The unicorn. It has been a buzzword in Silicon Valley since investor Aileen Lee first coined the term to capture those companies that are valued at $1 billion or more.
While many dismiss the mythical creature as meaningless jargon, recently the global development community has joined the tech industry in framing the billion-dollar valuation as a benchmark for breakout success.
Unicorns are making their way into conversations about global entrepreneurship, but while all entrepreneurs should shoot for the stars, should startups in developing countries aspire to be the next billion dollar companies? Even in Silicon Valley, the obsession with billion-dollar companies seems to be fading due to a series of companies that have reached that benchmark only to see their value come crashing down. And as their investors become more interested in emerging market economies, the global development community may be in a unique position to reframe the metrics of success from a billion dollars raised to a billion people served.
“Whether you are a billion-dollar company or not is inconsequential,” said Randall Kempner, executive director of the Aspen Network of Development Entrepreneurs, explaining that what matters more for global development is what ideas can scale to reach a billion people. “The way to get to scale may not be through the growth of a single company, but through the replication of that idea to multiple companies, and from a development perspective we have to be open to all the ways in which we can scale.”
Earlier this year, the Africa Internet Group, the leading internet platform in Africa, became the first company with a billion-dollar valuation to emerge from the continent. And last week, Go-Jek, an on demand motorbike taxi service in Indonesia, joined the short list of unicorns from Southeast Asia after closing its most recent funding round.
But while some of the most recent additions to the three comma club come from developing countries, those examples are few and far between.
“The idea of a ‘unicorn’ is pretty Silicon Valley-centric. It reflects the fact that the tech industry in Silicon Valley accesses a market that is global and rich,” said Nelson Phillips, acting dean of the Imperial College London Business School.
In order to identify promising investments in developing countries, Silicon Valley investors should look for firms that are addressing a significant portion of a large market, and growing quickly, putting them in a position to break out internationally, he said.
Unicorns in emerging markets
Billion-dollar valuations require deeply ambitious founding teams, access to talent and capital across all stages, and healthy markets for mergers and acquisitions and initial public offerings, said Amit Anand, founder of the Singapore-based Jungle Ventures, which helps startups scale across the Asia-Pacific.
“What we need though is consistent and patient investments in these markets which would allow them develop and eventually demonstrate the same vibrancy as the Silicon Valley,” Anand told Devex.
Many emerging market economies lack the basic building blocks for billion-dollar companies, including a stock market that would allow a company to go public.
While most experts who spoke with Devex said that growing the number of unicorns should by no means be the primary goal for private sector development, they acknowledged that the emergence of billion-dollar companies from new markets can serve as inspiration to global entrepreneurs looking to build successful companies.
“Of course we need unicorns,” said Nancy Pfund, founder of DBL Partners, and an early investor in both Tesla, the electric car company with a $33 billion valuation, and Off Grid Electric, a social enterprise that operates in Tanzania and Rwanda. “That’s how we get people who grow up and want to be leaders of companies that can change the world.”
It is the optimism and belief of entrepreneurs that has made Silicon Valley so successful, said Dave McClure, the cofounder of 500 Startups, who said the area is full of people “hallucinating” that “they are going to build the next billion-dollar company.”
Of 1,000 bootstrap startups, only two or three will become mature companies with initial public offerings of $100 million or more, and startups in emerging market economies face major hurdles moving through stages of growth let alone reaching billion-dollar valuations, he said.
Earlier this summer CEOs from companies including Google and Facebook told the audience of entrepreneurs at the Global Entrepreneurship Summit that they, too, could build the next billion dollar companies. The reality is they face barriers from lack of access to early stage capital to challenges with recruitment and retention of talent.
Aiming for reach over value
“When you talk about a billion-dollar valuation, it’s just a subset of the value you are creating as an entrepreneur,” Timothy Ajekiigbe, founder of Uplinx Techub in Nigeria, told Devex.
He said his priority is not becoming a billion-dollar company but rather addressing the needs of local customers ranging from information and communication technology to human capital development to renewable energy and later scaling across the African continent.
Still, members of the global development community are framing issues on the African continent ranging from connectivity to sanitation to energy as billion-dollar opportunities in an attempt to draw Silicon Valley dollars toward these challenges. One example was a recent panel at the Clean Energy Ministerial in San Francisco where Pfund spoke about off-grid solar energy as the “horse to bet on” at the bottom of the pyramid. Following the panel, Nicole Poindexter, CEO of Energicity, told Pfund that while she expects Energicity will be a billion-dollar company, it will require patient capital.
When Poindexter approached investors to seek funding for her solar power startup in Ghana, the subtext of the “no” responses was that it would take these investors too long to get the company to a place where they could exit. Particularly in the energy access space, and other markets that generate both social and financial returns, investors and entrepreneurs should focus on profitable business models that may or may not result in billion-dollar valuations, she told Devex.
“The fixation on a billion-dollar valuation has just gotten people in trouble,” said Anand Sandwal, the CEO of the big data company CB Insights, which has a unicorn list that is updated in real time. “They chase after these valuations and they haven’t earned them.”
A year ago, CB insights released a list of 50 companies that may achieve a billion-dollar valuation to in the next 12 to 18 months. It was dominated by companies in the United States but also included startups in the United Kingdom, Germany, the Netherlands, China, India, Brazil, and South Africa. Sandwal said it is only a matter of time, likely five to 10 years, before Africa will see more billion-dollar valuations.
Rather than seeking out the rare unicorns, Silicon Valley investors interested in sub-Saharan Africa should instead look to small and medium enterprises with high growth potential that are the engines of economies, the job creators, and the more realistic sources of inspiration for entrepreneurs from developing countries, Kempner said.
“Silicon Valley investors have an incredibly important role to play in supporting global entrepreneurship, but it’s going to require them to get out of their comfort zone,” he said.
Join Devex to network with peers, discover talent and forge new partnerships in international development — it’s free. Then sign up for the Devex Impact newsletter to receive cutting-edge news and analysis at the intersection of business and development.
Catherine Cheney covers the West Coast global development community for Devex. Since graduating from Yale University, where she earned bachelor's and master's degrees in political science, Catherine has worked as a reporter and editor for a range of publications including World Politics Review, POLITICO, and NationSwell, a media company and membership network she helped to build. She is also an ambassador for the Solutions Journalism Network and the Franklin Project at the Aspen Institute.
Subscribe to Devex Newswire
Top international development headlines emailed to you every day