Alex Lazarow, Venture Capitalist and author of Out-Innovate, came together with Alex Chatzieleftheriou, founder of Blueground & Andreas Stavropoulos, Partner at Threshold Ventures, to discuss the transformative effect of frontier innovators in Greece.
Do not miss:
Out Innovating Silicon Valley: Νowadays, we see the biggest businesses being built around the world and often in contexts that have historically less capital.
Building Successful Teams: The biggest problems that entrepreneurs face in emerging markets is people and capital. As businesses scale, finding capital becomes easier but the challenge of finding the right people and building teams becomes bigger and bigger.
The Challenge of the Fundraising Dynamic: Venture Capitalists in emerging startup ecosystems have to rethink how their model works. It is really tough to build a startup anywhere, but it is even harder to do it in emerging startup ecosystems.
The Multiplier Effect: One of the things that move startup ecosystems is getting mid-sized companies to be massive. These entrepreneurs who scale, then train their executives on how to build a fast growing startup and soon they themselves become the next generation of entrepreneurs, create a multiplier effect.
Dive deeper:
How can entrepreneurs outside Silicon Valley have a transformative effect in local economies? What role can Endeavor play in the Greek market transformation? Andreas Stavropoulos, Endeavor Board Member and Partner at Threshold Ventures, Alexandros Chatzieleftheriou, Endeavor Entrepreneur and founder of Blueground and Alex Lazarow, a venture capitalist based in Silicon Valley, author of Out-Innovate and an Endeavor mentor, answered these along with multiple other questions in an interesting discussion organized by Endeavor Greece.
Lazarow kicked off the discussion by sharing key global insights and findings from his book, which are particularly relevant for the Greek market. The book looks at entrepreneurs in emerging markets that are out-innovating their Silicon Valley counterparts. They are making their own rules and charting their own paths, challenging what the model for innovation should be, and redefining what it means to innovate.
Out Innovating Silicon Valley
“Back in 2013 you would have been correct thinking that all the action was in Silicon Valley, since four startup ecosystems created all billion dollar businesses. However, today, that number has grown to 85.” stated Alex. According to the Venture Capitalist, nowadays, we see the biggest businesses being built around the world and often in contexts that have historically less capital. After he realized that it takes a different playbook to scale and succeed around the world since no one has been telling the stories of global entrepreneurs, Alex decided to write this book.
“Back in 2013 you would have been correct thinking that all the action was in Silicon Valley, since four startup ecosystems created all billion dollar businesses. However, today, that number has grown to 85.” A.Lazarow
In his book, Alex talks about the concept of the frontier, a word he chose because this new frontier of innovation is everywhere, it’s where thriving, world-changing businesses and strong startup ecosystems are built. As he explained, within the frontier there is a lot of heterogeneity. However, entrepreneurs have some things in common, such as the problems that they choose to solve and tactics they follow to build their companies. According to Andreas Stavropoulos, one of the main differences between the frontier ecosystem and Silicon Valley is the lack of available financing. Especially in some places around the world, entrepreneurs are facing great uncertainty and even lower acceptance of entrepreneurship.
“In Silicon Valley there is this notion that you have to disrupt” according to Alex. This is one of the main reasons why in Silicon Valley less than 20% of billion dollar businesses are in industries such as financial services, healthcare, agriculture and education. However, in many emerging startup ecosystems, that number is flipped. This brings a question on what problems are getting solved, on whether entrepreneurs are building products and services with a mass market feel, with the aim of solving something that’s not solved formally in the economy.
“In Silicon Valley there is this notion that you have to disrupt” A.Lazarow
In Out-Innovate, Alex also poses the notion of building a camel instead of a unicorn. “The unicorn in Silicon Valley is a billion dollar business. It’s a numerical value, but it comes with a lot of baggage on how you get to that number”. There is a philosophy of building startups, which is underpinned by growth at all costs, he explains. Why the camel? First of all because it’s a real animal, as Alex says, and secondly because when times are good, they can sprint across the desert and they can drink water faster than any other animal. “They are still focused on growth and building world changing industries but they do it on this foundation of sustainability and resilience.”
Building Successful Teams
According to Lazarow, the biggest problems that entrepreneurs face in emerging markets is people and capital. As businesses scale, though, finding capital becomes easier but the challenge of finding the right people and building teams becomes bigger and bigger. “Entrepreneurs are thinking differently about how they recruit and identify pipelines, how they retain, incentivise and lastly around building distributed teams” added the author. He also emphasized on the fact that now that the whole world is shifted towards working remotely, some of the best companies that managed to work fully remotely, come from emerging startup ecosystems. “This is another example of why I think it’s important to learn lessons from entrepreneurs around the world.” he added.
Alex Chatzieleftheriou admitted that he can relate to the book in multiple ways, since Blueground is a real estate tech company that started in a frontier market. “The concept’s really run true to me such as not being able to have enough funding” he said. He also claimed that he relates to the distribution of teams, as his company started in Greece but soon started to scale and expand in new markets. “We’re actually creating teams as we’re scaling” he explained, while agreeing with Lazarow’s point that the companies the later calls camels are typically going global from day one.
