the basic things got fixed. And the basic thing was: funding. The VC landscape was in pretty dire straits at the time, so I turned my attention to that. ”
You could be forgiven to think that raising money is actually the way to go. That it’s cool, even, like a gamification badge of honor. “Raised 1 million from top tier VC”.
Adeo Ressi: “Oh, no, on the contrary. Anybody who raised money will agree that it’s not cool, that it’s actually horrible and the worst. I was out to dinner with the CEO’s of SpaceX and Solarcity – these guys are the most successful CEO’s on the planet right now. They both said: “I HATE RAISING MONEY”. And they meant it. It’s relatively easy for them compared to ninety percent of the founders, but it’s still awful and hard.”
On the face of things, it seems that the Founder Institute is pushing people towards raising money. It’s when the Founder Institute gets paid.
Adeo Ressi: “I wouldn’t want you to think that. We don’t want to value companies. We just say: if you raise, we’ll value it at whatever the pro investors value it at. If you don’t raise, we’ll value your company at 1 million dollars. Or whichever is the greater of those two valuations. I would never counsel an entrepreneur who isn’t ready to raise money. Never. It’s so cumbersome it could actually kill the business prematurely. It’s brutal, it takes a lot of time - a hundred percent of your time, for six months at least. Especially in countries like Belgium, which have the hardest climate for raising money. Although that might change – I think great companies attract investors.
My advice to founders is always: go after customers first. Then, if you are reasonably certain that you can raise money and only then, put time and effort in it. Otherwise it might just kill you. You wouldn’t be the first.”
In the Wired article the journalist mentioned that you see yourself as someone who wants to change the world. It looks like you managed it with the Founder Institute.
Adeo Ressi: “I definitely wanted to change VC. And the Founder Institute should be an institution for the next fifty years or so. We’re expanding aggressively now, because any time when there’s a bit of a bubble, there will be a collapse. I’m sure we’ll see that collapse in the startup world, so we’ve been working very hard on instruments like convertible equity. So that when the collapse comes, we have a big enough footprint and it won’t impact our ability to launch a thousand companies a year. We might fall back from two to one Founder Institute chapters in Colombia and Vietnam, but we’ll still be around. ”
Watch an interview with Adeo Ressi of Founder Institute on living with your parents and building companies:
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Photo: Anuj Biyani http://www.flickr.com/photos/anujbiyani/
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