What do South Africa’s Springlab, SPARK in Nigeria and Dakar-based JokkoLabs and CTIC have in common? Ali Diallo, VC4Africa Pro Account user and member of the VC4Africa Investor Network, introduces the world of ‘venture builders’. At the bottom of the article you’ll find a special Afterword on the African relevance Ali Diallo wrote for VC4Africa. “A lot of entrepreneurs and analysts don’t realize that Venture Builders are ‘African’ companies at their core”.
This story originally appeared on VentureBeat, except for the new Afterword at the bottom.
If you haven’t yet heard of venture-builders — also called tech studios, startup factories, or venture production studios — let me introduce them to you: They’re organizations that build companies using their own ideas and resources.
Unlike incubators and accelerators, venture builders don’t take any applications, nor do they run any sort of competitive program that culminates in a Demo Day. Instead, they pull business ideas from within their own network of resources and assign internal teams to develop them (engineers, advisors, business developers, sales managers, etc.).
You’ll want to get used to the idea because we’re going to see a lot more venture-building organizations emerging.
Venture builders develop many systems, models, or projects at once and then build separate companies around the most promising ones by assigning operational resources and capital to those portfolio companies.
In its most basic form, the venture-building company is a holding company that owns equity in the various corporate entities it helped create. The most successful venture builders are, however, much more operational and hands-on than holding companies: They raise capital, staff resources, host internal coding sessions, design business models, work with legal teams, build MVPs (minimum viable products), hire business development managers, and run very effective marketing campaigns during their ventures’ pre- and post-launch phases.
Technology futurist, serial entrepreneur, and angel investor Nova Spivack is part of the early technologists who pioneered the venture production studio model. He wrote about the model in 2011 at a time when most of the elements that make it up were still in gestation. Nova actually invented the Venture Production Studio term, calling it a “new approach to building startups.” This new approach certainly paid off, as his own venture production studio enjoyed multiple exits three years later.
A Rising Movement
The venture-building philosophy is a rising movement in the tech and startup industries. The most notable venture builders include Obvious Corp, which spun off Twitter and Medium; Max Levin’s HVF (Hard Valuable Fun), which produced Affirm.com and Glow.com; Betaworks, whose portfolio includes Instapaper and Blend, and Germany’s Rocket Internet (PayMill, Jumia, FoodPanda, etc.). Although these highly successful companies have obvious differences in their business models, they also have significant characteristics in common. They use shared resources (capital, teams, connections, etc.) to launch solutions that then operate as fully-operational companies.
The venture-building movement is starting to become more popular outside of the United States as well: The Netherlands gave us StarterSquad, the self-proclaimed “European version of Betaworks”; and the South African team at Springlab had made the entire African continent proud with their innovative joint-venture business model.
The Curious Case of the Samwer Brothers
We can thank the highly successful and equally controversial Samwer brothers at Rocket Internet for leading the way and showing what the rest of the world has to offer in terms of venture-building capabilities. A lot of U.S. entrepreneurs and venture capitalists see the Samwer brothers (who are known for copying every successful American Internet startup idea under the sun and importing it to Europe and the EMEA) as unscrupulous copycats. I beg to differ. While there is no denying that they reproduce existing business models, they also have an uncanny ability to execute in unknown markets in the most perfect way. Every good entrepreneur will tell you that ideas are worthless and execution is everything. It certainly holds true for venture builders, and the Samwer brothers are the undisputed kings in that category at the global level.
The Sharing Economy Creates Venture Builders
The uberification of society, on-demand services, and the new sharing nature of the American economy have all contributed to the creation of the venture building ecosystem. The term uberification, which is derived from the popular on-demand taxi service Uber, refers to vertical integration of the customer experience within a specific industry. The uberification effect creates on-demand services that in turn create a new sharing economy that redefines the way society accesses resources. Venture builders help enhance this access by building powerful networks and ecosystems from which resources can be instantly pulled. Thus, they are the shapers of the sharing economy. Analysts and thought leaders define the sharing economy as a socio-economic ecosystem built around the sharing of resources. It includes the shared creation, production, distribution, trade, and consumption of goods and services by different people and organizations.
