As investors, we know that the opportunities in emerging markets like India, Latin America and Sub-Saharan Africa are astronomical. Just last year, Indian impact startups raised over $1 billion of investment capital, and that amount is expected to skyrocket globally to $300 billion by 2020. If we look at the private sector as a whole, global funders are pushing for even more capital to be invested in emerging markets – the World Bank is calling for over $1 trillion to bridge the financial funding gap between established and emerging markets.
Despite the global rise of funding available in emerging markets, we still see the majority of emerging markets underperforming: regions like South Asia are faced with high startup valuations and low exits; Latin America and Africa are urgently trying to activate entrepreneurial output in their ecosystems as seen in the graph below from The Startup Genome Project’s 2017 Global Startup Ecosystem Report. While funding is important, as a team of veteran entrepreneurs, we know that access to capital is often just the beginning of the story for an entrepreneur.
In order to see more startups in emerging markets thrive, we need to revolutionize the way we train and support entrepreneurs to develop the skillsets needed to build successful businesses — and we need to support key players in the ecosystem, like incubators and accelerators, to do so.
Over the course of the last few years, Capria has been building and testing a program dedicated to bolstering entrepreneurship through entrepreneurial support organizations who are training the next generation of emerging market enterprises. But first, what even drives entrepreneurial success?
Funding alone doesn’t drive entrepreneurial success
If we write out a basic entrepreneurial success formula, it might look like this:
Success = team + idea + technology + product + market + sustainable differentiation + economics + execution (supported by ecosystem training and support) + funding
When we look at mature entrepreneurial ecosystems like Silicon Valley, we often find that funding is a crucial driver of successful outcomes for startups. In many cases, this funding comes quite easily. As a result, startup ecosystems around the world have glamorized the title of becoming ‘The Next Silicon Valley’. But Silicon Valley’s successes are built on a significant advantage resulting from over forty years of robust ecosystem building and from an abundance of available management talent.
This is not the reality of entrepreneurship outside of Silicon Valley. In GALI’s 2016 report, Accelerating Startups in Emerging Economies, investors were asked about instances where founding teams had great ideas but had problems with execution – over 50% of the emerging market investors pointed to a lack of entrepreneurial experience. In contrast, none of the respondents who invested in high-income countries cited this as an issue. As one emerging market investor succinctly expressed, “we often see great technical ability, but significantly lower entrepreneurial ability.”
This is deeply concerning to investors, but this is not the fault of entrepreneurs. They are often up against some significant obstacles that they have not been trained to deal with in their respective markets where support is very limited. Ultimately, if we want to see more entrepreneurs thrive, we need to help entrepreneurs develop the right roadmap, Critical Success Factors and skillsets necessary to build sustainable, scalable and fundable ventures.
Today, essential ecosystem players such as incubators and accelerators are popping up in emerging market ecosystems, like India, at a prolific rate. Often, these programs model themselves around Silicon Valley mentor-driven approaches, showcased by support intermediaries (funders, incubators, accelerators, ecosystem builders, etc.) such as Y Combinator (a notoriously inaccurate comparison for other ecosystems to use as a model), 500 Startups and Techstars. They assume the same level of experiential training and rely heavily on mentors to work with entrepreneurs. While mentorship is essential, we’ve found that this approach alone isn’t working. Based on our Incubation and Acceleration Global Best Practices Study with a sample of around 80 organizations from around the world, we found that only 5-8% of startups receive funding in India versus 35% among their mature market peers (and over 70% among the top performing accelerators in the world).
Entrepreneurs know they need so much more out of these programs. When asked to rank the benefits they hoped to receive from an incubator or accelerator program, one major difference stood out between mature market versus emerging market entrepreneurs: “business skills development” was ranked significantly higher by emerging market entrepreneurs than their mature market peers.
Entrepreneurs know that they need to develop these skills, and as stakeholders in the ecosystem, we need to dramatically change the way we work together to do make this happen.
Capria’s VentureBasecamp: Catalyzing the Next Generation of World-Class Startups
Over the course of the past two years with support from USAID’s Global Development Lab, Capria has been testing the application of best practices to improve the training and entrepreneurial support available to emerging market ecosystem players like incubators/accelerators and their cohorts.
The Capria team worked with a group of incubators and accelerators throughout India to deeply understand the obstacles they faced in their daily operations and the types of support that the ecosystem offered (hint: not much).
Ultimately, we found five core limitations in the ecosystem:
- limited access to capital
- nearly non-existent entrepreneurial knowledge and skills training
- little ecosystem support for programs like incubators and accelerators
- disproportionate access to high-quality mentorship, and
- unsustainable incubation business models.
Starting in June of 2016, Capria piloted its VentureBasecamp program to train incubator managers and their cohort entrepreneurs as a means of bridging these major gaps in the ecosystem. The value proposition is simple: learn the best practices, core success skills and fundamentals to increase your ability to build more efficient systems of entrepreneurial support and, ultimately, more viable businesses.
The results of the pilot program were promising. The participants gave VentureBasecamp a net promoter score of 9.4 out of 10. Follow-up with the entrepreneurs in the program showed some were able to successfully raise angel funding, pivot their businesses better, and start generating revenue. Of equal significance, one of our greatest indicators of success was an entrepreneur who realized that the company he was building was ultimately not viable and decided to find a problem to solve with much greater market potential.
Realizing the massive need in the ecosystem for better collaborative entrepreneurial support, Capria is developing VentureBasecamp into a highly-scalable online and offline skills-training program that support intermediaries can use at their organizations that offers:
- A support intermediary program to collaborate and train incubator/accelerator managers, early-stage funders, and other key ecosystem players on how to structure and optimize systems of support for their local entrepreneurs.
- A comprehensive startup-entrepreneur skills development training program that leverages decades of global entrepreneurial experience to empower entrepreneurs with a full spectrum of practical knowledge about the most critical entrepreneurial skills required to build investable, scalable and successful businesses.
- A train-the-mentor program to transform capable mentors in the local ecosystem (typically angel investors and seasoned executives) into world-class ‘startup coaches’ who can serve as key resources and senior-level advisors for entrepreneurs and their ventures.
Over the course of the past few months, the Capria team has been approached by an overwhelming number of incubators and funds around the world who are eager to use VentureBasecamp in their organizations. We’re tying up with key ecosystem builders, top accelerators, corporates, governmental organization and other startup community members to bring this program to as many entrepreneurs as we possibly can.
Entrepreneurs in emerging markets are at the forefront of building incredibly promising, innovative businesses. If we want to see them thrive, we need to ensure that we are able to deliver the right tools, skills and trainings to build the foundations they need to succeed.
After all, building a startup is like climbing Mt. Everest — first you have to get to basecamp.