Dynamism, web3, next gen impact investors and more
[99%Tech] The future of innovation is global. We discuss it here.
Topic of the week: entrepreneurial dynamism
It is well established that entrepreneurialism drives economic dynamism, and recovery. But the question is how to drive entrepreneurialism?
New research has interesting findings. The researchers asked: “Why are these entrepreneurship-driven efforts to boost regional prosperity — strategies that have been extremely effective in hubs such as Silicon Valley — so difficult to replicate in impoverished places? And are there any alternative approaches to entrepreneurship that could be more successful in revitalizing local communities?”
To answer, they looked at different philosophies, and particularly one that takes a Silicon Valley-centric approach and another a more local one: “The first organization, which we’ll call ACCEL, was a traditional business accelerator. ACCEL identified ventures with high-growth potential that were likely to attract venture capital investment. It provided mentorship and resources to help them grow as quickly as possible. The second, which we’ll call GREEN, was an alternative incubator. GREEN was founded on a philosophy that business should “grow like a living organism,” and thus encouraged its startups to leverage resources that already existed in the local community to nurture their growth.”
They discovered the ACCEL model led to scaled startups, but often ones that left the ecosystem. By contrast, Green models “built rich relationships with local partners, and they sought out creative ways to leverage the resources available in their local environments to address urgent, local problems. This meant that their venture ideas became embedded in the Detroit ecosystem, growing deeply and slowly rather than broadly and quickly.”
My take is that we need both. Historically, many startups might leave nascent ecosystems because local infrastructure was lacking. But over time, as we build more local infrastructure (including by said scaling startups), we give scaling startups a home to stay. And if that works, long-term sustained impact is possible - just look at what Shopify is doing to the technology community just across the border in Ottawa.
Ultimately, the article’s conclusion is right: “a strong focus on how much ventures grow can often obscure critical differences in how ventures grow.”
What do you think?
Obligatory Web3 discussion
One of the hottest segments of fintech has been crypto, part of the broader Web3 conversation.
I am often asked if it is too early to be excited. I found this incisive piece compelling. “Repeat after me: neither venture capital investment nor easy access to risky, highly inflated assets predicts lasting success and impact for a particular company or technology….The question might be asked whether the current stage of Web3 is more equivalent to 1995 or 1999—the early stage of the bubble or its end? Given the current valuation of crypto assets (and tech startups in general), it’s hard to argue for the earlier date…[But] Keep in mind that it was still early when the dot-com bubble popped. Google Maps hadn’t been invented yet, nor had the iPhone and Android. Online payments were in their infancy. No Twitter or Facebook. No AWS and cloud computing. Most of what we rely on today didn’t yet exist.”
The counter argument of course is looking where the money is going. A16Z announced its series of $9b in new funds. What is fascinating is the allocation: “a $1.5B Bio fund, $5B Growth fund, and $2.5B Venture fund, coupled with the $2.2B Crypto Fund and $400M Seed Fund.” A quarter of the funding is dedicated to crypto.
The other is in early usage. For instance, I was surprised to read some studies on crypto penetration in cross-border remittances: “23 percent of respondents — representing 8 million adults — who made online payments to friends or family in other countries used at least one kind of cryptocurrency. In fact, 13 percent of consumers surveyed say cryptocurrencies were their most used payment method for online cross-border remittances.”
Likely, one of the bigger beneficiaries will be in emerging markets.
Much of the investment in Web3 is a horizontal layer to power the internet, which is available to all. So its innovation will be distributed.
And in that vein, interesting piece exploring its place in Africa.
In last month’s edition, I spoke about valuations and questioned whether we might be getting frothy.
Since then YCombinator increased its investment size to $500k. This is certainly reflective of market pressure.
