Y Combinator Managing Director Reflects On Africa Tech Boom Ahead of Visits to Nigeria and Egypt
Exclusive: Y Combinator's Managing Director Reflects On Africa's Tech Boom Ahead of Visits to Nigeria and Egypt
There is a photograph of Michael Seibel sipping a spoon of what appears to be pepper soup in a Lagos bar somewhere on the internet.
He's hedging against spills with his cupped left hand and conversing with Paystack CEO Shola Akinlade, who is seated to his right. On the table in front of them are a few bottles of a popular Nigerian beer. Other images suggest the presence of a live band.
That occurred in September 2016. Paystack had been around for a year, and Flutterwave had launched just a few weeks before.
Apart from being competitors in the burgeoning fintech space, both companies shared another identity: the inaugural flagship startups for the Africa-focused accelerator Y Combinator (YC).
Paystack was acquired for a significant sum five years later, and Flutterwave is now worth at least a billion dollars. Over 40 African startups have applied to YC. Djamo, an Ivorian fintech startup, was the first francophone African startup to pitch at Demo Day in March.
Seibel monitors this phase of Africa's startup evolution via regular conversations with founders. However, he does so from his San Francisco base. He said he is in no position to comment on what has changed since his last visit. However, he singles out one factor: a more mature payments ecosystem.
“Some of the original payment infrastructure is now enabling a second generation of startups to do more with online payments,” Seibel explained during a Zoom call last week.
This is somewhat surprising, as I have previously heard him state on one forum that "payments is boring."
However, he clarifies that he refers to the fact that digging a foundation for a building is tedious. Everybody wants to live in a completed, furnished home, but getting there requires a significant amount of initial, necessary, and tedious hard work.
MFS Africa, Yoco, and ZeePay are also laying the groundwork for the continent's digital economy, using a combination of mobile money and online payment systems. It is not yet uhuru, but the foundation for e-commerce and logistics is stronger than it was in 2016.
Which products, then, would Seibel like to see emerge from Africa?
'Create Something That People Want'
Since its inception in 2005, YC has invested in and supported over 3,000 startups.
Among the companies on the list are Stripe, Coinbase, Airbnb, and Instacart. Each of them has succeeded because, as YC's slogan states, they set out to "create something people want." The same standard applies to African startups.
“I dislike advising founders on what they should build. I lack a vision for the future of Africa. Seibel explains, "I am not on the ground observing problems."
“In my opinion, YC's critical role is to provide access to founders with a vision for Africa's reality.”
The venture capital industry and institutions like YC inevitably influence the companies built worldwide by voting with their money to fund certain companies over others. A recent thread by Kyane Kassiri, a Tunisian venture capitalist at Lateral Capital, sparked a small debate about the "cult of YC" and its implications for Africa.
However, Seibel maintains that founders retain control over what they build:
“I believe that investors are frequently given an undue amount of power in this ecosystem,” he observes, noting that Facebook, Google, and Amazon are now far more powerful than any venture capital firm that invested in them at any stage.
YC partners want to be convinced during interviews about how founders communicate customer problems and how they intend to solve them. However, once accepted into the program, founders are responsible for extracting all of the value they believe investors can offer and determining product-market fit, Seibel explains.
He wants investors to be viewed as just another service provider, alongside lawyers and accountants.
“We are not spearheading a technological revolution in Africa. The founders are in charge, and we are assisting slightly.”
With a little bit of… what?
YC reduced its investment in startups from $150,000 to $125,000 in June. The 7% equity stake remained unchanged. Additionally, the renowned three-month accelerator program previously held in San Francisco has been transformed into a completely remote event.
While YC retains global prominence, it is not the only game in town for early-stage startup accelerators.
American competitors include 500 Startups and Techstars. There is now a slew of African options available as well.
Thus, what continues to set YC apart? Seibel characterizes it as a collection of resources.
“It's money up front and access to additional funds. It is an alumni association. It is a collection of recommendations. It is a collection of accountability practices, including office hours. It's gaining access to additional investors.”
In essence, it is a toolship. And, while founders will deploy it differently, YC's fundamental goal is to assist founders in achieving product-market fit.
Seibel asserts that the term is frequently misused and that only about 5% to 10% of companies in an average YC batch will achieve product-market fit.
He wants early-stage startups to be suspicious of investors who operate under the presumption of product-market fit. Investing in such an approach forces startups to take the wrong path to scale, ultimately resulting in their demise.
Rather than that, YC's entire ecosystem of "critical startup advice," essays, and catchphrases is geared toward pre-product-market-fit. That is the stage at which the majority of Africa's future tech titans are currently operating.
Building in Africa, beyond Nigeria and Kenya
The majority of African startups backed by YC are located in Nigeria, East Africa, and Egypt. Will Djamo pave the way for further francophone African contributions?
Seibel hopes so, noting that entrepreneurs are inspired by what they see and interact with.
He notes that most African applications to YC originate in Nigeria, which may be explained by the visible progress made by YC alumni in the country. However, as other parts of the continent's founders succeed, residents in those areas will take their shot.
YC is ostensibly open to them, and we may see the first YC startup from another country in the Summer 21 batch. As with the previous two, that is likely to be an utterly remote event, given Covid-19's persistence in the United States.
