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A major incubator is setting its sights on being the Y Combinator of crypto – or better

Isabel Woodford
Managing an assembly of fresh-faced startups sounds like quite the mission. Even more so when said startups are attempting to break into a little-understood market with a still-marginal customer base.The post A major incubator is setting its sights on being the Y Combinator of crypto - or better appeared first on The Block.

Managing an assembly of fresh-faced startups sounds like quite the mission. Even more so when said startups are attempting to break into a little-understood market with a still-marginal customer base.

Still, that's what Creative Destruction Labs (CDL) has set its mind to over the border in Canada. It's one of only a handful of incubators worldwide throwing not just capital at nascent crypto firms, but also mentoring from 80 leading scientists, economists, and experienced entrepreneurs. And it's not just any crypto firms - it's specifically firms with the express mission of becoming mainstream.

"We want to create massively scalable companies that can change the world. This is one reason why we started a blockchain stream, because we believe that it has the opportunity for transform many industries. To make a big impact in the world, the company needs to be massively scalable." Will Yin, a former entrepreneur himself who now heads CLD's blockchain incubator Stream told The Block.

As for selecting which 25 CEOs are capable, Yin says it's simple - "put the founder first."

"We invest in people. So much can change in a year - except the founder," Yin says. 

"One of best [pitches] came in with a napkin drawing," he recalls, noting that the most important part of the process is a simple conversation with the founders. Here, Yin looks for unique insights or domain experience, and even better, a clear blockchain use case - which eliminates 90% of applications.

He says applicants aren't all blockchain experts, but that a good level of technical expertise is expected from those building infrastructure.

"We don't want people in it for the hype."

Selected blockchain founders receive an optional booster $100,000 and meet with their designated mentors once every two months over the 10-month programme. This isn't just to provide top-level strategic advice, but also to hold founders accountable to whether or not they've met their objectives.

"Being a startup is a series of decisions, where you have to make more right than wrong. And you don't want to be making decisions with incomplete info," Yin says. "With the moderator policy you get closer to collective wisdom."

Two current "pupils" also both vouch for the benefits of this system.

"What better way to grow your network," said ZED Network CEO and former Ripple exec Alan Safahi, who has run other startups and says it's the first time he's gone to an incubator. "You're giving up a couple of percent for incredible access to knowledge…They’re operators, people who have built and sold companies,” he told The Block.

Smart contract infrastructure-firm SecureDLT's CTO Arun Majumdar said in an interview that the incubator also helps the recruitment process - hiring 12 "great" people in 6 months.

"One of the hardest things is to hire talented people. But the mentors have access. I can get to talent almost anywhere in the world," he says.

Still, it's not all smooth sailing, and Yin is also open about the demands of managing crypto firms.

"One main difference with crypto companies is that there needs to be a lot of help upfront for design. For example, one area we spend a lot of time on with founders is thinking through incentive mechanisms to produce the desired behavior from all the stakeholders in the system."

He adds: "All tech businesses face similar challenges like selecting the right technologies, recruiting world-class talent, building a community, just to name a few. The challenge for blockchain founders is that the approach to solving these challenges may differ substantially from conventional startups."

ZED's Safahi also notes the difficulties of his project.

"Crypto companies typically are hard to incubate. They essentially have to build a network of token holders, network participants, miners, users, etc."

Nonetheless, of the first cohort - graduating in June - he says well over 70% have done very well and are meeting expectations, with a few even reaching unicorn valuations. And perhaps most importantly, all survived the bear market.

And he notes, many challenges are purely symptoms of being startups rather than being crypto-based.

"All startups will face challenges with go-to-market. Often times, founders spend a lot of time thinking about product but then get stuck when it comes to distribution," he says, noting that that's where the mentoring comes in vital for blockchain founders. "That's why our mentors are both blockchain-focused and general-tech, so that our founders can get 360-degree advice to help grow their companies."

Notably, despite the apparent similarities with major seed accelerator Y Combinator (YC), Yin shrugs off the comparison.

"We actually don't like to compare ourselves to YC because our model is very different. Not to say Y Combinator is bad. [But] the Y Combinator model is about how companies can get higher valuation, which makes their focus on growth metrics even if there are issues," Yin says. "We focus on helping founders with strategy, then setting operational objectives for the founders to execute against." CDL also doesn't have LPs.

CDL says the goal is to have created $100 billion (CAD) in equity value creation across all streams - not just the Blockchain Incubator Program - and for half of those companies to be Canadian based. Indeed, Yin says part of the mission is to boost Canada's profile.

"There is so much talent in Toronto. There's a lot of cutting edge Artificial intelligence that came out of Toronto...A lot of talent left to San Fran because there wasn't the ecosystem to keep it."

And the hunt for new founders continues, with the next round of applications closing on May 19.

"You can feel the energy in the air," he says.