Mobilizing $$ from Wealthy Families in Peru (& L. America). And Why Family $ is Not Angel $—Day #3 in Lima, Peru

Posted on February 26, 2014 by scaling

Entrepreneurs’ most frequent complaint is how challenging it is to raise money, especially risk capital: founders in developing countries have even more difficulty since the amounts of venture money for investment in most emerging countries is less vs. the USA.

Yet with the millions invested in food & beverage, fast moving consumer goods, retailing, wholesaling, and construction to name a few in the developing world, why does so little of this money flow to tech enterprises—from Peru to Paraguay to the Philippines, Beirut to Buenos Aires to Bangalore—or from Moscow to Manila to Mexico City? One reason is the mismatch between risks sold enthusiastically by entrepreneurs and risks willingly purchased by investors.

Investors are as frustrated as you are—having the means to invest for impact, but not presented with the right venture capital, corporate governance and tech business model solutions required to open their wallets.

On Day #3 in Lima, I met with five of the wealthiest families in Peru—discuss solutions, business models and financial instruments to unleash capital for innovation, 1st time entrepreneurs and early stage SMEs. The business interests of these families range from construction to real estate, insurance, banking and financial services, consumer segments like food to clothing to entertainment, mining/minerals and agriculture—mainstream sectors of economic growth in Peru, and sectors which are heavy users of technology.

Much to my surprise, each family had made small investments in tech start-ups and learned that angel investing is not for them. It’s not that the investment went bad (some did, others performed well), it’s that they are not organized nor structured to invest and manage angel investments. I’ve found this to be true of family wealth in other countries too, Russia, Kazakhstan, Croatia, Slovakia, Slovenia, S. Africa, Kenya & Tanzania as well.

A better instrument for domestic capital is investment in structures like funds—committing capital in bigger chunks, divorced from making individual investment decisions, and the management of a portfolio of young companies. They want and seek to be ‘active’ investing sponsors by opening their networks and contacts to drive the revenues forward. Yet in some countries and legal regimes, such direct involvement violates the principles of limited liability in LLPs, and puts families at risk greater than just the capital invested in a fund.

It’s critical that the fund invest in markets which wealthy families know, understand & where they can add value—how to enter a customer segment, secure a beachhead and execute, recruit ‘friends’ to help open doors, when to zig and when to zag as examples. It’s not technology which frightens domestic wealth so much as it is markets targeted for new innovation and customers’ willingness to adopt untested solutions. Fund managers must finance {and entrepreneurs must create} business models/tech products for industries where local wealth made their billions, sectors like fishing and farming, oil/gas & minerals, retailing, banking and financial services as examples—industries which they have deep understanding of to help achieve positive investment outcomes.

So for example, look closely at industries at the foundation of economic growth in L. America, sectors in need of solutions to drive them forward in the 21st century. One Columbian start-up took such an approach to successfully raise money.

This start-up inserts RFID chips into cows. The chip sends a signal to a receiver on the neck of a bull with a ‘damaged’ penis. The bull chases the cows, but can’t copulate. Columbian ranchers can now easily identify cows in heat for insemination. This start-up is now deploying its solutions beyond Columbia to ranches and haciendas in L. America.

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If wealthy families are not angel investors in L. American, who are? Besides the normal cast of characters like other entrepreneurs and accelerators, I have two specific suggestions for you:

1. Seek capital from general partners and senior managers of private equity (PE) funds investing in your country, not money from the funds they work for.

I met such guys from international, regional and Peru-specific funds with offices in Lima, Bogota, Buenos Aires and San Paulo. These general partners have the personal cash and net worth to invest as angels or in angel syndicates. They possess the skills and experiences to make such investments and manage a small portfolio + access co-investment networks. Some of these angel investments will ‘grow up’ to be investment opportunities for their PE funds.

Yet when I asked these PE managers how many seed investments they made in emerging growth SMEs, their answer was none—because entrepreneurs had not approached them & entrepreneurial support organizations like accelerators and incubators had not engaged them!?

2. Corporations—and I don’t mean attempting to convince corporates to create internal venture funds as multinationals like Intel, Siemens, Shell Oil, etc., have done.

Instead create business models which support the industry restructuring efforts of domestic corporates. Let me give you an example.

