New Nine Plus Accelerator Stretches Out the Startup Timeline (Alternative Accelerators, Part 2)
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the investors in YC will do very well, because, one, they believe in the power law. That one or two will pay for everything else. YC will do 100 companies in a year. Let’s say three or four will really get to Series A, Series B. If we do 20 companies a year, which is our model, we think we can get at least half of them to be much more fundable companies. In three years there will be 10 from YC, but we will have had 10 a year. At the end of the day, [the ratio of companies getting] Series A, Series B financing is so much higher that we don’t have to do that many to get the portfolio strength. At the end of the day, what matters is, how many Series A-funded companies do you have.
X: I understand the MVP phase. Can you quickly walk me through what is going to happen for the second three months and the third three months at Nine Plus?
PR: I will do the second three months—the second trimester—and I’ll let Jerry do the third trimester. (There is an interesting analogy here, to first-trimester versus full-term companies.) I am a developer. I’m a product guy. So is Jerry. We are both engineering, computer science people. One thing that engineers are very good at is coming up with ideas at and building stuff. One thing that engineers are infamously not good at is working with customers and listening to feedback.
So it is our belief that in the second trimester, the focus is all about your users. Your product takes the second seat. You’ve got a product now and you’ve got to listen to your users. You’ve got to understand how they are reacting to your product. You have to measure—because now it is a very data-driven business—the user acquisition metrics, the engagement metrics, the monetization metrics, because that’s the users speaking with their time and their money. You will take all of that into account and then optimize and refine your product.
X: You think it’s impossible to do all of that in the context of a single three-month program?
PR: You cannot do that in three months. Not in an interesting way.
JH: There is some pivoting involved there. It might be a major pivot, it might be a minor pivot, but many of the most successful companies at that stage went through a pretty significant pivot. Many of the most successful companies in the world now, in that early period they were built as something completely different, like PayPal.
X: You do hear stories about Y Combinator startups pivoting, sometimes the day before Demo Day.
PR: That’s how it’s programmed. That is the moment of reckoning. In our view, you should have 90 days of that. Not just one day of reckoning, but 90 days. So work through it, and if it’s pretty good, maybe do a 15-degree pivot. If it’s pretty bad, do a 90- or 180-degree change. We actually allow the entrepreneurs, halfway through the second trimester, to say “Screw it,” and to effectively restart the program for another four and a half months.
X: Okay, what if things are going well? Is the third trimester about courting investors?
JH: It’s about company-building. The first is building the product, the second is customer acceptance, the third is building the company. You’ve got a product, you’ve maybe made some changes to it, and now you’ve got some market traction. But then you have to start framing up a company that’s fundable. It may involve a couple of key hires. It could involve, how do you scale this thing so that the product itself is scalable. It’s walking them through the process with investors.
We hand-pick not just the investor firms, but the partners within each venture firm who would be most appropriate, prepare them, walk in with them, make sure they get just not funding but the right funds. There is so much difference. It’s great that you got a Series A, but the difference between the right firm with the right partner, is huge.
X: Does that imply there’s a pause in development? A lot of accelerators would counsel their companies to not think too much about courting investors, but focus on the product all the way through.
JH: No, no. All during this, the product is continuing to be improved as you get feedback from customers.
PR: That’s why we will do those first meetings with investors, prep them, and then when we feel this is ready. Jerry will call up Kevin Efrusy at Accel Partners and tell him “Let me tell you what this is going to be.” They will say, “Interesting idea, tell me more.” Jerry meets Kevin and says, “We are working with these founders, one guy is this and one guy is that, this is the product these are the metrics.” Kevin says, “This is pretty good let me talk to a couple of the partners,” and he gives Jerry a call back and says “I’m interested.” That’s when we say there’s a real match here. That saves the entrepreneurs like two or three days of preparation and pitching.
We have been around, we have the network. Also, usually our teams are two founders. One is the logical founder—the Zuckerberg as opposed to the Moskovitz. The Larry Page as opposed to the Sergey Brin. During that phase we will be prepping that founder/CEO to be a little bit more external-facing. And the other person will continue driving the product, so that you never skip a beat.
X: The companies you’ve picked for the first batch—can you tell me how those companies are good fits for this model you want to try? Why are they the right companies for this nine-month program?
PR: One answer is that it’s self-selective. We require you to part with 18 percent of your equity, which is three times the program at YC. YC takes 6 percent, and we know that’s the standard in the market. So, frankly, we get people who apply, and if they’re not comfortable with that, they self-select themselves out. The people who do, who say it’s worth it, are usually in it for the long haul. They are not the people who just want to do … Next Page »