Exploring the startup ecosystem

When we decided to create The Refiners, a program designed for foreign founders in Silicon Valley, we’ve never run a business like it before. Yes, combined, we have a lot of entrepreneurial experience, however, we’ve never run a program for entrepreneurs. Fortunately for us, we’ve collectively been in Silicon Valley for many years, so we decided to call the people we knew that had the insights we needed.

We first reached out to Marvin Liao, a partner at 500 startups, who accepted to meet with us right away. He was so eager to help, that we met for a beer on Mission street in 3 days. Knowing time is of the essence, we went straight to the point and told Marvin “we’re starting an accelerator and we have never done it, can you help?” After a couple of hours, Marvin was able to gift us information of its value equivalent to gold. We knew we were on the right track.

Later, when thanking Marvin we were curious about something that was so unusual to us. We asked Marvin why he was so open to helping us. We were starting a company that could soon be a competitor. His response was exactly what makes Silicon Valley such an incredible ecosystem, he said “I have two options. One, I do not respond and leave you in the dark nor help you. On the other hand, you have decided to do it in my ecosystem, so I’d rather help you. If you contribute to making my ecosystem better, I win. If you make it worse, you make my life more difficult.”

Marvin decided to make us better. Till this day, he participates in our program and shares his experience to our foreign founders. We consider him one of the most precious mentors in The Refiners.

Silicon Valley is being criticized lately, rightfully so when it comes to bad behaviors. However, I read that people are leaving the Bay area for better places, that scaling up a startup can be done anywhere. Really?

Being in the wrong ecosystem could be devastating. The journey of an entrepreneur is about doing something that no one has ever done before. Mitigating the risk of going in the wrong direction is essential, and that’s what the right ecosystem can provide for you. Being in the wrong ecosystem will make your journey much harder, and can kill your company.

What is a good ecosystem? Simply said, it’s a place where the community of investors, entrepreneurs or experts, are on the same page, and understand that giving the wrong answer/advice can be deadly.

Building a startup is really hard. We’ve collectively collected enough knowledge to at least understand what not to do. Silicon Valley has mastered it and created a series of fantastic recipes for founders. The rest of the world is trying to catch up, however, no one can come close to what Silicon Valley has to offer. Silicon Valley has build a rulebook that founders can follow without a doubt and absolute certainty. Other ecosystems can be inspired by it or ignore it. Ignoring it is suicidal, and trying to prove that another way is possible is pure arrogance.

This leads to understanding that young or immature ecosystems can be very toxic to entrepreneurs. It’s fascinating to talk to worldwide founders like we have — I’ve spoken with more than 1,000 founders in 18 months — to realize that everyone isn’t given an equal chance.

As an entrepreneur, you’ll eventually need to raise money, thus you need to engage your local VC or angel. If your local VC understands the rules, you can thrive. If not, you’re already going on the wrong path.

How many times have I seen screwed-up cap tables or founders telling me that their VC encouraged them to scale down their ambition and be more down to earth. That’s wrong! If you have been told, “start a POC with a corporate account to prove the MVP”, you were given the wrong advice. If your startup is building a deep tech product, but you were asked to focus on revenue, walk away, it doesn’t make sense.

Immature VCs will see investing as negotiating the lower value/higher percentage. They are short term greedy and envision a quick low exit with local players. That’s why they want to maximize the number of shares. Good investors are long term greedy. In addition investing is never one round but many rounds; each round with its own rules, seed is 15 -20% dilution and series A is 25–35%, breaking the rules makes fundraising impossible. An ecosystem with immature or bad VCs will drive entrepreneurs to the ground. Silicon Valley has inspiring investors; Sequoia, Andreessen Horowitz, Kleiner Perkins, and the likes, are proven successes.

Entrepreneurs need help and everyone wants to help. Unfortunately, not everyone can help! I firmly believe that you can only help an entrepreneur if you have been one. Steve Blank puts it clearly, a startup is not a smaller version of a large company. A startup is its own organism, you won’t understand it unless you have been in it. Would you want to learn hand-gliding from a YouTube video of someone that never did it? Not me!

Consultants who give advice to startups are incredibly scary to me. Good ecosystems are full of real entrepreneurs that give their knowledge back. Immature ecosystems don’t have enough entrepreneurs, yet and are full of consultants loaded with deadly advice. They are easy to spot. They will immediately tell you, don’t do it that way, do it that way! An entrepreneur will challenge you but will never tell you what to do.

Building a startup is not a process, it’s an adventure. Bringing experience and expertise in the adventure is a must. The best ecosystems are places where expertise moves freely.

Expertise comes from individuals who’ve succeeded or failed. Silicon Valley values expertise and once you fail, you are on-boarded into a new project. I call it “recycling the dead”, and it’s so essential to diffusing knowledge and to Silicon Valley success. Failed entrepreneurs are incredibly precious. If an ecosystem does not value failure, knowledge won’t be shared and learning will be slowed down.

Investors, entrepreneurs and experts are the cornerstone of a healthy ecosystem. The quality of startups is directly a result of that. Bad startups can mean bad entrepreneurs, but also a poor ecosystem.

At The Refiners, we only work with foreign founders coming from an obvious immature ecosystem. It’s amazing to see the transformation of entrepreneurs when connected to the most up-to-date recipe, Silicon Valley. I know that every country in the world is hoping to become a startup nation. It won’t happen without smart investors, a pool of experts, and a wealth of entrepreneurs. At this stage, aside from China, most ecosystems are 5 to 10 years behind Silicon Valley.

Are you in the right place?

CEO @ 34 Elements and General Partner @ The Refiners