Peruvian insurance companies are purchasing hospitals and clinics—a counter intuitive strategic initiative to their core business. Yet these insurers are doing so to improve the delivery and quality of health care services to citizens in Peru—a logical and rational strategy to reduce health care claims—thereby increasing profits of insurers. Certainly much of the innovation implemented to accomplish this objective will be foreign tech purchased from giants like General Electric, Siemens and Philips as examples. But plenty of room exists for Peruvian entrepreneurs to clone & localize health care business models from the West & the East + innovate new solutions for the genetic specifics of Peruvian citizens.

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Plenty of domestic $$ exists to finance all the innovation and entrepreneurs in all developing countries. Domestic wealth has more intense personal interests vs. other sources of capital in alleviating poverty, creating jobs/new wealth in the local economy. And families make investment decisions faster vs. alternative sources of money.

Yet they are as frustrated as you are—having the capital to invest for impact, but not presented with the right venture, investment and tech business models required to open their pocketbooks—solutions which must match their behavior to risk.

Catching Money in Latin America—Day #2 in Lima, Peru

Posted on February 20, 2014 by scaling

What actions can entrepreneurs take to not only raise money to finance their enterprise but as importantly—help L. American investors to see beyond the financial rewards of investing in just their company—& finance other ventures in the entrepreneurial community?

By achieving this outcome entrepreneurs not only secure their future, but they impact the DNA of domestic capital to invest the cash required to ‘Scale Up’ start-up communities. While it’s challenging to startup a start-up community, it’s even more difficult to build the legs required for entrepreneurial communities to achieve sustainability.

It was these topics which I spoke to on Day #2, APEC conference on Global Startups in Lima, Peru. Subjects I presented included:

Reasons why the Silicon Valley way of business model creation & venture capital translates poorly to emerging markets—& the way forward for entrepreneurs
Risks ‘bought’ by investors in Latin America & the creation of business models which satisfy their requirements for investment
Engineering the design of venture funds to finance grand challenges and national priorities in energy, water and food as examples

Business survival requires entrepreneurs to create business models which customers demand. But you must think beyond just customers and ‘shape’ your business model to the behavior of local wealth to risk too. Until investors understand and ‘buy’ the risk in start-ups and early stage SMEs, too little capital will flow to entrepreneurs in Latin America vs. the amounts available for investment.

Too often I see entrepreneurs attempting to ‘shape’ investors’ behavior to risk as their strategy to raise capital, but such actions rarely succeed. Rejected at home, many label domestic capital as too conservative and they hop on the next plane to Silicon Valley. A few raise money but most don’t, and return home facing an unknown future. Yet this belief which drove founders to the USA—that domestic capital in L. America is too risk adverse for venture stage SMEs—is false and misguided.

View solutions to raise L. American money here (PDF). For those fluent in Spanish, you can view my presentation as a video with a Spanish translation voice-over.

This event was hosted by the Ministry of Production, Government of Peru. I thank Vice Minister Francisco Grippa and his trusted colleague Enrique Aldave, Director—General Directorate of Innovation, Technology Transfer & Business Services for their invitation.

Event attendees included representatives from APEC member countries & staffers from multiple branches of the Government of Peru, Peruvian entrepreneurs, investors (+ investment support organizations), universities, the media, and entrepreneurial support organizations. Entrepreneurs from Chile, Columbia, Korea, Malaysia, Mexico and the Philippines attended too.

Questions, comments? Please write them in the reply box below or send me an e-mail to Tom@IVipe.com

Be well & be lucky.

Tom Nastas

Financing the Venture Capital Ecosystem—Day #1 in Lima, Peru

Posted on February 17, 2014 by scaling

Entrepreneurs and investors speak about the need and urgency to increase investment and Scale Up start-up communities in their countries. Yet when it’s time to invest capital, the culture of risk impedes the flow of money from the wallets of local investors into the pockets of entrepreneurs.

What are the fears which domestic capital has for technology up-starts and emerging growth companies—& what solutions exist to reverse such behaviors? It was these subjects which I spoke to at the global conference on Start-Ups, organized by APEC (Asia Pacific Economic Cooperation) for its member countries and hosted by the Ministry of Production, the Government of Peru. Specifically I spoke to three topics:

1. How and why the culture of risk impacts the investment decisions of local capital in the developing world—money from wealthy families and domestic corporations.

