Diversity, the globalization of venture, startup fraud and books
The future of innovation is global. We discuss it here. April 2021 Edition.
News of the month
It is no secret that the diversity of the workforce at technology firms is a big problem. Radical change is still needed.
As I explore in my recent Entrepreneur Magazine piece, some of the best ideas are coming from unexpected places, from what I call the “Frontier” – startup founders operating outside typical hubs like Silicon Valley. They offer unique strategies that can help change the monoculture of so many mature startup ecosystems.
Of course, there is no silver bullet, and these emerging market entrepreneurs have not solved the diversity challenge, but they offer some good starting points.
Venture capital is changing and scaling. In short, it is: “Bigger, Faster and More Global.” Great overview of the changing nature of venture particularly in emerging startup ecosystems. This is driven by a number of intersecting trends including a fundamental belief that winners will be larger than ever, a growth in late-stage rounds and an acceleration of the globalization of innovation (aptly called “The End Of Geography” in the piece).
I would also add that the VC model itself is evolving to solve the needs of global entrepreneurs in disparate ecosystems. And no conversation about the evolution of capital funding innovation would be complete without mentioning the rise of NFT (non fungible tokens) and their power to raise capital. Today, it has shown itself as a potent tool for artists but its implications will be far reaching. How do you think it will impact tech further?
In this newsletter, I have consistently spoken about businesses’ role in society (and the increasing recognition thereof). In that vein, I resonated with Jamie Diamond’s annual letter. “Most people consider corporate responsibility to be merely enhanced philanthropy. This is understandable. But it is far harder to understand what being a responsible community citizen means in terms of macro corporate responsibility. While we are devoted to philanthropy – we spend $330 million a year on these efforts – corporate responsibility is far more than that. JPMorgan Chase takes an active role in large-scale public policy issues. We are fully engaged in trying to solve some of the world’s biggest issues – climate change, poverty, economic development and racial inequality – and the accompanying features that follow describe the extensive efforts we are making. With well-designed policies, we think these problems can all be solved.” Of course, this is only one company. But I expect we will see this trend continue and accelerate.
What does it take to create the next Silicon Valley? First, don’t start by looking to build another Silicon X. Every ecosystem will have its own story, though there will be some critical principles to learn from. Fascinating deep dive into Detroit. In this case, some of the story is linked to one leader and his multi-faceted efforts to spur the scene: “Gilbert has poured at least $2.5 billion into rehabilitating buildings in the core of Detroit. Then he invested in the companies that took office space in those buildings, the restaurants that would feed those new families in the area and the retailers that would fill up the side blocks. It wasn’t one check by one billionaire, but instead a measured and consistent approach to try to reestablish Detroit as a city of innovation within the United States.”
A related question, as innovation globalizes, what role will the US play? Fabulous piece that offers us a road map. “It does require a new engagement. The new world is more a co-authorship of skills, understanding, and mutual interests rather than a presumption that the American view of the world and model must be followed in isolation. In the future, we will be learning from and replicating global models and experience. We will learn plenty from other governments who have freshly embraced best practices and technology to leapfrog their societies economically, and are creating regulatory regimes in partnership with innovators and the private sector to create forward-thinking rule of law to unleash the potential and opportunities coming from new generations.”
One sector that has catapulted itself to the top of global investor agendas is fintech in Latin America. Good round-up on some of the dynamics at play, including a shift in customer expectations, new friendlier regulation, and real time payment infrastructure (which is arguably ahead of what exists in many parts of the developed world). Of course, Covid accelerated many of these trends with a rapid adoption of digital technologies and ecommerce.
But, fintech is also more challenging in nascent startup ecosystems. One example is the prevalence of (and lack of tools to prevent) fraud. Great dive into the story of one startup in Nigeria.
In emerging product categories, should you own your customer or partner with others? One innovator argues customer ownership is paramount. "[D2C] companies have high valuations because the market recognizes the benefits of having direct customer relationships. Just look at the explosion of DTC brands in the last several years that are now household names: Warby Parker, Harry’s, Allbirds, and Peloton. Apple and Tesla are also DTC businesses in markets that don’t traditionally operate that way. For insurtechs in particular, directly acquired customers are worth more because they allow the business to: 1. Have better economics. 2. Improve the customer experience. 3. Understand the customer. 4. Reduce loss ratios. 5. Grow faster.”
It is not just innovators that are reinventing sectors. To keep up, regulators too must revisit how they supervise sectors and protect customers. Great piece outlining new technologies for these players. “Supervisory technology—or SupTech—is aimed to facilitate and enhance supervisory processes. While financial sector authorities have always leveraged data and technology, there has been a marked increase in new and ambitious initiatives in recent years, including for market conduct supervision. This specific use of SupTech solutions has grown in popularity and sophistication in the past few years”
I was delighted to join the BMO Impact Investing podcast to discuss the risks and opportunities in the sector today.
On the personal front, wanted to share the fun news that Out-Innovate won Gold at the Axiom Book Award in the international business and globalization category.
Book of the month
“America has struggled with the urban-rural divide for centuries, stretching all the way back to when Manhattan’s own Alexander Hamilton fixed his sights on backwoods whiskey distilleries as a revenue source for the new Republic, prompting rebellion. But one could make the case that the divide has never consumed us as much as it does today. “
This story is perhaps an extreme tale of this divide. But by the end: “Westover has somehow managed not only to capture her unsurpassably exceptional upbringing, but to make her current situation seem not so exceptional at all, and resonant for many others. She is but yet another young person who left home for an education, now views the family she left across an uncomprehending ideological canyon, and isn’t going back.”
The story in between is incredible.