'Genetically engineering' startups for success

We may be inventive and entrepreneurial, but it doesn’t mean that New Zealand’s innovation ecosystem is as optimised as it could be to develop ideas to living, breathing businesses.

Dave MoskivitzFrom an IT point of view, Wellingtonian American Dave Moskovitz thinks we can do a lot more to get good internet initiatives cranking quickly.

As chairman of seed investor/incubator WebFund, Moskovitz is more aware than most that while there are strong points in the startup ecosystem, there’s also gaps.

Moskovitz (as befits a man also deeply interested in linguistics) isn’t short of a pithy analogy.

Larger markets such as the US have a random mutation, a natural selection dynamic where all the components of a successful ventures can fit together.

“There’s the sperm of an idea, the egg of execution and the womb of resources where elements can combine randomly, if there are lots of each as they have in overseas markets,” he says.

“In a place like Wellington, because of our smaller scale, there’s not the luxury of natural selection or random mutation. What we’re proposing is to genetically engineer our startups to give them every chance of success to enter overseas markets.”

To this end, Moskovitz has spent the past 18 months looking at overseas models such as Y Combinator, TechStars, and Lean Launchpad (among others), but says such accelerator examples need tailoring for NZ conditions.

The result is ‘HyperStart’, which will be preceded by a ‘Startup Weekend’, though in the context of what Moskovitz (and Grow Wellington/Creative HQ/BizDojo) are putting in place, HyperStart is where the rubber will really hit the road for taking a good idea to market.

HyperStart will take place next February and March in Wellington as an intensive – well, for want of a description – hands-on degree from the school of hard knocks probably works the best.

The first two weeks will include significant coursework, including Eric Ries’ lean startup methodology which Moskovitz sees as a “real enabler to get something off the ground quickly.”

Lean startups work on the principle of a minimal period to get a “minimum viable product” out to the (internet) public, and let users decide what works, what they’re willing to pay for. This compares to a new company building an internet product to something that is perfect (at least in their own eyes).

“The most expensive development for a product is to put in features that people neither want or use,” says Moskovitz. “Done is better than perfect.”

With a lean startup, the initial product can be relatively ugly, but is a way of finding out what people might want to use, find out what works.

“One element of the lean startup methodology is smoke tests,” he says. “You can put a link on a page to a feature you don’t know whether you should develop. That landing page for the link is a dummy, saying that the feature is in development and people should come back. If there’s no clicks, it isn’t worthwhile spending time or money on it, and you might as well test other features. You can measure what people are actually doing, compared to what you think the market might want.”

Lean methodology is the cornerstone of the coursework which also covers market validation, product and customer development; intentional expansion, and funding.

An important goal of the Hyperstart Programme is for the companies to get customers onboard. If people can’t get customers, “they’re obviously barking up the wrong tree.”

Entry to HyperStart will be competitive, with entry opening in October, closing in late November. The best 20-30 ideas will present five minute pitches, and around 10 of these selected to enter the programme proper.

“They will receive investment immediately on acceptance into the programme,” says Moskovitz. “The best one, two or three that get through will have another $225,000 invested, to prepare them to do a local angel round or Series A and to launch overseas.”

The expectation is that within nine months of finishing the six-week course, the startups will be ready to launch, fully invested, overseas. WebFund will work very closely with those selected to do this, he says.

WebFund is managing this particular exercise as a separate fund, taking out no other fees other than legal and accounting – a model that’s different from overseas examples where management takes a fee at the beginning and during the startups’ development.

There will be a performance incentive for WebFund, once the investors investment and a stated rate of return interest is provided via a trade sale or IPO,

“The key is, there is not a fee at the start,” Moskovitz says. “We’re investing our own money, and we obtain an upside only if the startup succeeds. That’s new for the New Zealand market.”

Moskovitz says that many parts of the startup environment are present in Wellington and New Zealand. Examples such as Grow Wellington’s ‘Bright Ideas’ programme, TechNZ funding, incubators, and investors such as Angel HQ and Movac are all strong points.

“But often we’re operating as islands in a sea, some not very far apart, but still somewhat siloed,” he says.

“We want to fill that sea in, become an archipelago, ideally connected to one another as one big long diving board. When people make the jump overseas using New Zealand technology and knowhow they need to do it in a sustainable way.”

“HyperStart’s a way to bring together the ideas, capability and the resources in order to enable the businesses of tomorrow to take off in Wellington.”

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