Yet the last month saw a corresponding opposite event in the public markets. This piece is consistent with what I’m hearing. “In the private markets, panic over the tech sell-off is starting to set in. VC investors say they’re already hearing about deals being renegotiated at lower valuations and even the withdrawal of term sheets. Later-stage companies are likely to be the hardest hit, they say, while some firms’ plans to go public could get put on hold for the foreseeable future.”
Because we’re talking about valuations, let’s also talk about camels - startups that grow based on a foundation of sustainable unit economics. Sharing this podcast - recorded just as the pandemic was starting - which feels more relevant than ever.
As a principally fintech investor, I always remind entrepreneurs it is “Fin” first - for financial services, a regulated industry. This is a double edged sword. Product innovation can be slower, and more constrained. But for those that work collaboratively with regulators it can also be a moat. Looking at healthcare, another regulated industry, paints an interesting picture: “the return of regulations could mean something much more beneficial for telemedicine startups and those invested in their success: a moat. Telemedicine companies that research and understand the varied patchwork of state and federal regulations, analyzing them to identify patterns and build scalable business models, will survive and thrive in the coming environment. Those that do not prioritize this work and shoot from the hip will not fare as well, because patients and enforcement authorities alike will step in. It might mean a classic shakeout.”
Regulation and policy can also catalyze innovation. I’ve written about PIX in Brazil before, but sharing this piece on the model. I expect we’ll see similar innovation proliferate in ecosystems around the world.
What is the role of business schools in ecosystem development? Interesting piece arguing they can power the next generation of impact investors.
What is the next big thing? “Silicon Valley’s hype machine has long been accused of churning ahead of reality. But in recent years, the tech industry’s critics have noticed that its biggest promises — the ideas that really could change the world — seem further and further on the horizon. The great wealth generated by the industry in recent years has generally been thanks to ideas, like the iPhone and mobile apps, that arrived years ago.” Here, I would say look no further than what I call the Creators at the Frontier.
Book of the month
This month’s book was chosen due to recent events and the national conversation about the dangers of banning books that has ensued.
I hadn’t read Maus, Art Spiegelman’s Pulitzer Prize-winning graphic novel about the Holocaust, before this month, but my wife vividly recalls the impact of reading it in her youth.
From a 2011 retrospective: “few works of literature published in the past quarter-century bear scrutiny and analysis as well as ‘Maus,’ a complicated, thorny book that became a landmark simultaneously in the disparate worlds of memoir, comics and Holocaust history… It tells the story of Mr. Spiegelman’s father in Poland before World War II, in Auschwitz during the war and as an old coot in Rego Park, Queens, after the fighting stopped. Part of Mr. Spiegelman’s accomplishment in ‘Maus’ is that he turned it into a second-generation Holocaust survivor’s account, too.”
I can’t stop thinking about this book, nor about Viet Thanh Nguyen’s recent op-ed (whose Pulitzer prize winning book The Sympathizer I highlighted in a previous edition): “this is really what is at stake: the struggle over what a child, a reader and a society are allowed to think, to know and to question…By banning books, we also ban difficult dialogues and disagreements, which children are perfectly capable of having and which are crucial to a democracy.”
His article strikes pretty close to home in a different way. I grew up with Hergé’s Tintin comic books. As Viet Than explains: “Now, as a father of a precocious 8-year-old reader, I have to think about what books I bring into our home. My son loves Hergé’s Tintin comic books, which I introduced him to because I loved them as a child. I didn’t notice Hergé’s racist and colonialist attitudes then, from the paternalistic depiction of Tintin’s Chinese friend Chang in ‘The Blue Lotus’ to the Native American warriors wearing headdresses and wielding tomahawks in the 1930s of ‘Tintin in America.’ Even if I had noticed, I had no one with whom I could talk about these books. My son does. We enjoy the adventures of the boy reporter and his fluffy white dog together, but as we read, I point out the books’ racism against most nonwhite characters, and particularly their atrocious depictions of Black Africans. Would it be better that he not see these images, or is it better that he does?”
What challenging books have stuck with you? What do you recommend?