After personally visiting 20 countries in emerging markets in one year, CEO of Seedstars World Alisee de Tonnac is rather unimpressed by #firstworldsolutions
“In Switzerland my friends are happy when they can pay for their public transportation with an SMS. Welcome to the world! That’s something people were doing in Kenya long before.”
After personally visiting 20 countries in emerging markets in one year, and running a company that travels to 36 countries annually to scope out the best startups from the Global South, CEO of Seedstars World Alisee de Tonnac is rather unimpressed by #firstworldsolutions.
Seedstars World, a subsidiary of Seedstars Group – a Geneva-based startup accelerator founded in 2012 – has run a global startup competition for the last two years focused on emerging markets to “discover the best startups beyond Silicon Valley and Western Europe, and support these businesses and their development, wherever they may be,” according to their mission statement.
In 2014, de Tonnac’s team travelled to 36 countries, received 2,000 applications, listened to 600 face-to-face pitches, chose 36 winners, conducted a 3-day startup boot camp, chose 10 finalists and held a gala event in Geneva where a finalist was chosen. The winner of Seedstars World’s Final Event – which took place from February 4-6 in Geneva, Switzerland – was Philippines-based Salarium, a cloud-based payroll solution. They won a $500,000 equity prize.
(Not) first-world problems
Seedstars’ 36 finalists address the unique pain points of their markets. For instance, Green Energy from Lagos, Nigeria has developed a zero-pollution process that converts plastic waste into clean petroleum oils and gases. Kenya’s OkHi created an address book that uses geolocation and photos in places where numbered street addresses don’t exist.
“We even have a company in Indonesia that helps fish farmers manage their seeding system using a smartphone,” de Tonnac relays.
But doing business in emerging markets is not without its challenges, de Tonnac explains. “For instance, we have an investment in Nigeria and we know exactly what it means to have corruption and power cuts, with everyone keeping their own generator at home. Sometimes I wonder if the government is lobbying to really purposely put everything down.”
At the same time, says de Tonnac, for many of the startups she encounters, all they need is a high-speed Internet connection.
“We tend to forget that in these emerging economies, it’s becoming less and less of an issue, there are fewer and fewer power cuts. You can manage your businesses anywhere and take advantage of markets that have a smartphone penetration rate that is just out of this world.”
Leapfrogging into the 21st century
Traditional economic theory stipulates that a country needs certain basics: rule of law, property rights, enforceable contracts, stability and basic infrastructure before it can grow a successful business class.
But de Tonnac says that is no longer completely true.
“I don’t want to understate the risks. For example, Ebola hit Africa really hard businesswise, and in Nigeria, when you think of the upcoming elections, they could put a brake on people being able to do business.”
At the same time, she says, you’re seeing trends that create whole new business opportunities, a kind of “leapfrogging” into the 21st century.
“In a place like Nigeria what you need to look at more than the corruption and the complications are 180 million inhabitants with one of the highest growth and penetration rates of smartphones. And if your app is going to provide a service, they have also the capability of accepting a product much faster because they haven’t been used to a cash economy.”
Did you know that telecom companies serve as de facto banks in Africa?
In Africa, says de Tonnac, it’s the telecom companies that serve as de facto banks. “Amid the lack of regulation and standard infrastructure emerged one of the best solutions to manage all the unbanked citizens.”
Many Europeans would assume you can’t launch a fintech company in Africa because there aren’t enough bank accounts.
“Not true!” says de Tonnac. “You can launch so many services and products around this because all you need is a mobile phone. I’m not even talking about smartphones: they mostly still have feature phones.”
How has mobile technology surged in Africa when there is still little electricity?
Another unique problem in sub-Saharan Africa is that nearly two-thirds of households have cell phones, but only one-third have electricity to charge the phones. In rural areas only 14 percent of households have electricity.
In Kenya, for instance, says de Tonnac, people walk kilometers to charging centers where they pay to charge their phones.
“It’s ridiculous,” says de Tonnac.
Seedstars recently had a speaker, the CEO of M-Kopa Solar, a company that recently closed its fourth funding round, that sells solar kits to households in Africa.
“The solar kits can run the whole electricity of a home. It costs $200. You get credited on your mobile phone and pay $1 a day so that in the end you can own the solar kit.”
Africa is leapfrogging over electricity and straight into renewable energy.
Who can invest in Seedstars
De Tonnac says that Seedstars World is not just about putting on a nice show, but actually putting money where the company’s mouth is. “We raise funds from a network of investors and we really want them to believe at the long-term level that these are sustainable companies that will make a profit in these economies.” In addition, Seedstars World accepts crowd funding. People from all backgrounds are welcome to invest a minimum of £100 in the company’s chosen startups.
But beyond the investments, says de Tonnac, “we are really evangelizing the opportunities in emerging markets.”
High risk, high potential
“It’s true the risk [of doing business in emerging economies] is very high. But if you want very high potential, it’s not going to be without taking risks.”
For instance, Indonesia’s Migme social network earns $3 per user per month, while Facebook makes 400% less on average.
“People in Southeast Asia are obsessed with their phones,” says de Tonnac. Part of the reason is because face-to-face intermingling between the sexes is taboo in many places. Matrimonial companies are really big, as opposed to dating websites because dating is forbidden.
Japan’s Puzzles & Dragon, which markets to Southeast Asia, has revenue of $100 million per month, says de Tonnac.
“Some of these companies really know how to monetize their users’ time on mobile. Because they started with mobile. It’s all they know.”
Also, says de Tonnac, “you need to look at the disadvantages of launching a business in Europe. The highly competitive markets, the complexity of launching, the lobbying, the regulations, the time to market, the bureaucracy.”
So it’s a question of balancing the advantages and disadvantages.
About half of Seedstars’ entrepreneurs are not from the countries where they launch their startups
This year’s winner, Judah Hirsch of Salarium, is an expat Israeli who has been living in the Philippines for the last ten years. De Tonnac says about half her entrepreneurs don’t actually have the nationality of the country where they build their business.
“It’s interesting to see this global movement of mobile entrepreneurs.”
A journalist once criticized de Tonnac for favoring expats who might come from a more privileged background than others.
“But for me I think it’s dangerous to start putting quotas because it means we’re not close to the reality. We’re performance-based. Our goal is to find the best entrepreneurs.”
For startups looking to apply to Seedstars World, they have very specific criteria.
“We look at companies at an early stage, less than two years since founding, less than $500,000 investment. Of course, they need a minimum viable product with regional or global ambitions,” de Tonnac explains.
Because of Seedstar’s criteria, only about 20 percent of their companies are tech-intensive.
“Usually those companies need more funding or more time.” Rather, “the whole beauty of these models is in the execution, and in the capacity of growing a company with a certain traction and a certain revenue model,” de Tonnac notes.
So far, none of the entrepreneurs has exited, although some have raised further rounds of funding.
“It takes six, seven, eight years to build a beautiful company. I think people have this distorted image that in one year it’s good to go.”
Once a company meets Seedstar’s rigorous standards, she says, “we’re very, very active investors. They become like another family member, a member of the Seedstars family.”
With this family, you can be sure to rack up frequent flier miles quickly.