by: Burak Fenercioglu
Venture capital (VC) people are very lovable. They are the ones giving you the opportunity to say hocus-pocus in the journey of converting your idea into money. So far, VCs have spoilt the North American and West European idea pioneers more than enough. Now, their desire is to make it a global hip. However, it is a big question mark, whether or not, world’s quality of entrepreneurship and venture capital industry’s due diligence on this specific topic are good enough.
In Boston.com, Mark G. Heesen has brought up a new concept when he was expressing his opinion about the evolving dynamics of the VC business. He said “I see a bifurcation in the VC industry. You’re going to have your bigger funds investing internationally. But you’re going to also start a lot of very specific funds being targeted to a region or a technology. We’re starting to see this, and it’s only going to grow.”
Bifurcation is irreversible.
As trend and technology are the only two tools that VCs can rely on, regional or technological focus for VCs is an acceptable strategy. They can focus, which will pave the way to better perceive the region or technology over time in order to grasp what is possible.
It is also totally understandable that capital owners will look for greater, smoother opportunities which requires less-perspiration to double, sometimes to quadruple their investments. And, apparently, international markets are greenfield opportunities.
The problem is, though, there is a high probability that international markets are not ready for such a huge shake-up. To make the story more scary, if not done correctly, global venture capitalism may lead to an infant mortality that will stop dumping of money to the international entrepreneurs when the need and opportunity is there in the future.
Timing is everything. John Cook, in his ‘Venture Capital: Venture capitalists who miss and tell’ article discussing a meeting held by six Seattle area VCs. When they were talking about duds, Seattle VC Keith Grinstein, co-founder of Malibu Networks, said Malibu Networks had promising technology. But it entered the market about two years too early, a problem that led to missed sales targets, higher capital needs and other problems. “Two years ago, we couldn't find a customer,” Grinstein said. “Today, I read the paper and there must be 100 of them out there. It just kills me.”
The fact of the matter is, global presence desire for VCs is no different. People are everywhere, ideas and willingness to take them to the next level under the roof of a business too. However, VCs should think twice before making promises to the international market today as the equation does not only include ideas and entrepreneurs like their incumbent regions but also governments, bureaucracy, lacking intelligence and missing work ethics and other risks are considerably high to set you back.
However, there are decent tools in hand for assessing those risks. Global Entrepreneurship Monitor (GEM) delivered by GEM Consortium and Global Competitiveness Ranking and Global IT Report from World Economic Forum some of many that tell the gravity of any country’s investment readiness. Once it is satisfactory, one other material to be used is Political, Economic, Social, and Technological (PEST) analysis before making any steps. PEST is a framework of macroenvironmental factors. The PEST factors combined with external microenvironmental factors can be classified as opportunities and threats in a Strength, Weakness, Opportunity and Threat (SWOT) analysis, both of which, will give VCs a rough groundwork about how investable the company is.
No matter how low-hanging fruit an opportunity is, being cautious needs to be the king. Systematic approach is a neccesity not an option, in this scenario.
Until the market is ready, the most workable idea sounds like covering a prospective area through partnerships. Partners need to be reputable vendors of that industry. Also need to have experience in the region. Forcing those vendors to a journey together for a hot startup, no doubt, will make VCs hand stronger.
The fact is, that is signaling a characteristics change for VCs. Joint effort with vendors is a new thing and some may not enjoy this landscape of doing business. Though, the rules of global success are stiff and non-negotiable.