A Startup That Builds Startups
There is a deep correlation between the startup ecosystem and the venture-building universe: The venture-building company is similar to a high-paced tech startup, where the product is the venture, the prototype is the business model, and ‘shipping code’ means perfect and timely execution. In this regard, the venture builder is essentially a startup that builds startups.
This is a model that deeply resonates with my own venture-building team. Our company sees itself as a bootstrapped startup that applies Lean Startup principles such as process management, validated learning, iteration, and innovation accounting to the venture building process. We act as a collective that allows seasoned entrepreneurs from within our network to share resources (capital, skills, and market expertise). Those resources then power equity joint-ventures that operate in areas where the venture partners have a significant competitive advantage (an existing business, traction, superior market knowledge, dedicated operational resources, etc.). It’s a win-win business model that emulates the philosophy of the PayPal Mafia as we greatly benefit from the sharing nature of our growing network to seize opportunities.
PayPal Mafia Principles
The PayPal Mafia is a collective of Silicon Valley entrepreneurs who founded PayPal and who went on to build the most defining technology companies of the world. The collective includes South Africa-born Elon Musk (Tesla, SpaceX), Peter Thiel (Clarium Capital and Facebook’s original angel investor), Steve Chen (YouTube), Reid Hoffman (LinkedIn), Dave McClure (500 Startups), Russel Simmons (Yelp), Yishan Wong (Reddit), David Sacks (Yammer), and many more.
John Greathouse, a VC at Rincon Venture Partners who teaches at the University of California, lists the key elements of a PayPal Mafia-style network on Quora:
- – Capital from past venture success
- – Pertinent experience – folks who have helped drive the bus, not gotten a ride in the back
- – Operators who are still hungry enough to “do it again”
- – A desire to work together again
All venture-building companies share these four values: capital commitment, industry experience (market knowledge, know-how, and operational expertise), a strong desire to build something new (call it the entrepreneur’s bug or just plain ADD), and a natural gravitation towards collaboration (correlated with a profound respect for the values of trust, friendship, and loyalty). I call these four values The Pursuit of Happiness. Venture builders are in constant need to innovate, enhance, and build better solutions. They can’t be trapped by the static nature of success. They need to challenge things and to feel challenged.
The Venture Building Ecosystem: An On-Demand Network
Another important characteristic of a venture-building company is the presence of a strong sharing network capable of unifying a vast array of resources in the most effective way. Venture builders rely heavily on the quality and the dynamics of their networks and thus need to figure out which combination of resources will produce the most explosive results in order to capture market share quicker than its competitors.
The challenge lies in the managing partners’ ability to federate all these resources under one governing body that can build ventures in a very focused and dedicated way. The Venture Builder’s network must act as a pool of instantly available resources that create an internal culture of trust, deal flow, attentiveness, and determination.
This network-first model is certainly different from the standard startup business model, and there is a good reason for it: As the entrepreneurial world adapts to the ever-changing needs of consumers and corporate clients, startups and organizations will need to evolve and share resources under a unified business model in order to remain competitive and to respond to their clients’ needs faster.
As you probably noticed, the venture builder model is close to that of the venture capital firm: It funds ventures, builds a portfolio, and looks for successful exits. However, it is also much more involved in the operational aspect of its ventures than a traditional VC. In some cases, it goes as far as pulling all the necessary resources from its vast connection network to crush its competition and scale extremely fast. This “Damn the torpedoes, full speed ahead” operational technique, which is highly reminiscent of Uber’s business strategy, proves that venture builders are first and foremost gifted entrepreneurs and savvy business developers who don’t simply pour money into ventures and watch them grow. They implement aggressive business management techniques that benefit all the ventures that are part of their network.
The Monopoly Effect
You may wonder what an ever-growing venture building ecosystem will lead to. I believe the ultimate goal of the venture builder is to exhibit characteristics of a monopoly. This is a natural evolution of any organization that combines unlimited capital, ever-expanding clusters of ecosystems and an eternal pursuit of happiness, which I defined earlier as the constant need to innovate, enhance, and build better solutions.
