It’s Time To Burn Down The Tech Incubators and Start Again

Wattpad is an amazing success story with a shocking secret. Company founders Allen Lau and Ivan Yuen never made use of any incubator services or funding.

Lau told a Toronto Startup Grind audience that he and Yuen began work on the Wattpad e-reading app in 2002 funded with their own money. By 2006 there was little traction. They formed an internet ad company to pay the bills and put Wattpad on the back burner. In 2008 they sold the ad company and used the profits to restart Wattpad. It wasn’t until 2010 that Wattpad raised its first round of external investment. An Angel wrote a check for $600k.

Wattpad was in gestation for 8 years before its first funding round.

Founders prep for their Y Combinator intake interviews. Many imitators have coped Silicon Valley's Y Combinator. That model, says Steve Blank, needs to be adapted to work in other geos.

Founders prep for their intake interviews at Silicon Valley’s Y Combinator. Many have imitated this incubator, expecting a slew of successful companies. That model, Steve Blank now says, only works in Silicon Valley.

Oops. In the Y Combinator model that inspires many incubators the first funding round is coincident with the exit from the incubator, about 3 months after entering. One quarter of intensive development under the watchful eyes of experienced advisors is thought to be enough to get decent ideas funded. Is Paul Graham wrong?

No. Y Combinator works in the Valley ecosystem. But the Valley is unlike pretty much everywhere else. Steve Blank blogged about this.

A big shout out to Rick Spence. Rick wrote to Blank and suggested that Canadian communities needed to crowdsource their own playbooks. Develop strategies to adapt the Lean Startup model to the peculiarities of the Canadian context. Blank thought it was a great idea.

And so, after Lau finished his fireside chat, Spence took the floor. He facilitated the world’s first crowd sourcing session for a local Lean Startup playbook.

A second big shout out to Mark Bailey at Jobhubble, who shared his financing story. When Bailey started approaching Angels and VCs he had already developed an MVP for his HR recruiting app with love money. When he talked to Valley investors they told him “we don’t care if 95 out of 100 of our deals crater as long as we find the 5% that don’t.” But GTA investors told Bailey that they were proud that 95% of their investments hadn’t gone bankrupt.

It points to fundamental differences in approach, and expectations about outcomes.

For the incubator model to deliver the results in the GTA, the Toronto community must make some changes:

  • Play to win. Stop playing not to lose.
  • The world is awash in cash. Invest from abundance, not scarcity.

Silicon Valley angels and VCs know that huge home runs are very improbable but believe they are worth the risk. To increase the odds that they will hit monster home runs they make larger investments in early-stage companies than others are comfortable with.

Incubators also need to adjust their approach. Lau believes that with Toronto-area incubators “it’s harder to get in if your product doesn’t work.” This is the opposite of the YCombinator approach. In my experience, YC believes that a working MVP is what you exit the program with.

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