Investor Activity

Investors require startups to have technical cofounders. But is that necessary?

5 Mins read

Investors require startups to have technical cofounders. But is that necessary?

Smeagol, a character in the TV franchise Lord of the Rings, reminds me of most entrepreneurs. Smeagol was a fine young man before encountering a magical force, a “One Ring” that wielded enough power to consume its wearer and cast them under a lifelong spell of obsession. This ring tore him away from civilisation and recessed him in a dark cave for 400 years. Then one day, he lost his precious ring, and life took a new turn for him. He eventually spent his lifetime chasing after this ring, shapeshifting into whatever role the pursuit demanded. And it paid off. Smeagol got his ring back in the end and lived his final moments relishing in victory.

The comparison here is not in Smeagol’s solitary lifestyle or obsession. But he, like most successful entrepreneurs, was fearless in pursuing what set his soul on fire. He did what needed to be done per time, learning new things, meeting new people, and taking on roles that brought him closer to his dream. I am no Da Vinci, but this ethos, dear reader, is the unwritten entrepreneurship code.

Founders and aspiring entrepreneurs across the globe have accepted this code as their guiding light. For millions in this digital age, the light eventually shines on how technology and software can solve some of the world’s daunting problems. Unfazed by problems, these entrepreneurs begin a journey of perfecting solutions they can monetise. The problems are often nerve-racking, requiring extensive research and thinking, experimentation, iterations, and of course, money. The need for financial resources to birth these solutions is where many founders hit a shocking reality: those with deep pockets expect them—or their cofounders—to be able to write code.

“It’s important for the founding team to have the skills to build their product themselves, rather than outsourcing it to someone else. For most businesses, that usually means you need a technical co-founder.”

This is how Y Combinator, one of the world’s biggest accelerators, tells founders that it would rather invest in businesses with technical founders. To show for it, 100% of African startups in its latest summer cohort have technical cofounders, with a similar pattern across other regions. This is especially interesting when considering YC’s claim of being an accelerator for all kinds of startups, whether they’re in tech or not.

Y Combinator is not alone in this. Other accelerator behemoths and VCs show a similar pattern in funding businesses, leading to what some founders describe as an “exclusionary ecosystem bias”.

Daniel Osineye, founder and CTO of Evolve Credit, a fintech startup that has raised $325,000 in pre-seed funding, agrees that there is indeed an investor bias in the tech ecosystem.

“Its true that there’s an investor bias in the startup world, but biases are not always bad. Sometimes, biases are useful to hedge against losses, and since investors are trying to 10x their funds, I think there’s a case for the bias,” he told TechCabal over a call.

Ayomide Awe, CTO and co-founder of Termii (W20), a SaaS startup that has raised $1.6M in pre-seed, told TechCabal that he wouldn’t describe this pattern as a bias. According to the 27-year-old, it was simply a no-brainer that VCs would consider technical skills when it came to technology businesses. After all, knowing that there’s a technical expert at the helm of the business’ affairs will boost investor confidence and hedge against the high costs of outsourcing.

Managing director and group partner at YC, Micheal Seibel, shares similar sentiments with Awe on this. In a YouTube video, he maintained that having a technical co-founder will help to ship products faster and at lesser cost because, in theory, a technical co-founder would be more motivated to build than an outsourced developer.

“Early-stage investors have little proof that you’ll be successful, so they look out for folks who can build. Can you iterate through multiple versions? Doing that with a dev shop is more expensive and time-consuming,” he said.

“Tech investors don’t want to invest in companies that are outsourcing development, except in rare cases when the companies are taking off ridiculously quickly,” Seibel argued.

YC may have a point, but non-techies have theirs too

A non-technical founder told me she’d like to ask Paul Graham and his YC team one question: “Why see this one way only?” According to her, the entrepreneurship spirit provokes solutions even in the most unlikely circumstances, and enforcing a rulebook for entrepreneurship is a stab in the heart of business creativity. To credit her point, she recounted stories of numerous successful tech startups led by non-technical people. One is Vayable, a travel-tech startup led by a solo non-technical female founder, Jamie Wong.