2. The ‘shaping’ of venture capital initiatives to the behavior of investors to risk—as the solution to get them to open their wallets to finance more innovation and entrepreneurship, linked to national priorities in food, water & energy as examples.

3. Financing initiatives Governments must execute to make technology more commercial—so innovative SMEs can positively demonstrate they are ready for customers (and investors’ money if needed).

View the video of my presentation here and download my presentation (PDF) here.

Experts from start-up ecosystems in Malaysia to Mexico, Peru to the Philippines, Chile to Columbia and Korea to Thailand presented solutions they implemented in their countries which accelerated technology creation, entrepreneurship and investment in innovation.

View the conference summary here; download speaker presentations here.

Please write your questions in the comment section below, or send me an e-mail to Tom@IVIpe.com.

Be well & be lucky.

Tom Nastas

Scaling Start-up Communities: How Does the Culture of Venture Capital Differ—in Brazil (& Other Emerging Countries) vs. the USA?

Posted on September 18, 2013 by scaling

Roberto Alvarez journalist to the Brazilian media company Startupi (the Tech Crunch of Brazil) interviewed me (1^st 30 seconds in Portuguese, then English) in August at Singularity University (SU). Roberto is one of the 80 GSP13 fellows who learned about exponential technologies and their application to create a team project which solves one of the ten global challenges; I mentored him and many of his other GSP13 teammates this past summer on raising capital & other needs for their ventures. Naturally I am honored and humbled to be a member of the SU community.

Roberto and I talked about multiple subjects including:

What is it that separates the culture of venture capital (VC) in the emerging markets from venture capital in the USA?
What are the risks which investors in the emerging markets ‘buy’ and those that they ‘return?’ How does this compare to investors’ behavior to risk in the USA?
Is the culture of VC in the USA an asset and competitive advantage which American investors can exploit to find and finance the next Gamechanging start-ups from Brazil, Nigeria, Malaysia or other emerging countries? Or do investors in these countries have advantages vs. American VC investors?
Are the entrepreneurial cultures of Israel and India standards which others should follow?
Which business models have the best prospects of raising capital from wealth in the emerging markets? Is there really any reason why entrepreneurs from developing nations should attempt to raise money from US investors since plenty of money exists in developing countries?
What actions can stakeholders take to impact the venture capital ecosystem and its culture—to shape not only entrepreneurs actions in the market—but the behavior of investors too?
Smart Capital: What Do You Need—Really?

Apparently the discussion resonated with entrepreneurs from Brazil. Carlos Estigarribia wrote me “We just watched an interview you (Tom Nastas) gave to Brazilian blog Startupi, and we can relate a lot with what was said.

Our company falls in the ‘disruptive idea from an emerging country’ bucket that local (Brazilian) VC’s don’t invest due to the big risk involved and the lack of ‘american benchmark’ to clone the business model from. We’ve getting great feedback from US and European VC’s but unfortunately not many Brazilian funds showed interest.

I know you currently don’t have any investment in Brazil, but if you want to take a look at our company there’s a 2 minute video that shows the technology, in one sentence what we have; a ‘NFC-like technology that enables proximity based communications on any device.’ The product is live, we’ve got the first paying clients already.

Thanks for your time

Best Regards,

Carlos Estigarribia”

I feel the pain, frustration yet excitement in Carlos. I’ve seen, heard and experienced such feelings too, doing VC around the world these past 25 years

As I wrote in ‘Engage Risk as Your Friend, not a Foe—to Impact Investor DNA—& Raise $ for Your Venture,’ we have much to do—to impact not only the behavior of entrepreneurs toward risk—but the behavior of my investor colleagues too.

Comments, questions are welcome.

Be well & be lucky.

Tom Nastas

Scaling Start-up Communities: Catalyzing the Korean Venture Capital Ecosystem

Posted on September 8, 2013 by scaling

The Park Geun-hye government is embarking on an national agenda to not only integrate Korea’s economy more deeply in the global innovation ecosystem, but to be one of its leaders too—to increase the prosperity and well-being of not only Korean citizens, but residents of the world. Park challenged global leaders to use creativity, technology and innovation as the growth engines for the creation of new and unheard industries for the 21^st century. This is a theme espoused by Peter Diamandis and Ray Kurzweil, the visionaries behind Singularity University—which inspires and trains global leaders to leverage exponential technologies to impact a billion people—& solve global challenges.

