Throughout Global Entrepreneurship Week (#GEW2021), thought leaders around the world are contributing their insights on trends in entrepreneurship. This article is part of this series.
Here is a small sampling of many observations I’ve heard from American investors who have recently woken up to new opportunities in rising markets.
“I missed getting into Latin America early. I’m sure not going to miss getting into Africa early.”
“I wish I invested in everything I passed on in the last three years. They all have up rounds and I’d look golden.”
“I’ve never been to Pakistan, but I have a friend who can get me into a dozen early deals and there’s no doubt one of them will hit.”
“I’m trying to get into everything from emerging markets that has been accepted by YCombinator in the last two years. Valuations are absurd but if one works, who cares?”
There are a few common threads here. Note that many of these investors have never been to these parts of the world. Note the use of the word “I” throughout. Note that they all effectively argue for spreading a wide portfolio as opposed to analysis of the entrepreneurs, sectors, and THEIR needs.
This, for me, is simply a new kind of zoom-enabled spray and pray.
My friends bristle when I suggest this. They note, fairly, that they do have some sector expertise and do aim with greater precision than the above suggests. They note – and evidence is absolutely on their side in the last two years – that a wide portfolio overall is a good indicator of finding success in subsequent rounds.
I come at this differently because I think a great portfolio starts with what is best for the entrepreneur on her terms. And the best entrepreneurs are building companies for the ages, not for the next round. In fact – and I say this to entrepreneurs daily – I know you’d love X brand name on your cap table for future signaling. But the best signaling of all is… over performance.
In these frothy days where everyone thinks they are a venture capitalist, where great wealth is showing up everywhere, doing little due diligence, willing to pay almost any cap - I’m sensing the best entrepreneurs don’t love it. They believe that while the branded names can help them with their next rounds - they too often bring little substance to their specific needs. In fact, they often offer counter-substance because they still think any market from Colombia to Pakistan is some new version of an older version of the Valley.
So, the smart founders are doing something incredibly obvious but I don’t hear it expressed often enough. It was said to me perfectly this summer by one of the greatest entrepreneurs I know from Latin America. When he was raising, early on and before anyone knew who or what he was, he first did a deep assessment of his own weaknesses personally and as a manager. He similarly did a blunt assessment of what he needed shoring up operationally to expand rapidly in the areas he was focused upon.
He created a list NOT of the obvious brands everyone checks, NOT of some individual that carries buzz and a popular podcast. The list was all about shoring up those weaknesses and opportunities and being with investors for the long haul. He then focused on execution. By the way, some of those investors barely known at the time are now running billion-dollar funds and are as committed to the entrepreneur as ever. And not only did the best funds come in later, but the best INDIVIDUALS in those funds were the most helpful to the next stages of what he was building.
The most exciting part of today’s entrepreneur-friendly investor environment is not that a ton of capital is available at frothy valuations that minimize entrepreneur dilution. The most exciting part is the entrepreneurs have a choice with whom to surround themselves.
I may be old-fashioned, but I don’t think the new spray and pray sustains over time, especially in new markets leap-frogging models we “gringos” take for granted and that made us wealthy here at home. Rather, it takes work to discover and be of service to the team that understands what others don’t about the ground and the scope of problems and opportunities on their terms.
“On their terms” is the watch phrase. Millions - I’d argue billions - of people are entering the new economy for the first time almost overnight, and entrepreneurs don’t need money for the sake of money playing some kind of lottery. They need partnership and pattern recognition and, dare I say, a little humility.
They will do the rest unleashed with what they know and their unrelenting passion to make something enormous that was never there before.