How the Emerging Markets could spawn the next global Hectocorns

I’ve written previously about what brought me to India, and the journey I’ve gone through personally and as an entrepreneur to get here.

Now I’d like to expand on some prevailing views that are helping to define the way I see the opportunity unfolding for tech startups in the emerging markets. BTW, Hectocorns are companies with values in the $100’s of billions. This is the value I believe emerging markets startups can create in the coming years, and a reason I’m a proponent of increased investment from developed markets into India and other emerging markets startup ecosystems.

First a few disclaimers:

A lot of these beliefs originated from my time in India, much of which has been spent developing applications that targeted the lower income segment of the mobile internet market, so I will confess to having a bias. That said, I am always open to healthy debate and would love to hear counter-arguments. Strong opinions, loosely held.

The following bullets have been arranged in a narrative, but there is no implied order or prioritization.

• Tier 1 is a reference used when referring to the largest cities of India. We often use this geographic categorization interchangeably as a socio-economic one, referring to people in lower income brackets as being from Tier 2, 3 or rural India. This is a misnomer. By socio economic categorization, lower income populations are dispersed throughout the country, including Tier 1 cities.
• The richest 150 million people in India are in fact the only sub-section of the Indian market that is effectively being served by most internet companies. This tier is a market in it’s own right, and has much in common with other developed economies. We can call this Connected India.
• The actual emerging market of India is still well over 1 billion people, 200 million of whom do connect actively to the internet largely to communicate and consume media, but fail to transact through digital channels in any meaningful way. I’ll refer to this part of the population as Emerging India.
• Emerging India is representative of segments which exist more or less, in other highly populated emerging markets (and vice versa). To effectively shift these customers to transact through digital channels will require a degree of empathy which only those in Emerging India or similar segments within other emerging markets possess.
• It’s inaccurate and sometimes irrelevant to use digital metrics employed to measure the performance of digital businesses serving developed markets, to measure the performance of businesses which serve emerging markets. As investors, we must recognize the realities of the market challenges we are investing to overcome, and co-define metrics that are properly representative of the markets being served.
• Entrepreneurs in small or newly emerging startup ecosystems (including Emerging India, as well as countries such as Sri Lanka, Bangladesh, and Pakistan) have to be more resourceful to achieve what other startups from mature startup ecosystems (including Connected India) can achieve in terms of market traction, assuming the time variable is constant. These entrepreneurs often under-appreciate, or under-estimate their potential to be competitive in larger markets.
• Major systemic issues such as air pollution, health care, water supply, food supply, banking, connectivity and transportation are more acutely impactful to health and quality of life in emerging markets, including Emerging India and thus will spawn businesses built from the ground up with scale and efficiency in mind. We may not recognize the virtues of these businesses if contrasted relative to more tech or feature-rich developed markets alternatives.
• Innovations which optimize for scale and efficiency will give these businesses an inherent scale advantage which will make them disruptive to incumbent solutions and service providers in developed markets.
• Technologies such as AR/VR, IoT, Blockchain, AI, and others will form the libraries or building blocks which underpin products and services throughout the world. While incumbent tech powerhouses such as FAANG and BAT will compete to develop and claim ownership over core components of these underlying technologies, much of their capabilities will be open-source, and thus will be available to startups everywhere. Net gains will eventually plateau when the constraints of energy portability, processing power, or materials science impose limits on capability. Until a paradigm shift occurs in one of these areas, these technologies will go through an inevitable ‘trough of despair’ which will be felt particularly in developed markets where bottom line returns and economic expansion is going to be incremental.
• Entrepreneurs seeking to solve aforementioned problems in emerging markets such as pollution, health care, water supply, food supply, banking etc will utilize open-sourced core technologies, and place emphasis on the edge closest to their customers, focusing on innovations in distribution or pricing models to establish functional and sometimes frugal innovation, availing them the ability to transform their communities at scale. The sheer necessity of these solutions, as well as their ability to operate in less regulated jurisdictions will allow them to “leap frog” the incremental evolution path of systems and technologies prevalent in the developed markets, allowing them to achieve mass adoption quickly. This will allow these newly minted market leaders to amass data sets which do not exist elsewhere. This data moat will fuel their expansion and importance to markets around the globe.

As MD of Techstars India, I’m always on the lookout for early stage tech companies with the ability to have the kind of transformative impact I’ve described above. I’m looking for companies now to be a part of Techstars’ first emerging markets program which will be hosted in Bangalore, India in Feb, 2019.

If you think you have what it takes, please apply here before October 14th, 2018.