Can a startup from a smaller or often overlooked market go global?
Yesterday, we had an insightful AMA session with Zachariah George at Included VC. Zachariah is Managing Partner of Launch Africa , one of the most prominent and dynamic early-stage Venture Capital Funds across Africa. While our conversation predominantly revolved around the African market, I’d like to draw parallels with “small markets” or “overlooked region” in this article. My aim is to inspire those among my readers who are aspiring investors or founders from mainly those regions, through the lesson I learned yesterday.😉
Many of these frequently overlooked markets tend to be relatively small or less developed. They are characterized by different types of challenges, spanning healthcare, food security, education and more. Why they exist like this forever? This could be the reason : those with money lack the time to address issues, while those with time often lack finance. The question arises: if those possessing both the means and connections do not step forward to address these market issues, who will?
However, introducing a concept like venture capital in these markets is far from a straightforward task. Financial investments in these regions predominantly originate from corporates, banks, private equity, and friends and family. Corporates often seek assistance from accelerators, venture builders, and seed funds to help resolve their challenges. Large corporates normally engage with incubators or accelerators to identify promising startups and collaborate with them. Accelerators play a crucial role in identifying the right companies and assisting them in overcoming challenges. This is precisely why following a process similar to Zachariah’s approach — establishing an accelerator before launching a VC fund — makes logical sense. It not only helps in gaining a deeper understanding of the market but also fosters relationships with various stakeholders, including founders. This is VC context.
Now, let’s delve deeper into the essence of the article’s title: “Can a startup from a small market expand globally?”
It is quite difficult but it has to leverage the resources and network. Startups in these regions must leverage the available resources and networks rather than blaming the size of their market. Simply injecting capital into the startups might not be enough. A lot of home works is needed.
Collaborative partnerships with big retailers, telecommunications companies, and tech players become pivotal. Forming alliances with large corporates can significantly ease distribution hurdles and reduce the costs of acquiring customers. For instance, the scenario where Orange boasts over 300 million customers — this could serve as a good distribution network for African startups. Large corporates can open doors to numerous markets that might otherwise pose barriers for startups to enter. Additionally, these corporates can also potentially become acquirers of startups, retaining the option to acquire them at a later stage. Often, most hyped barrier is Language but rather than it , in many cases, the main barrier is related to the business mindset of founders. Many founders in these regions tend to limit themselves to specific towns, regions, provinces, or just a single country. To succeed, founders must adopt a global perspective and focus on achieving positive unit economics. Likewise, before going to new markets, it is wise to validate product-market fit within their own country. Limited availability of local VCs for expansion may be a hindrance, prompting founders to contemplate establishing the company’s headquarters or subsidiaries in different countries. However, this alone may not suffice. Other strategies may include participating in a global accelerator program, creating an expansion plan starting from Series A, recruiting the right mentors on the cap table early on , good advisors, and being prepared to make certain sacrifices for long-term gains.
If still you think small market is the problem, I would like to remind you of this prime example of a small market defying odds-Israel, a nation with a relatively smaller market size yet home to several unicorns.😲
But the journey does not conclude here. What about exit opportunities, a matter of significant interest for VCs? Often, appealing exit opportunities are thought to be not existing beyond EU, US, or India. Is it correct? Here’s the answer — -What is publicly visible may diverge from the reality on the ground. Many exits remain undisclosed on commonly referenced platforms/media like Crunchbase, Bloomberg. The majority of exits in these regions, say Africa, mainly comprise corporate mergers and acquisitions (M&A), as a defense mechanism. To be more specific, these M&A activities are largely vertical, meaning they acquire smaller startups to expand their product offerings or market reach. IPOs represent another alternative but they are becoming riskier and less efficient, especially in regions like Africa, due to easy listing procedures with low regulatory cost and due diligence requirements. There are several examples of startup doing very well previously facing the problem of going public. Therefore, it appears increasingly crucial for promising companies to remain privately held for extended durations.
In conclusion, the journey of startups originating from small or often overlooked markets aspiring to attain a global footprint is unquestionably possible though difficult. However, with the right approach, strategic alliances, and a global mindset, any company from even a small country can go big.
Thank you for reading the lesson I learned from amazing Zachariah George. There are several other lessons which I have not mentioned. If you want to discuss about the lesson or the possibilities of startup from small nation to go global, let’s talk. Here’s my linkedin: https://www.linkedin.com/in/sudarshan-gc/
