Other ecosystems and how to fix them, the Founder way

• CEO Adeo Ressi wants to see every startup ecosystem in the world having consistent practices
• Believes Malaysia is a hotspot for entrepreneurship that promises to have global influence

HAVING a conversation with Adeo Ressi (pic), the chief executive officer of the Founder Institute, will leave no doubt in one’s mind that he takes the early-stage start-up accelerator and global launch network’s ‘Globalising Silicon Valley’ tagline very seriously.
 
“We use the same exact methodology everywhere -- we don’t make exceptions or compromises,” he tells Digital News Asia (DNA). “We don’t sacrifice quality for quotas.”
 
“So if it means we graduate only one or two companies, then we do – we’ve never been in a situation where we had to graduate no companies, but we definitely don’t keep people in the programme who aren’t good,” he adds.
 
This is why the Founder Institute produces companies with very consistent quality, worldwide. It’s a harsh wake-up call that many startups actually need – to be a world-class player, you need to have world-class standards. The Institute helps by making sure you have the best practices and mentors to guide you, but you need to be made of the right stuff too.
 
And this helps the ecosystem too, argues Ressi. “What happens is when you have a company as good as a company coming out of Silicon Valley come out Vietnam or Malaysia, they tend to achieve success relatively quickly compared to their local peers – and that has great impact on local ecosystems.”
 
Most companies in a single ecosystem come from the same backgrounds, struggle with more or less the same issues, and operate in a similar way.
 
“But if you have a local startup company that operates in the same way as a company out of Silicon Valley or Berlin, they tend to get more media attention, more capital and make progress faster,” says Ressi.
 
“And that helps the ecosystem a great deal, because suddenly you have a rising star or a great company which you can point to – and more people want to be entrepreneurs,” he adds.
 
Ressi was in Kuala Lumpur (KL) last month as a part of a tour of Founder Institute chapters in the region, and met DNA before he was involved in an interactive discussion with members of the Technopreneurs Association of Malaysia (TeAM).
 
The Institute set up its Malaysian chapter in the city in January, about three years after first setting foot in the South-East Asian region with its Singapore chapter. It has chapters operating in nearly 50 cities all over the world, with agreements in place for a handful more.
 
“We’re in what I call primary cities and secondary cities – primary cities are places around the world where evidence is clear that there is a budding entrepreneurial ecosystem which could benefit from the presence of a Founder Institute chapter,” says Ressi.
 
“Secondary cities are cities where we are not opposed to going, but they’re not really high on our priority list.
 
“We’re in a lot of secondary cities because people have contacted us and shown essentially two things: First, that they are committed and interested in launching a chapter; and second, we then test if there is enough market demand for us to launch a chapter,” he adds.
 
This is what led to the Institute launching a chapter in the small Croatian city of Rijeka. “We would never have thought to open there,” Ressie says.
 
The Institute had just launched a chapter in the Croatian capital of Zagreb, which Ressi says was very successful, and one of the members who lived in Rijeka suggested opening in that smaller city.
 
“We said ‘You seem like a smart and committed person, and if there is enough demand, we will go.’ There was, and we did,” says Ressi.
 
In this part of the world, the Founder Institute already has chapters in Jakarta, Bangkok, two cities in Australia with the real possibility of a third, two cities in Vietnam (Hanoi and Ho Chi Minh City); and is looking into Manila, Bangalore, Tokyo and Beijing.
 
Why two cities in Vietnam? “When we entered about a year and a half ago, it was not a primary market. It’s still facing a lot of setbacks as a market, but it is moving well,” says Ressi.
 
“It (operations there) was really driven by local directors and market demand. One of our strongest companies in the region is Vietnamese – Appota. It has definitely grown very quickly, and is profitable already,” he says.
 
Hanoi-based Appota cooperates with developers in Vietnam to distribute their applications and games. In 2012, the Founder Institute named it the “Most Disruptive” from over 565 startups worldwide.
 
High hopes for Malaysia
 
At our interview in a KL hotel, Ressi quickly and strongly suggests moving to another, quieter location. Before we can settle down at the hotel’s lounge, he says “Let’s get a drink,” waves over a waiter, and orders hot green tea for all, obviously unaware of this reporter’s aversion to non-alcoholic beverages.
 
