This tweet I did based on an article I read in The New Yorker last month won´t get out of my head:
The US is driving the digital revolution we are experiencing, as they have in the past. Access to early stage capital in combination with a substantial tech talent pool in Silicon Valley as well as direct access to a large, homogenous market are all reasons why this is. However, a lot of the concepts developed in the US, do not translate well into smaller, less homogenous markets. So, the questions is:
How can we ensure good ideas from smaller markets grow into ground breaking, global businesses?
Access to (patient) venture capital is important
The innovative hub in Silicon Valley, where capital meets ideas in an efficient way in early stages of a business´ lifespan, is a key reason to why the US is in the driving seat of most of the ongoing digital revolution. As a result, it is easy to think that all tech and market driven innovations more easily can take place and be nurtured there. However, digital disruptions are global, especially due to the smart phone´s exponential growth across the entire globe. For example can emerging markets be a source of truly ground-breaking ideas due to the fact that they are not set in old ways and can easily adapt to new realities.
Access to funding for technology driven ideas in its early stages is most often not as accessible in smaller markets as it is in the US. Most often, capital is rather routed towards projects that are considered less risky or connected towards industries that are driving forces in that particular market.
My experience from working in a market where the latter is very much the case, have discovered another reason why it is so hard to develop new global tech successes from smaller markets: if you do manage to get access to venture capital for an early stage tech driven idea, the patience of the venture capital is very limited. You might raise the first couple of rounds, however the time needed to build game changing technology is often underestimated.
If you then are facing investors that are not experienced in investing in digital disruptive technologies, they most likely will not have the patience to stick around long enough to see the solution developed into a successful market offering. Therefore, the result is often that companies from smaller markets are exited too early, or simply vanish before they are ever launched.
Allowing the development of ideas in smaller markets is important
I have witnessed so many times that entrepreneurs are travelling from smaller markets, like Norway (where I happen to live), to the US – Silicon Valley in particular, to test their idea, hopefully get some kind of user or market acceptance, and secure capital along the way. I am yet to learn about any one of these truly succeeding. Here are some of the reasons:
- Coming from a small market, the idea/concept/product/service they have and are most prone to develop, will probably work better in a smaller market, and may not gain traction in the same way in a larger market. This also means that future developments on the concept is not done best in a large market, but rather in one´s smaller home market.
- Pitching ideas without any background or knowledge of the US market, and the competition one is up against (i.e. the “local” entrepreneurs with the background and training of speaking the language fluently and presenting their ideas in a way that triggers VCs) makes it extremely hard to land funding
- Access to talent is scarcer when outside one´s home turf, competition for talent in Silicon Valley in particular, is fierce. Recruiting stars to help further develop your idea is crucial, but almost impossible in Silicon Valley.
- Some of the advisors looking to help the “novices” coming from far away places like Norway, are not necessarily the best candidates. It is easy to spend your time on the wrong resources when in a new environment with few people in your network. Therefore, access to advisors to help grow your business, is probably more easily secured in your home market.
Considering that most of the world´s population lives outside of the US, and the top ten most populous countries in the world is slowly declining in terms of their share of the global population (according to Wikipedia graph on global population developments), I belive entrepreneurs should focus on developing their ideas on their home turf. The key is to find the smaller picture approach to a bigger trend – not to copy the big players in the big market.
The change we have seen these past years towards a more open sharing culture, where technology as well as knowledge have become more accessible to everyone everywhere, makes it easier to develop new businesses from anywhere. I hope the US VC firms are in deed actively searching for new ideas in new markets, and also view smaller markets as a source of innovation and good investments in the future.
Also, I do hope that the success of VCs in Silicon Valley can inspire local capital in smaller markets to direct more of their funds towards earlier stage companies. We are in the middle of a digital revolution. It would be sad if it is driven by only one nation.