'Start a fyah' — Igniting Jamaica's venture capital industry the Paul Ahlstrom way


Friday, June 21, 2019

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Referencing reggae singer Chronixx song “Start a Fyah”, Utah entrepreneur and serial venture capital fund manager Paul Ahlstrom, in his presentation at the Development Bank of Jamaica's Private Equity, Infrastructure, SME's Entrepreneurship and Innovation conference, noted his reference was not to burn anything down, but one of “igniting” the venture capital industry and entrepreneurial spirit in Jamaica.

Six years ago, he had challenged young Jamaicans to enter the Business Model Competition (founded in Utah) by putting up his own money (matched by that of then DBJ Chairman Joe Matalon) to help finance the effort.

The results are now in. Last year in 2018 Jamaica placed first and second, competing with 5,000 teams from across the United States. Interestingly, also in 2013 at the same conference, he had been interviewed on his book, “Nail it, then scale it,” by a Dr Nigel Clarke, now our minister of finance, an interview further covered in my 2013 article 'Venture capital without friendly climate to entrepreneurs like pouring water into sand'.

Now Ahlstrom is back with a bigger challenge for Jamaica.

As in 2013, he started his presentation by observing that “Everyone wants to be the next Silicon Valley”.

Over 100 groups/areas/countries have tried but only a few have succeeded, notable amongst them Israel, the so called “Start-Up Nation” and Singapore. Now tiny Utah has become one of these contenders, and is now called “Silicon Slopes”, coming from nothing in the mid-1996 (a paltry US$14 million dollars in venture capital raised) to billions per year now, making it the number three state in the US in terms of venture dollars raised per capita (0.59% of GDP) after California and Massachusetts, notably beating out New York.

Utah now generates unicorns (tech companies with US billion dollar valuations) every quarter.

Ahlstrom's contention is that this is no accident. Through over 140 meetings over several years, a group of Utah leaders established a unified vision to enable real change to the entrepreneurial environment. It was discovered that complex social problems can't be solved by single programmes, organisations or even sectors alone. This required five conditions for collective impact — a common agenda, shared measurement, mutually reinforcing activities, continuous communication and backbone support.

A Harvard study prepared on how to achieve this had 13 recommendations, of which, Utah eventually implemented nine. These included promoting more educational opportunities for entrepreneurs, encouraging local universities to create “evening education” devoted to entrepreneurship, sponsoring meet–up events to share ideas and get feedback, strengthening local venture capitalists by helping them raise capital, championing the formation of local angel networks, strengthening R&D efforts at all state research institutions, expanding engineering programmes in higher education to grow technologists base, lobbying one of the four major securities law firms to establish an office in Utah, and lobbying Silicon Valley Bank to open a branch office in Utah.

Supporting entrepreneurial activities including entrepreneurship education, for example, international business model competition, and creating trusted informal networks.

Ahlstrom argues that his “fyah” metaphor represents bringing together four key factors of production necessary to create an entrepreneurial ecosystem.

Trust (Air) includes everything from cultural knowledge to proven corporate structures. Quoting Warren Buffet, Ahlstrom noted that “Trust is like the air we breathe. When it's present, nobody really notices. But when its absent everybody notices.

“In Utah's case, they had a number of 'penny stock' wheeler dealer types who damaged trust in the capital market who they managed to get rid of, thereby improving trust.”

Entrepreneurs (spark) means proven models and capable entrepreneurs and innovators. Intellectual property (kindling) means proven technology platforms. Capital (more fuel) means sophisticated and staged capital.

Ahlstrom argues that what he calls the status game (eg in areas such as sports, politics) is a zero-sum game that creates no value, instead driving jealously and other undesirable behaviours. He prefers to play what he calls the wealth creation game, which is a positive game.

He argues that every entrepreneurial business needs three h's — a hopeful (visionary entrepreneur), huckster (salesman) and hacker (engineer).

Ahlstrom has been working closely with the Inter-American Development Bank to build entrepreneurial venture capital-based ecosystems in Peru and Mexico, his passion being to demonstrate that this is possible even in unlikely countries.

He says he thought long and hard as to what would make a difference to our entrepreneurial ecosystem, and decided that bringing a computer coding school to Jamaica was the best and most impactful solution (see last week Friday's Observer on bringing coding University Bottega to Jamaica for his post-conference announcement), as he reckons the current output of software engineers of between 150 and 300 per year is insufficient to get Jamaica's tech economy started.

As he put it, if capital shows up before the entrepreneurs, disaster follows. His plan is for Utah-based Bottega to open a Jamaica office by September 1, 2019, which will act as a training facility for the first of many software engineers, beginning with a commitment to 5,000 Coding Foundations scholarships. At least 1,000 of these students will be advanced into their Full Stack Engineer programme.

While tuition will be free, with a planned training value exceeding US$10 million, he intends for graduates to pay forward a small portion of their future income for three years to a perpetual foundation to fund future cohorts. To top it off, he says existing tech companies based in Utah could by themselves take the entire output of the school.

Describing how the venture capital funding ecosystem works (detailed in my 2013 article), Ahlstrom noted that in addition to training 1000 software engineers, there was a need to create a fintech and medtech regulatory sandbox (meaning allowing participants to test innovative products and services without a licence for a defined period) to allow innovation to occur.

Finally, he added that his company Alta Ventures had partnerships with Bill Gates/Microsoft and other tech leaders for its technium “discovery, validation and acquisition” platform that connects patented technology with entrepreneurs allowing it to accelerate innovation, noting that over 70% of patents go unlicenced (he puts the value of US patents at US$5 trillion), with 180,000 new patents being issued a year in need of commercialisation.

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