Here's what's needed to accelerate global entrepreneurship

The CEO of Google was one of the high-profile speakers meant to deliver “entrepreneurial inspiration” to an audience of entrepreneurs from around the world gathered in Silicon Valley for the 2016 Global Entrepreneurship Summit.

“You’re the ones building the next Google, the next Tesla, the next Spotify, the next, well we don’t even know,” Sundar Pichai said in a TED style talk at Stanford University last week. “People working anywhere in the world, born anywhere in the world, can create a product, and make it available to anyone in the world.”

But while developing country entrepreneurs took the stage alongside Silicon Valley CEOs, the fact remains that where you are an entrepreneur matters. That is why a key focus of GES 2016 was on ways the public and private sector can build ecosystems that enable startups to scale from anywhere.

Address the lack of early stage capital

The lack of local investment — and particularly early stage capital — is preventing entrepreneurs with great ideas from riding the next wave of market opportunities.

Even with access to capital, these companies dwindle in number as they move through the accelerator, seed, and series A and B stages, said Dave McClure, the cofounder of 500 Startups. But when entrepreneurs cannot raise money to build and validate their product, test and grow their marketing channels, and maximize their revenue, they cannot make the transition from bootstrap startups to mature companies. That is the single biggest reason startups in emerging markets often fail to scale, he said.

“We view the venture capital industry as a service business and we believe we have to get close to the people we try to serve,” said John Doerr, a partner at Kleiner Perkins Caufield & Byers. Most Silicon Valley capital tends to stay there so anyone seeking capital from Sand Hill Road, known for its concentration of VCs, should also look for local capital, he said. But the problem is that in many geographies, there is a lack of local investment.

The need for local capital was part of the motivation for a series of commitments at the summit. The International Finance Corporation, a member of the World Bank Group, announced that it would double its portfolio of venture capital investments to $1 billion, including funding a Startup Catalyst initiative that will invest in accelerators and seed funds in emerging markets. And the Seattle-based Capria Accelerator announced a $100 million fund to back first-time impact fund managers in Africa, Latin America and Asia.

“This whole idea of the next great companies coming from these countries is only going to happen if those companies are discovered, nurtured by, and funded by local managers,” Will Poole, co-founder of Capria, told Devex. “They know how to pick the best entrepreneurs, how to connect them with the right investors, how to connect them with the right mentors, how to help them succeed.” 

Elevate the role of mentorship

Even when entrepreneurs get the funding they need, they are constrained by access to, and retention of, talent — creating what some call a human capital crisis.

“I had to be my own marketer. I had to be the technical boss. I had to be everything in the company,” said Jean Bosco Nzeyimana, who launched the renewable energy company Habona Limited in Rwanda.

For entrepreneurs, the one challenge that gets more difficult over time is attracting team members who can help them take their enterprises to scale, said Doug Galen, the founder and CEO of RippleWorks.

The group, which connects established technology and business experts with social entrepreneurs, partnered with Omidyar Network and McKinsey Global Institute on a report released at GES that outlines how social enterprises can find the talent they need.

Particularly outside of robust startup ecosystems, chief executive officers can become chief officers of everything as they struggle to find the accountants, sales people or attorneys they need to get the job done. The report suggests that CEOs make recruiting one of their top responsibilities, that investors bring in portfolio-wide training services for senior and middle managers in particular, and that other ecosystem supporters provide mentorship that matches skills to needs and ensures long-term sustainability through knowledge transfer and capacity building.

“It’s a bit of a self-reinforcing vicious circle in many cases: No mentorship means less human capital, which means limited access to financial capital, and also no leeway for failure,” said Nina Vaca, chairman and CEO of Pinnacle Group, and one of the Presidential Ambassadors for Global Entrepreneurship, a group of business leaders President Barack Obama has tasked with developing the next generation of entrepreneurs.

There is no substitute for physically bringing together the next generation of entrepreneurs with established business leaders who can share their networks and expertise, she said, pointing to a key reason why the president launched GES.

The value of in-person interaction also led the U.S. Agency for International Development to partner with 500 Startups to bring “Geeks on a Plane” to Africa for the first time in March 2017. The initiative exposes tech investors to new markets.

“For seasoned investors looking to diversify their portfolios, Africa still comes with a lot of question marks,” said Maya Horgan Famodu, who organizes “tours of tech,” which link Silicon Valley investors with African startups.

“Having the in-person conversations allows interested investors to gain a more comprehensive picture of what is happening — and a lot of times I think they are surprised by how fast things are moving,” she said.

Even critics of these examples of investors flying in and out say that if these short-term interactions can lead to long-term relationships, there could be lasting impact in the form of mentorship.

Encourage governments to improve business environments

Three startup founders sat on the GES stage between two of the most influential men on the planet: President Barack Obama and Facebook CEO Mark Zuckerberg. Drawing on their stories of building an events app in Egypt, launching a coding workshop in Peru, and scaling a renewable energy company in Rwanda, they pointed to policy as one area that can get in the way of entrepreneurs who are working to scale their solutions.

“It’s hard sometimes for governments to take massive risks, but what governments can do is to partner with entrepreneurs, start small, work out the kinks, and then be able to back the process of scaling up in that way,” Obama said.

Since the United Arab Emirates hosted the 2012 GES, Dubai has evolved into one of the most vibrant entrepreneurship communities in the Middle East, due in large part to policy changes that removed legal obstacles for startups, said Prashant (PK) Gulati, founder of SmartStart, which works to fill gaps such as startup capital and personal mentoring in emerging markets.  

“Decision makers across local and national governments are uniquely positioned to invest in basic infrastructure, such as access to health care, digital services, sanitation, and others, which are the backbone for any industry,” Dipika Ailani, an associate program officer at the Bill & Melinda Gates Foundation, told Devex. “They can ease up policies and regulations to put incentives in place for entrepreneurs to start a business, get the necessary capital, hire the talent and grow.”

Obama said that part of the motivation for GES is to encourage governments to do their part to build startup communities, a commitment he has taken seriously by launching the summit and elevating entrepreneurship as a priority for his administration.

“It is important for governments in Africa to ask themselves: How can I create an environment which actually nourishes entrepreneurship, and encourages the formation of companies that are actually paying taxes, that are operating within the framework of the law, because the law is reasonable, because the law is sensible, because the law does not pose particularly heavy burdens?” Augusto Lopez-Claros, director of Global Indicators Group at the World Bank, told Devex. He pointed to signs of global progress, such as the sharp increase in the number of countries where entrepreneurs can quickly incorporate companies, based on data from the World Bank’s Doing Business project.

India, host of the next global entrepreneurship summit, is often cited as an example of how governments can make it easier for entrepreneurs to start and grow businesses. The country’s Startup India initiative includes a string of tax breaks, allows for cheaper and faster patent applications, and makes it easier for companies to exit.

Countries that are proactive in their reforms have the potential not only to build the ecosystems that allow their own entrepreneurs to succeed, but also to draw outside entrepreneurs, as Silicon Valley has done.

“As we become more mobile citizens of the world, since we can move, governments need to compete for us, the entrepreneurs, the capital, the businesses and the people,” venture capitalist Tim Draper told Devex. “The next 20 years will see those countries that built great, efficient, and effective platforms succeed, and many of the rest will become irrelevant to entrepreneurs.”

Read more international development news online, and subscribe to The Development Newswire to receive the latest from the world’s leading donors and decision-makers — emailed to you FREE every business day.