To accomplish these objectives, the Park Administration must not only work to increase the quality and quantity of entrepreneurs and entrepreneurial thinking in the country, it must help unlock large amounts of domestic wealth to finance an increase in entrepreneurial activity. Scaling up investment is an issue not only for Korean entrepreneurs but innovators around the world. It is the (unspoken) grand challenge which I lectured and mentored entrepreneurs to overcome at Singularity University’s summer program in 2012 and 2103.

While the Korean venture capital ecosystem is not governed by the cultures of risk to the extent as it dominates the behavior of investors in the emerging markets, there are two similarities which Korea shares with counterparties in emerging markets; investor (cultural) attitudes to entrepreneurial failure and the unwillingness of investors to finance the trial & error experiments of entrepreneurs in their attempts to find markets and solutions for financial success.

Last week the Korea Herald’s expert journalist Mr. Park Hyong-ki interviewed me on actions to overcome these cultural barriers thereby ‘sparking’ the Korean venture capital ecosystem to new heights. While the willingness of American venture investors to finance failure is one of the key attributes of the US economy’s entrepreneurial and venture capital culture, domestic money in markets like Korea reject such behavior. Certainly the creation of a venture capital ecosystem requires investors to finance failure and give fallen entrepreneurs a 2^nd and 3^rd chance at raising money and wealth creation.

Or does it?

Is there another path to advance your country’s venture capital ecosystem which does not follow the Silicon Valley way, at least in its early and intermediate stages of ecosystem formation? If yes what are the startup business models which match investors’ behaviors to risk to access their capital, and in doing so, to incrementally change the culture to make amazing things happen for more startup communities to emerge in your country?

These topics are the subjects of Mr. Park’s interview with me. Read the interview online or download the PDF here.

Additional references on these subjects:

The Startup of Startup Communities

Business models which open the wallets of investors

Engage Risk as Your Friend, not a Foe—to Impact Investor DNA—& Raise $ for Your Venture

The Cultures of Risk—Financing the Startup of Start-up Communities

Bridging the Valley of Death (a PPT); A Market Failure or Investors’ Rational Behavior to Risk?

The GoForward Plan to Scaling Up Innovation, Harvard Business Review, in Russian, Hungarian, Spanish & English

Mentoring at Singularity University

Posted on July 29, 2013 by scaling

Every Summer Singularity University (SU) conducts the 10 week Graduate Studies Program (GSP) which challenges future leaders and entrepreneurs to tackle widespread global problems with innovative team-based technology solutions. Many of the teams develop projects which are commercialized in both developed and emerging market countries.

This is my 2^nd year as a team project advisor, mentoring GSP participants in selecting business models and the raising of $$. Big thanks to Sandy Miller (Co-Chair Entrepreneurship / Managing Director, New Venture Development) and Nicholas Haan (Director of Global Grand Challenges/team project leader) for the invitation to return to SU.

As I’ve written in the past, the ‘Silicon Valley’ model of venture capital does not translate well to the emerging markets since:

1) The US entrepreneurial model of experimentation, trial and error and pivoting is a death sentence for entrepreneurs in the emerging markets; and

2) The culture of risk and failure in emerging markets impacts investor DNA—what they finance and what they won’t—much differently in emerging markets vs. the USA.

Two examples—distinguishing differences include:

USA: failure = entrepreneurship with 2^nd & 3^rd chances offered/available

Emerging markets: failure = loser for life (no 2^nd chances to raise $$ again)

USA: trial & error = learning

Emerging markets: trial & error = spending $ with no results (investors only finance results)

So the issue for emerging market entrepreneurs and the ecosystem is: how does one raise $ for your venture and how does one create a start-up community under such circumstances?

It is these topics which I’ll mentor GSP entrepreneurs. Some of the topics for this week I spoke about in 2102 at SU, click the icon below to open the PPT.

Scaling Start-up Communities: Business Models Which Open the Wallets of Investors

Posted on July 27, 2013 by scaling

Success in raising money from domestic investors in the emerging markets is not only about the ‘pitch,’ but the business model selected and executed which local $ will finance. Certainly entrepreneurs in the developing world must create and deploy business models which meet customer requirements for commercialization and revenue generation; but they frequently overlook which models best match the risk behavior of wealth too. Selecting the business model which impacts the DNA of investors is the path to open their wallets—to finance your dreams, your hopes, and your aspirations.