A no-nonsense, take-charge kind of guy who doesn’t spare himself either.  Not quite your cheerleader type either, so you tend to pay attention, and pay more credence to the possibility, when he lays down the reasons why he thinks Malaysia holds great promise. “KL is a primary city,” he says.
 
But he attributes this to the Founder Institute’s regional director in Singapore, Jeffrey Paine (pic).
 
“He’d been a huge advocate that we should have a chapter in Malaysia, particularly in KL, and he made sure that it happened,” says Ressi.
 
“And we agreed with him, by the way. So we worked really hard to open a chapter, and found a great team to help us operate it,” he adds, with a nod at the Founder Institute Malaysia heads Chu Tzu Ming and Heislyc Loh, seated across from us but too busy on their laptops to have heard.
 
But how does the Founder Institute define a ‘developed enough ecosystem’? By the number of entrepreneurs or successful startups? Why is Kuala Lumpur considered a ‘primary city.’
 
“Primary cities come in two forms – ones that we believe have great potential, which KL falls under, or cities that have a thriving ecosystem, such as Berlin,” Ressi explains.
 
“There was pretty much no question that we needed to be in Berlin – it’s the second closest thing in the world to Silicon Valley today. It would have been foolish of us not to have been there.
 
“Then in the case of cities like KL, it’s that there is a growing economy, a government that is focused on entrepreneurship, a large and talented labour pool – it has all the right characteristics for a market to have a global influence.
 
“These factors make Malaysia a hotspot for entrepreneurship that deserves our focus,” he adds.
 
He says Malaysia today has “somewhat similar circumstances that were true in Singapore” when the Founder Institute established its chapter there three years ago. “And look at how far Singapore has come since,” he adds.
 
In fact, while insisting there are no quotas, Ressi says the Founder Institute believes it can ‘graduate’ anything from eight to 15 startups in Malaysia.
 
Consistent, and best, practices
 
The Founder Institute operates a bit differently by not looking so much at ideas but at the entrepreneurs who came up with them. While it works on identifying and improving the quality of entrepreneurs, Ressi notes that developing the ecosystem is important too.
 
In fact, having met and mentored entrepreneurs from all over the world, he doesn’t believe there is much difference between those from the United States or Europe and those in this part of the world.
 
“But the markets are definitely less sophisticated, which is both a good and a bad thing,” he says.
 
“You have some ridiculously complex legislation that you need to comply with in the United States, because of how advanced the ecosystem is. For instance, when you do a valuation, you need to get a 409A done; when you issue stocks, you need an 83(b).
 
“These are really over-complicated things in a developed ecosystem, but there are also some upsides to this – the sophistication level of your average person is very high,” he adds.
 
Another upside is the practice of ‘vesting’ stocks, where all the founders of a company only earn their stock over time.
 
“You may have two cofounders, each owning 50% -- but on day one, they both earn zero. One year in, each gets 25%,” Ressi explains. “So if a cofounder leaves within the first year, he gets nothing; if he leaves in a year and one month, he get 25%.
 
“It makes it fair because what ends up happening is that when a founder leaves too early on, then he gets only what he has actually earned, and nothing more,” he says. “And since so many cofounder relationships break up, it is a healthy way to keep everyone honest.”
 
Indeed, one of the reasons for the aptitude test the Founder Institute conducts is to minimise the chances of breakdown in the relationship between cofounders.
 
While admitting that this happens “too often’ even within Founder Institute companies, Ressi says that its testing can even make a 100% prediction in some cases.
 
“This is when one cofounder scores very high and the other very low – more often than not, the company does not survive,” he adds. “So nowadays, we’re very, very careful. We don’t let people in where it can lead to a breakup.”
 
Indeed, Ressi believes that all founders should vest their stocks, everywhere in the world – although in a lot of markets, the concept of vesting isn’t even understood or used.
 
“But three to five years from today, every startup ecosystem will have highly consistent practises – all founders will vest, because it is the right thing to do.
 
“And the Founder Institute will help play a role in this, because we will insist on it,” he adds. “We will mandate that some of our graduate companies use some of the best practices from America.”
 
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