Wong is one of the many non-techies proving that YC’s rulebook for investment is not the silver bullet for success. In South Africa, two non-technical founders who faced 46 rejections from investors eventually proved that they could scale Fundrr, their software business, by bootstrapping it. Sure enough, investors came knocking around after.

Fundrr’s story is a great example of the power of traction. If, though non-technical, a founder can demonstrate a clear understanding of the problem, validate a business model, and develop an MVP that achieves product-market-fit, the question of technicality should gradually fade away, all other things being equal.

Speaking on this, Adeyemi Adegbayi, an investment analyst at pan-African VC firm TLcom said: “Having a technical co-founder is a value add, but it’s not what we [investors] chiefly look out for. Demonstrated traction and founders’ expertise in their playing field will always trump other considerations.”

Corroborating this, Ayobami Olajide, an analyst at Ingressive Capital, said: “Numbers don’t lie. Traction is a better metric for startup investment than technical abilities.”

The traction-over-technicality stance may not be where Seibel pitches his tent. According to him, most early-stage investors care more about whether you can build something than what you have already built.

Technical cofounders are not enough to go round

Founders who decide to play by YC’s rulebook often find themselves facing a problem they didn’t anticipate: there are simply not enough technical people to launch businesses with. Entrepreneurial folks in Africa’s 1.4 billion population vastly outnumber the 716,000 developers we have on the continent, 38% of whom were reported to be working for companies headquartered abroad.

This problem is what Wunmi Akinsola, CEO of Fashtracker, is facing. Last year, she won a pitch contest at TechCabal‘s Future of Commerce event. While that has spurred the growth of her business, her inability to find a qualified and nuanced CTO/co-founder has been a rough experience for her.

“It has been challenging for me to find a technical co-founder who’d function as the CTO for Fashtracker. The first challenge is finding someone who possesses the technical abilities to scale the product, but a bigger challenge for me has been finding someone who understands the nuances of the fashion industry and is passionate about building in this space,” she said.

Akinsola is one from a large pool of non-technical entrepreneurs who are faced with the problem of finding the right partners to build their businesses. Sultan Akintunde,  co-founder and head of talent at TalentQL, a startup that provides vetted technical talent for tech firms, told Techcabal that his team is currently working on a solution for this problem.

“In Q4 2022, we are going to roll out a solution to curb the co-founder scarcity issue. Founders will be able to access vetted talents to operate as CTOs and co-founders in their startups. But they [founders] should be ready to pay reasonably or offer equity. Ideas only won’t put food on the table for technical talents,” he said

The way forward for non-technical founders

Let’s face it: technical founders have better odds of securing funding from investors. So, where does that leave non-techies?

Non-technical founders who want to go by YC’s rulebook will have to broaden their networks and build great relationships with people with technical skills. Since most partnerships spring from deep personal relationships, this could be a great starting point for them.

Non-technical founders who’d rather go solo will have to find creative ways of getting their products shipped. Whether by outsourcing till the MVP stage, assembling a technical team, vesting early employees, or, as Awe of Termii advised, learning how to code, these founders must own up to their process and ask themselves the hard question: Am I resourced enough to go solo?

 

 

Source: Caleb Nnamani | Techcabal.com

Related posts
AgribusinessInvestor ActivityMaking the newsNigeria

Nigeria's Agriculture Boost: AfDB Extends $134 Million to Foster Rice, Maize, and More

2 Mins read
Nigeria’s Agriculture Boost: AfDB Extends $134 Million to Foster Rice, Maize, and More The African Development Bank (AfDB) provides Nigeria with $134…
Investor ActivityKenyaMaking the news

Kenya Allocates $83 Million for Inaugural Nuclear Reactor

2 Mins read
Kenya Allocates $83 Million for Inaugural Nuclear Reactor Kenya will require at least Ksh11 billion (about $83 million) as the initial cost…
Banking and FinanceInvestor Activity

Italian Development Organization Joins Forces with Afrexim Bank to Boost Food Security in Africa

1 Mins read
Italian Development Organization Joins Forces with Afrexim Bank to Boost Food Security in Africa The Italian international development financial organization, Cassa Depositi…

Leave a Reply

Your email address will not be published. Required fields are marked *