It was on these subjects which I spoke about in Croatia, and below is the PPT which many of you have asked me for. Just click in the icon to open and view my slides from the Croatia presentation.

Scaling Up Start-up Communities: Engage Risk as Your Friend, not a Foe—to Impact Investor DNA—& Raise $ for Your Venture

Posted on July 9, 2013 by scaling

The most frequent complaint I hear from entrepreneurs in the emerging markets is the lack of risk capital in their country; investors willing to finance start-ups and early stage companies. Many founders travel to America seeking money and connections in the US venture ecosystem. While a few are able to raise cash, most don’t—and return home empty handed—to face an unknown future.

With trillions of dollars invested in food & beverage, fast moving consumer goods, retailing, wholesaling and construction to name just a few, plenty of money exists in the developing world—from Beijing to Buenos Aires to Bangalore—and from Moscow to Manila to Mexico City. So if there is so much capital seeking opportunities, why is it such a struggle to get local investors to open their pocketbooks and finance technology, 1^st time entrepreneurs and early stage SMEs? And what actions can entrepreneurs implement to ‘shape’ their business models to the risk attitudes and behaviors of investors + learn to ‘sell risk, then opportunity’—to raise $ for their ventures?

I spoke on these subjects to entrepreneurs, investors and government officials from East Europe as the invited guest of US Ambassador to Croatia, Mr. Kenneth Merten and his economic section chief Thomas Johnston at the Brown Forum. This event commemorates former US Secretary of Commerce Ron Brown’s (Clinton Administration) efforts over 20 years ago to initiate trade between states of the former Yugoslavia—after years of war and conflict—and the United States. The theme of 2013’s event was ‘Entrepreneurship & Venture Capital in South East Europe.’

Topics in my 16 minute video talk include:

Investor behavior is driven by the cultures of risk: What it is, how it differs in the emerging markets vs. Silicon Valley and actions to make risk your friend—not your foe
Debunking myths—what investors (do/will) finance in emerging markets. Risks ‘bought’ by investors in the developing world & risks which scare them (beginning with slide #39)
Business models which unlock capital—& those that don’t

What I ask of you

With a deeper understanding and insight into the risk behavior of capital, entrepreneurs can create and ‘shape’ business models to unlock the wallets of customers and investors. So please write me with the solutions and strategies you used to overcome the cultures of risk and raise $ for your venture. I’ll share your stories here.

Keeping Entrepreneurship Alive

Posted on January 14, 2013 by scaling

New Series, beginning soon, ‘Keeping Entrepreneurship Alive.’

The idea for this series came from a post to Brad Field’s blog Startup Revolution»Communities by Namek Zu’bi from Jordan, titled ‘Young Startup Communities: Beware of the Excitment Bubble.’

Part V: Scaling Up Investment—Finance the Startup of Start-up Communities

Posted on September 17, 2012 by scaling

In Part V, subjects discussed:

1.) For Entrepreneurs—What are You Selling to Investors?

2.) For Investors—Let’s Be Realistic

3.) For Governments/Development Finance Institutions—Atypical Leadership Needed

4.) Concluding Remarks

5.) My Next Blog Series—Mobilize Local Capital to Finance Your Dreams

6.) About Me

7.) Links: Evolution of Runet (Russia Internet) & the Russia Tech Scene

Last time in Part IV, the Quest for Growth, I discussed:

1.) Clonentrepreneurship or Alternative Paths to the Start-up of Start-up Communities?

2.) Change the Culture & Amazing Things Happen

Read Part IV here.

The ‘take-away from Part IV.

Clonentrepreneurs sensitize local investors to the rewards of investing in technology since clones match the behavior of local investors to risk. As results are achieved and money is made by all, investors open up to new investment opportunities a bit more adventuresome and innovative—disruptive vs. cloning.

Cloning and Clonentrepreneurship is one strategy to impact the DNA of local investors in emerging countries to spark the startup of start-up communities, but of course others exist.

What are the other actions which each you can take to achieve your objectives and fuel the startup of start-up communities?

For Entrepreneurs—What Are You Selling to Investors?

