A recent article in the Harvard Business Review suggested that startup accelerators have become more popular in emerging markets, and they’re working. This is based on a report published in May 2017, but from my experience attending a major conference for the region in Egypt last weekend, they certainly are beginning to making an impact.
At the Techne Summit, an entrepreneur and investor conference in its third year set in Alexandria but aiming to serve the wider Middle East, North Africa and Southern Europe region (with its parallel event in Croatia), it was certainly evident that investors and accelerators are working hard at building the whole ecosystem. The conference had several competitions to select startups for local programs as well as global ones like Seedstars, plus support from the German government agency Deutcshe Gesellschaft Fur Internationale Zusammenarbelt (GIZ) which ran a competition to select a number of startups from Egypt into an accelerator in Berlin.
Just to give an idea, here are some of the competitions held at the Techne Summit. The winner of the Alexandria leg of global seed-stage pitching competition Seedstars World will go on to pitch against local winners from around the world at the Seedstars Summit in Switzerland next year, with a chance to win up to US$500,000 in equity investment.
The local media agency in Egypt MO4 Network and its entrepreneur platform, Startup Scene ME, hosted a pitching competition for media startups leveraging virtual reality, artificial intelligence, and social media for innovative storytelling. Three startups won places on the MO4 Media incubation program offering US$10,000 worth of prizes in the form of services and mentorship.
Clearly, there are many initiatives and avenues being developed in Egypt and the region to accelerate startups with potential to grow and succeed.
Commonly held beliefs about emerging markets accelerators not backed up by data
The report referenced in the Harvard Business Review article mentioned earlier backs the anecdotal evidence above with some key pointers. It was produced by the Global Accelerator Learning Initiative (GALI) in conjunction with Deloitte. GALI is made possible by its co-creators and founding sponsors, including the U.S. Global Development Lab at the U.S. Agency for International Development, Omidyar Network, The Lemelson Foundation, and the Argidius Foundation. Additional support for GALI is provided by the Kauffman Foundation, Stichting DOEN, and Citibanamex.
It compares acceleration in emerging markets versus high-income countries. Examining data from more than 2,400 early stage ventures that applied to 43 programs, it finds more similarities between emerging market and high-income country entrepreneurs and accelerator programs than commonly believed.
Despite the numerous difficulties of running a startup in emerging market countries, accelerated ventures are often able to grow at similar rates to their counterparts in the United States and Canada. The average effects of acceleration on equity and debt raised were nearly identical in high-income countries and emerging markets, and emerging market ventures were just as likely to report rapid growth.
The report then tests commonly held beliefs about what might be holding entrepreneurs back in emerging markets and finds that many of these beliefs are not backed up by data. The report finds that:
- Emerging market entrepreneurs are as credentialed and committed as their high-income country peers.
- Emerging market ventures experience capital deficits despite being more established.
- Emerging market accelerator programs are as robust as those in high-income countries.
For accelerators, investors, and other supporters of entrepreneurs in emerging markets, the report indicates a few areas for action:
- The imbalance in lower levels of investment for the more established emerging market ventures may be due to a mismatch between what investors and entrepreneurs are looking for. It may also indicate investors’ cultural bias.
- Entrepreneurs are more likely to emphasize business skill development, while much of the framing of accelerators’ value is around fundraising. Particularly for very early stage ventures, accelerators should align with the goals of the entrepreneurs entering their programs, as investment may not always be a top priority.
- In the year of the program, accelerated entrepreneurs raised investment capital at levels that better match their stage of revenue and employee growth. However, the potentially weaker network building in emerging markets programs may indicate the need for more emphasis on alumni support to continue this momentum post-program.
Writing in HBR, authors Peter Roberts and Randall Kempner say, “We were also surprised to find that emerging market ventures are typically older than startups applying to accelerator programs in high-income countries, are earning more revenue, and have hired more employees. Despite this, ventures in high-income countries attract roughly twice as much early stage investment as these promising emerging market ventures. Without acceleration, emerging market ventures are simply not able to attract the investment that is consistent with their underlying promise. And while emerging market accelerators programs are similarly effective at pushing capital into their ventures, acceleration alone is not closing this investment gap.”
They say that the key to accelerator programs are:
- It’s not all about the venture funding – it’s also about building skill sets, and product and market strategies
- When entrepreneurs are ready for investment, accelerators should do the work to make sure the right investors are in the room
- Finding talent is critical
- Acknowledge implicit bias, such as gender or not understanding cultural issues and only funding expat founders because of cultural ease
The executive summary of the report from GALI is here.