Most founders and VCs operate in regions that they are familiar with. For obvious reasons, they understand the market, speak the language, have trusted connections and access to capital.
While this can bring success for both there’s also a fundamental problem: Great founders might not operate in the same region as great VC and vice versa.
The result is that many VC start to limit themselves to what is available in the region and the most successful startups in the region set the benchmark for what is possible. But investors miss the perspective on great talent that is available beyond their region or are simply unable to unlock it.
Is this really a problem?
Example: A talented European blockchain founder A should be looking at Singapore as his next market due to the strong support (in the form of supportive regulations) from the government in the fintech space. But he will need to raise capital and get active support to enter.
Fintech VC X does not support founders that have their HQ in Europe and as their mandate tells them to look only at Southeast Asia –also, they don’t have the required advisory resources.
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There are exceptions out there where VCs, angel investors, accelerators and venture builders with a global mindset fill the void from pre-seed to later stages, but in general, few VCs have a clear direction for this opportunity in their investment thesis.
Angel investors, accelerators and venture builders typically don’t have the capital resources needed to source talented foreign founders, provide capital and support their market entrance.
The great reset
Since we are currently in the midst of a ‘great reset’ caused by COVID-19, right now is a good time to start thinking what the startup ecosystem will look like in the next five years. One thing is for sure, we will continue to need the innovation that startups create in order to bring our society forward.
Even more important is that we make sure that we don’t let great talent go to waste just because they are in the wrong environment or circumstances.
What do we need then?
- We need to support the founders that focus on the environment that is going to work best for them and that are prepared to venture out of their base region.
- We need truly global VC that add active value on a regional level to startups but focus on sourcing founders globally
- We need VC to become active advisors, set up frameworks of support resources and not just only provide capital. Much like angel investors, accelerators and venture builders have been operating.
- Where VCs have generally shifted to later stages (Series A and beyond) in the past decade, they will need to move back towards the earlier stages as capital in pre-seed, seed and pre-series A will dry up and valuations will come down.
Let’s face it. Despite the tough times ahead for the US economy, smart and creative founders will likely flourish by starting companies that will grow big in the next 10 years, in ways that we can not foresee yet while generating great returns for VC.
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What should founders and VCs in other countries learn from the US? Can they extract the ingredients for success and apply them in their own respective operating regions? I believe they can, but it requires a different way of thinking and looking at the world.
Let’s have a closer look at those ingredients needed and use the US as an example so we can make practical conclusions.
What are the ingredients needed for any successful startup?
There’s obviously a lot of factors that define whether a company will be successful or not. But at the core, I believe two things are essential and should drive how founders and VC think. One ingredient is ‘founder’ the other essence is ‘environment’.
If a great founder finds himself in the wrong environment the company likely won’t succeed and vice versa.
What makes a great founder?
I believe it’s the founders that start something out of necessity rather than a luxury that have the real drive and creative mind to innovate and succeed.
If it would be irrelevant if a founder was great or not, any large corporation could spin-off a successful startup and it’s proven that most can’t, due to a lack of real drive and creativity (even though they might provide the right environment).
At the same time, we all know that not just any person with an idea could launch and build out a successful company.
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The comfort zone
It’s no surprise that a lot of successful companies have been started by immigrants (ie. Apple, Google, and Amazon). Why? Well the mindset of these founders can be defined as ‘getting out of the comfort zone’, there’s simply no plan B only plan A.
And this is regardless of whether it was them or their parents that immigrated before they were even born. It’s the (open) mindset of ‘anything is possible if you are willing to make changes and put the effort’, that they grew up with that define the actions they took in their further lives.
Being an immigrant myself, I’m fully aware of the clarity that appears around you when the comfort (social contacts, any form of job stability or money) of what you are used to, disappears. It’s like a big reset. Distractions are taken away and you simply start to operate on a level of necessities rather than luxuries. What is it I really need (to do)?
The right mindset to success
If you apply this mindset to starting a company, you know that your idea needs to address a real problem in order for people to see the real value (so they will pay you). You also know that flexibility is need as changes might be needed along the way in order to make the business work.
And since you, as an immigrant do not have that many options, you don’t have time to experiment with what could be the next big thing. You’ll likely run as hard as you can for the idea that you can execute with the resources that you have while creating innovative solutions along the way. In the end, that’s what every VC should want from a founder; to create maximum success with limited resources available.
Just to be clear: I’m not stating that a founder should not experiment. It just seems that in many cases, we have lost the real problem-solution fundamentals that a founder should work on.
I moved to Taiwan from the Netherlands in 2014 and decided to launch a new venture called CarPal. After six months I realised the market circumstances were not ideal, so I started to test other markets.
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Singapore turned out to be great. I moved myself and the company to Singapore and was able to raise SG$1 million in 2015 to grow. If I would not have been flexible at that time, I’d probably never ended up in the right environment.
I’m not claiming that all founders should be immigrants. As long as there is a healthy level of ‘out-of-comfort’ in their lives and they see a real problem they would like to solve with passion, they’ll likely be more creative and run harder than somebody who wants to start a company because their friends did.
So that’s just one ingredient. Just getting out of the conform zone might not be enough and even backfire if there’s no support system that will help a founder to grow.
How can a great founder succeed in the right environment?
We all expect a founder to be resourceful, but only to a certain extend. A great support system is needed. Simply put, founders need capital and advice from the right people.
I believe VCs have a role to play here as they have access to the resources to do so. We need them to become truly global VC when it comes down to sourcing founders and be prepared to provide advisory resources beyond just capital.
Sure accelerators, venture builders and angels have filled this space for several years as mentioned before but set aside a few exceptions, most have limited resources.
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How about the government?
Singapore is a great example of a government that is aware they also have their own part to play. And they do that very well, I dare to say probably the best in the world. I believe this is extremely helpful if the support flows to the right talented people.
However, the government can only do so much and they will always have a bias towards their own citizens, great founder or not. I’d say they can put up a nice canvas but founders and VC will have to provide the paint.
Also, as a reference let us keep in mind that the ecosystem in the US has not been fundamentally created by the government, it has always been the entrepreneurial spirit of founders that have brought innovation supported by smart capital.
VC will shift back and focus on earlier stages
Where VCs have generally shifted to later stages (Series A and beyond) in the past decade they will need to move back towards the earlier stages as capital in pre-seed, seed and pre-series A will dry up and valuations will come down.
Talented founders won’t be able to succeed without their help, hence the deal flow might dry up if they don’t act.
Learning from the US
I won’t go too much in-depth as there’s only so much we can adopt, but there’s a few characteristics that few in countries the world have:
- Full ‘immigrant mindset’ (each person is typically only 1 or 2 generations away from an immigrant)
- Mindset where failure is socially accepted while starting a new venture
- Strong ecosystem across company stages with experienced angel investors & VC that provide more than just funding but also advisory and sometimes even operational resources
- Proven successes that make sure institutions and private investors will keep investing money in to venture capital
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How about family offices?
I left out family offices from the discussion as they generally have less of a venture capital thesis in place or advisory resources available. However, family offices could decide to work with a multi-family office to extend their reach and knowledge or invest in the fund of a global VC.
I think over the next five years we will see the following happening:
- Founders will move increasingly out of their existing base and start exploring other regions
- A new generation of VC will emerge that bring focus to sourcing talent globally regardless of their home base
- This same group of VC will start to provide resources beyond capital
- VC will shift back to earlier stages (such a seed and pre-series A) and work closely together with angel investors, venture builders, and accelerators
- Smart institutions, wealthy individuals, and family offices will seek to back this new generation of VC and founders
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