In fact, a monopoly strategy should be part of the vision of every venture-building company. This controversial sentiment is shared by venture capitalist and visionary PayPal founder Peter Thiel, who argues in his groundbreaking book Zero to One that a business should thrive to become a monopoly. He defines a monopoly as “a kind of company that is so good at what it does that no other firm can offer a close substitute.”
A Bright Future
Despite threats of monopoly, Mafia-inspired networks and conspiracy theories, the venture-building production model has a bright future ahead of it. I foresee an increasing number of startups and organizations applying this business model in the years ahead. By combining their resources, they will develop dynamic ecosystems that will birth amazing products, solutions, and ventures.
The Marvel universe-inspired network my team is currently building is already 15 companies strong after a mere seven months of activity, with sequential company launches in four countries. Despite many challenges, we successfully built a powerful resource pool of more than 20 venture partners that are financial experts, digital media entrepreneurs, mobile money specialists, technologists, economists, and even economic operators. Yet, we are just getting started. And the list of new business entities with venture-building characteristics keeps growing around the world. All these initiatives will radically transform industries by creating new avenues and opportunities for society to generate income and access more capital.
Let a thousand flowers blossom.
Afterword for VC4Africa: What is the African Relevance
A lot of entrepreneurs and analysts don’t realize that venture builders are ‘African’ companies at their core since they leverage the power of their networks to optimize resources, attract customers and provide upselling opportunities (which, when done properly, open the door to innovation). Culturally speaking, the concept of a network has always been a strong factor of African economic development: the family, the tribe, the elders, the circles of friends or the trusted acquaintances are all examples of African networks. Thus, this concept is part of Africa’s social dynamics and of its fabric. Venture builders and serial entrepreneurs leverage this cultural opportunity to build strong companies that can compete at the local and international levels.
There has been a growing number of companies that leverage the concept of African networks to build scalable international ventures: South Africa’s Springlab which I already mentioned, built a successful joint-venture business model; Rocket Internet’s Africa Internet Group launched HelloFood and Kaymu in more than ten African countries; Switzerland-based SeedStars is active in the Nigerian market and has affiliations with multiple African partners such as Dakar-based JokkoLabs and CTIC; Jason Njoku’s SPARK employs 130 people across the nine companies it launches; Sanouda Gold leverages the traditional African gold trade networks in West Africa to build an innovative and well-structured trade platform connecting the African markets to Dubai; and Sean Ndiho Obedih spearheads the highly efficient Founders Hive which has been using a venture building model for the past three years.
Another good example is Eran Eyal’s Springleap.co which started in South Africa and is now raising a round in New York. Although not a typical venture builder, Springleap built a multi-million dollar US-based business based on resource optimization techniques in Africa.
It is important to know that a lot of venture builders operate in the background and let their portfolio companies take the stage so to speak. This is the route we chose at Media Investment Tech Ventures (MIT Ventures) as 2014 was about laying the foundation for a sustainable business model in Senegal and the US.
More recently, my partners and I unified three companies (MIT Ventures, Canada-based Royal Trading Alliance and Senegal-based Inovit Group) under a global venture building initiative called UNITED. While we are still at the early stages of the UNITED partnership, the successful launch of well diversified ventures with multi-million dollar revenue streams in the pipeline shows that the model can be applied to a wide range of global industries.
Ali Diallo is an American entrepreneur of Senegalese descent focused on building ventures in West Africa and in the U.S. A former Manager of Advertising Operations at Gannett, he now runs Media Investment Tech Ventures (MIT Ventures), a global venture building company founded last year and based in Silicon Valley and in Senegal. He is also a cofounder of Mobility Technologies SA, a new venture focused on mobile money and mobile banking in Africa; VP, Strategy and Partner at Royal Trading Alliance, a global economic operator; and VP of Operations at Quake Marketing, a leading digital media company based in Manhattan and in Las Vegas.
Image credit: SPARK.