Entrepreneurs raising money too often attempt to shape investor risk behavior to their investment opportunity. Instead, shape your business model to match the needs of not only your customers but investors too. Think creatively to find the solution which your customers will pay for—no matter how little the revenue is per customer—to craft your business model to match investors’ DNA to risk. Design your business model and its execution to systematically attack each of their fears to early stage tech deals.

Once you have this business model executed with paying customers, approach investors by ‘selling risk, then opportunity,’ i.e., demonstrate how you’ve eliminated risk in each of the four categories to prove your great investment opportunity. Once you raise money, execute yes but also pay forward in your start-up community; be the role model to other entrepreneurs, teach/mentor them in the solutions which you executed to overcome the fears of local investors in emerging markets.

For Local Investors—Let’s Be Realistic

Rarely will Western clones match the big returns as your investments in telecomm, real estate, construction, food/beverages, fast moving consumer goods, wholesaling and retailing have performed. Yet as the economy in your country progresses and incomes grow, populations and enterprises open their pocketbooks to products and services which better match changing needs.

In the Chinese online travel industry for example, Ctrip and eLong have millions of registered users. Entrepreneurs seeking money to compete against them is risky and uncertain; however opportunities exist for unorthodox business models. For example, Chinese company Qunar is a travel search engine for online travel services. It aggregates travel information like air tickets, hotels and holiday offerings so Chinese consumers can make better and more informed travel decisions. Qunar serves the evolving needs of consumers and achieves success by approaching the market differently by making competitors—its partners.

Tell entrepreneurs your needs for business models which generate revenues in the immediate term; postpone your demands for immediate profits and cash distributions. Be creative in deal structuring and flexible to valuations since tech business models scale better across customers and geographies to justify higher prices paid vs. investments in brick and mortar.

Structure the investment agreement to align and incentivize entrepreneurs to your attitudes and behaviors to risk. Oh, how does that work? An example:

American investor financings typically include an equity option plan for founders and employees. In some emerging countries, legislation permits the issuing of equity options to management of start-ups. When permissible, distribute equity shares based on revenues realized vs. traditional metrics like length of time served in the company or # of users engaged. If legislation does not permit this action, structure the investment agreement as equity earn-ins held in escrow with shares issued when agreed-upon metrics are achieved.

For Governments/Development Finance Institutions—Atypical Leadership Needed

Governments and their finance institutions conceive venture initiatives to catalyze venture funds, to finance the startup of start-up communities. Frequently these funds are modeled to the program called Yozma, the Israel Government’s fund-of?funds.

Yozma was capitalized with $100 million; $80 million which financed new VC funds with $20 million for direct investment into Israeli tech SMEs. It invested $8 million into a private VC fund with a minimum of $12 million/fund invested by Israeli and foreign venture capitalists. Yozma financed ten VC funds with a total capitalization exceeding $200 million. These funds went on to finance innovative companies and spur the development of the high tech SME and VC industry in Israel, where one did not exist before. Fast forward 10 years and the 10 funds supported by Yozma were managing over $3+billion with the VC industry in Israel managing $10+billion.

Yozma-type schemes offer economic incentives to induce investment and build learning experiences in seed and early stage tech investing such as:

1.) Commit up to 49% of the capital to the creation of a new VC fund

2.) Offer preferential returns to investors

3.) Take 1^st losses on failed investments

4.) Cap financial returns to the Government so as to boost profits to investors

5.) Subsidize management fees &/or pay the costs of investment due diligence

6.) Allow private investors to ‘buy-out’ the Government’s equity, usually within the 1^st five years of fund operation, at cost + a bank interest rate of return

Yozma worked exceedingly well in Israel and a few industrial nations.[1] But results in China, Russia, Chile, and other emerging countries has not been so spectacular; local investors didn’t respond in the #s or volume of investments in the seed and early stage sector as expected and targeted by sponsoring governments.[2]

Hmmmm. Reality sets-in as staffers scramble for new solutions and a chair before the music stops. “Let’s try something different.”

When domestic capital does not change its risk behavior to seed/early stage tech, government staffers work vigorously to create a new class of investor—angels—since their risk behavior better matches the profile of entrepreneurial ventures. While angel investors are welcome in all countries, developing this community takes years to accomplish with multiple false starts and entrepreneurs seeking money now going unfunded.

