What VC’s Are Missing in a Rising World of Smartphones

March 31, 2014

4:48 pm

Here’s a fun pop quiz for those of us who think we are worldly in our ways.

What, in aggregate dollars, is the largest mobile payments country on earth?

Did you guess the United States? Wrong! It’s Kenya. Thirty percent of its GDP passes through a dumb-phone texting ability called mPesa.

Next question: What, in per capita terms, is the largest YouTube-consuming nation on earth?

I bet you’re thinking it’s the US. Wrong again! It’s Saudi Arabia. And the largest plurality of users are women watching education videos.

If I named a country that has declared war on corruption and plans, in three years, to have their entire nation LTE (leap-frogging 3G and 4G) and have everyone under 21 own a tablet, where would you guess?

Try Rwanda.

Recently Souq.com, the largest e-commerce player in the Middle East, raised $75M from South African investors Naspers at a reported valuation exceeding $500M.

This news is a huge counter-narrative and serves as a lens to how emerging growth markets are in the early days of changing the global tech landscape. Have US investors gotten the memo?

Some have noticed. General Atlantic (out of their London offices) understands this. Tiger Global (who invested in Maktoob, the Yahoo! of the Middle East that was bought by Yahoo!, which subsequently spun out Souq.com) puts their money where their mouths are. Operating tech companies (Google, Microsoft, Intel, Vodafone, Cisco, PayPal, Linkedin, Facebook, and Twitter) understand it.

But Western VC’s are slow, and US VCs in particular are slow to catch on to this trend. In part, this is because US investors are accustomed to seeing the best US deals, and they are used to dealing with our ecosystem, our rule of law, the network effect of talent that is Silicon Valley, and other places here that are attracting dollars accordingly.

At the same time, our internally focused friends have also not quite figured out how to engage in a coming world of 5 billion smartphones — where literally billions of people will have super computing on their person in corners of the world we have all but ignored.

Too many Western VCs are of the mindset of: We’ll go where there is big market cap (“may lose money in China, but we’ve got to be there”), or where we can outsource cheaply. They will have their offices in Israel, China, Brazil, India perhaps, but also believe if they find world-class entrepreneurs, they will be willing to move where the action is.

But they are missing how the world is shifting when there is ubiquitous access to the very software they helped invent! Great entrepreneurs want to stay home, and now more than ever, they can. And market opportunities are springing up around them at scale.

To make it globally in tech, it used to be like the World Series in baseball — all about making it in the US. This is changing. Now I see companies in the Middle East and elsewhere that will make a fortune not thinking about the US as a market because the other markets are so big. Souq.com is all about their region, then Africa perhaps. I doubt Baidu or Tencent in China, or Yandex in Russia, or Mercado Libre in Brazil and Latin America spend five minutes wondering about whether they need the US to succeed.

I’m not saying the US isn’t central to the future of innovation, entrepreneurship, or venture investing. It will be. I’m not saying these new giants will ignore us. They won’t.

I am saying that the world is changing dramatically, and ideas, innovation, entrepreneurial excellence, market power and investment prowess is now being unleashed bottom-up, everywhere.

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