“Hmmmm—let’s rethink what the initiatives should be.”

Plenty of money exists in the pocketbooks of local investors in emerging markets to finance start-ups for a start-up community to emerge. What’s required is the unlocking and mobilizing of local capital for investment in technology, 1^st time entrepreneurs and early stage tech SMEs. Certainly encouraging a cloning strategy in the entrepreneurial community is one solution to unleashing local capital as the successes of Russian clonentrepreneurs proved.

Another solution is to think forward—design venture schemes which better match local investors’ behavior to risk and the mentoring of local investors in early stage tech investment. Include in this mentoring ‘show & tell’ sessions of other financing solutions: royalty based or technology performance financing schemes, i.e., capital invested in technology SMEs with investment returns generated from the cost savings and/or revenue enhancement earned by customers.

What else might you do, say with founders and management teams?

Organize a mentoring program; get them the mentors they need to ‘shape’ early stage tech business models to the risk attitudes & behaviors of local investors + ‘sell risk, then opportunity.’ Until investors can understand and ‘buy’ the risk in start-ups & early stage SMEs in the emerging markets, little capital will flow to them.

But what can you do if you seek to do something more ambitious, i.e., generate knowledge creation to disrupt industries and attract local investors for the needed finance? Deal flow funds are one solution to attack both needs.

Deal flow funds finance entrepreneurs and SMEs executing to a single technology, product or service platform, technical challenges that require new thinking in science and engineering to accomplish. What might be an example of technical challenges in need of solutions? Take a look at these slides which tell this story.

A ‘deal flow’ fund finances technology development and commercialization. And in Russia for example, development of the Shtokman field is a national priority of the Russian Government, not only because of its wealth potential but also the promise of new economic prosperity to the Russia Far North. The linking of technology to a country’s national priority helps assure local financiers that innovators deploying the tech have a market and paying customers. It’s this matching of tech solutions to customers which harmonize the risk behavior of local investors to the risks of start-ups and early stage SMEs.

Concluding Remarks

Emerging markets face huge obstacles in finding talent, capital, knowledge, and yes, the business models which match the risk appetite of local investors.

Clones are one solution to spark the startup of a start-up community since they generate the revenues which local investors demand as a precondition for investment. As Clonentrepreneurs achieve success, it encourages others to try entrepreneurship too. Some are a bit more venturesome and launch improvements to models cloned from the West. Others do something different and inject their own notions of creativity by innovating new solutions layered on top of Western platforms like Russian beta-stage start-up ClipClock is doing to YouTube or IVI.ru is doing in the Russian video streaming industry.

And isn’t that what we want?

More entrepreneurs driving business and economic growth, irrespective of the business model or the platform technology. We all want more investment, more initiative and more conversation with more saying “I can do that” and “I can invest too.” Such actions generate the growth, the economic opportunities for citizens, and the prosperity that all countries, regions, cities and towns desperately seek.

A Future Blog Series: Mobilize Local Capital to Finance Your Dreams

This is one of the topics I mentored 80 entrepreneurs from 36 countries—at Singularity University, located in the heart of Silicon Valley. These entrepreneurs learned about exponential technologies to solve global challenges, and my job was to work with them—selecting ideas, developing and shaping business models to investors’ behavior to risk.

I was one of approximately 16 or so team project advisors selected from around the world to mentor these entrepreneurs at Singularity University, created by x-Prize Foundation founder/CEO Peter Diamandis and inventor, entrepreneur and futurist Ray Kurzweil.

Till then, be well and be lucky

[1] For explanation why Yozma worked great in Israel and not so well in emerging countries, see ‘The GoForward Plan to Scaling Up Innovation, page 4 (English). For my Russian readers, go to ‘The GoForward Plan to Scaling Up Innovation,’ by Thomas D. Nastas, June/July 2007, Russian edition, Harvard Business Review. Hungarian readers go to October 2007 ‘Scaling-Up the Innovation Ecosystem,’ Hungarian edition, Harvard Business Review; Sept. 200. Spanish readers go to ‘Innovation for Growth,’ Latin America edition, Harvard Business Review

[2] For explanation, how local investors in emerging market typically behave-invest, when managing Yozma-type schemes, see slides 50-68, ‘Bridging the Valley of Death,’ presentation of Thomas Nastas to staff of the World Bank & IFC, 29 November 2011

About Me

I am a venture and private equity investor since 1986, financing university tech in Michigan with liquidity events including Neogen (NEOG: NASDAQ), AISI Inc. (acquired by ESI, ESIO: NASDAQ, USA) & Personal Bibliographic Systems (acquired by Thompson Financial, NYSE: TRI) as examples. An entrepreneur myself, I left Michigan in 1992, created int’l and emerging market funds in Africa, Canada, Europe, Kazakhstan and Russia, for ROI & economic development, i.e., >$300 million invested to advance entrepreneurship, innovation and growth in int’l and emerging market countries. I am past/current Independent Director, Board of Directors of eighteen (18) companies over the past 25 years, USA & international enterprises.

I can work with you in four ways.

1. As an investor advising LPs and GPs in your country for emerging market investment, create venture initiatives (+ raise capital). I invested my own capital + established and managed cash flow, venture, private equity and fund-of-funds as shown in the1st picture below. The 2nd picture shows the deal structures and strategies executed to localize money for investment in each country and to match local investors’ behavior to risk.

2. As an advisor to Governments & development finance institutions.

Design & execute venture initiatives: My clients include Development Bank of Canada, European Commission, European Bank of Reconstruction & Development, IFC/World Bank, Russian Venture Company, Govts of Slovakia, Croatia and the US Govt’s USAID—create, startup, finance & execute:
- Venture capital funds
- Venture lending funds
- Private equity funds
- Royalty based & cash flow funds
- Fund-of-funds
Design & execute grant schemes—to advance tech dev. thru commercialization: With six other directors, I manage the $85 million technology commercialization project in Kazakhstan, making grants to finance and advance science from proof-of-concept thru 1^stcommercialization.
- We established the policies/procedures for grant investment, criteria, tender & selection process including all documentation for program execution
- Selected & committed $22.5 million to 21 development stage SMEs and R&D groups in 2011 & 2012, average grant ?$1MM
- I lead the creation of 1^st technology commercialization office in Kazakhstan, to transfer Kazakhstan tech to market. I established strategy, programs, key performance metrics, deliverables and all tasks for commercialization & execution-budget is $2.8 million, staffing of four international experts + five Kazaks.
Design & execute int’l—cross border tech transfer & commercialization initiatives: Conceive programs and connect—Russian Corporation of Nanotechnology (Rusnano)—& int’l organizations
- Created project to establish technology proof-of-concept tech dev. & commercialization program between Rusnano & tech transfer offices of US universities (e.g., Colorado, Utah & Michigan). I established the trust and confidence in the parties to negotiate & secure signed agreements

3. As an entrepreneur mentoring founders & entrepreneurs as an Independent Director, member of the Board of Directors or member of the Advisory Committee. I established legal entities, hired & managed staff in Africa, Canada, Europe, Kazakhstan and Russia, all costs of market entry and operation financed by me. Living, working and investing in these counties—paying the bills too—developed in me the experiences to counsel:

Founders of mid-size companies, revenues to $100 million, solutions to integrate their firms into global markets, harmonize products/services & the organization for this global expansion, raise int’l capital and build the 2^nd tier layer of management for execution
Entrepreneurs of early stage companies, my contributions include conceive/negotiate partnerships for 1^st commercialization, raise 2^nd round VC financing, ‘shape’ business models to the risk profile and behavior of local money in the country, mentor/counsel management team in growth & development

My other contributions to global entrepreneurship:

Mentored social entrepreneurs from 25 countries & five continents at the ‘Unreasonable Institute,’ Boulder, Colorado
Mentored 80 entrepreneurs from 36 countries—technology to solve global challenges—at Singularity University (Silicon Valley), created by x-Prize Foundation founder Peter Diamandis and inventor, entrepreneur & futurist Ray Kurzweil

4. As a thought leader & advocate of VC, entrepreneurship and innovation to solve global challenges, I conceive and deliver keynote talks and Master Classes to engage stakeholders with the ability, interest and resources to finance technology commercialization and early stage venture capital. View my publictions which spread ideas—solutions to create more investment, innovation and entrepreneurship.

Let’s engage, how make an impact, make money and have fun. Contact me at Tom@IVIpe.com. Learn more at Scaling Up Innovation.