“This is another example of facing a constraint, and then that ends up turning into an advantage” added the author, who focused on the great example of UIpath, an innovative company which has become one of the fastest enterprise companies of all times. According to Lazarow, UIpath’s growth has a lot to do with building distributed teams, as this helps the company build that muscle of working across geographies and obtaining cross-cultural understanding, something that reinforces its ability to scale across borders. “I think we’re going to see a lot more of these cross border players around the world as they scale.” he added.
Building A Full Stack
“It is really tough to build a startup anywhere but it is really tougher to build it in more emerging startup ecosystems. And one of the notions of the full stack is having to build an enabling infrastructure just to build the ultimate product.” A. Lazarow.
The founder of Blueground shared that he is often asked many questions regarding funding. “Funding is a big thing in our sector, where we basically design apartments for the stage of a month.” Blueground started from Greece and, as Alex said it was difficult to access funding, something that made them very social and instead of raising equity financing, they found ways to scale along with their suppliers, landlords, or scale with their guests and they learned to leverage working capital in order to be able to scale.
“One thing that we found was that we had to tweak most of the market effectively. When we would lease an apartment, we had to think and be very social and push in these directions to be able to scale. In the long run, these are great qualities to have because you do end up being a valuable business and you can do more with less and that process is difficult and can be a little bit demotivating when you see what’s happening on the other side of the atlantic”. After learning to think and act this way, one builds resilience and persistence in the DNA of the organization, claimed the founder of Blueground.
The Challenge of the Fundraising Dynamic
According to Lazarow, one of the things that is dangerous for frontier innovators is seeing what is happening in Silicon Valley and trying to replicate it without adapting. “I think startups get in trouble when that happens” he explained. According to recent research by Endeavor around the pace of fundraising, entrepreneurs in emerging markets are fundraising much more often than in the Valley, and they always raise small rounds that take awhile to close. “Venture Capitalists in emerging startup ecosystems have to rethink how their model works. It is really tough to build a startup anywhere, but it is even harder to do it in emerging startup ecosystems. I think that we’re seeing some of these best practices starting to emerge and I think that’s leading towards success.” added Alex.
The venture capitalist believes that we will be seeing some evolution in investments. We have already seen some move on impact investors in some emerging ecosystems, but we are going to see even more in corporate ecosystems. “In China, for example, some of the big corporations are dominant players in scaling startups and they don’t do it the Silicon Valley way, but they do it in opening up their ecosystem and using a playbook beyond buy or invest and doing something hybrid”. And that is how the VC model should adapt, according to Alex. “Entrepreneurs should not develop their strategy to get VC funding, but VC funding should evolve to be able to serve the entrepreneur’s needs and the vision of that company” he explained.
“Venture Capitalists in emerging startup ecosystems have to rethink how their model works” A. Lazarow
Marco Veremis also shared his experience from Upstream and Persado and explained why these two experiences were two different worlds in terms of how companies were valued. Upstream, on the one hand, was in the mobile marketing and commerce space, working primarily with mobile operators and addressing mostly customers who didn’t have a way of paying beyond their mobile operator bill. Persado, on the other hand, used artificial intelligence to automate language in advertising text. “Persado, addressed solely the US market from day one and followed pretty much a Silicon valley path in terms of valuations. They started straight away with a 10x on revenue type value and brought on board Bain and Goldman as a private equity firm and now the company is close to being a unicorn.” Marco explained. “At the same time, the company never raised any funding at all. The sheer distance between how these two companies were valued is truly shocking, it’s a tale of two cities, literally.” Marco admitted, though, that today, this gap is starting to be bridged to some extent and that many of the companies being invested in are managing to come closer between these two extremes.
“There are incredible entrepreneurs around the world and there is incredible business to support as a Venture Capitalist.” added Alex. The author also agreed that things have started to shift and that there are some sectors, such as fintech and some locations, such as Brazil and Singapore that are hot. “Fintech has been one of the big first waves starting in ecosystems that are having incredible evaluations around the world. Some businesses are going to be great for that model and some great for different models.” he explained.
“The sheer distance between how these two companies were valued is truly shocking, it’s a tale of two cities, literally.” M.Veremis
Marco also highlighted the distortion that comes from making day to day decisions. According to him, some startups decide that the sound business decision for them is to invest more in countries like South Africa rather than the US. However, today there is such an inflation in terms of capital raised that “if you wanna keep up with the Joneses, essentially you might have to make the wrong business decision and go commercial and go for the US, where the margins and the opportunity might be better. That might ensure that you’ll get a higher evaluation, morer cash in and then ultimately maybe win the game.” he said.
Andreas Stavropoulos pointed out that “Endeavor is trying to help the companies from a global network perspective”. In countries like Israel, he explained, many generations of entrepreneurs have been taught to try and show some tech traction locally, get local funding and then quickly enter the US, aiming for the bigger market, thus easier funding. “The tradeoff for that is competition. In the market where you get more liquid availability of capital, where a lot of the infrastructure is already built for you, potentially you can get the market quicker.” said Andreas.
“There are incredible entrepreneurs around the world and there is incredible business to support as a Venture Capitalist.” A. Lazarow
Depending on the vertical, the importance of switching costs and the entry barriers, it could make sense for a company to enter the US market, according to Andreas. However, this does not mean that any business that enters the US is guaranteed to get funded in a way that’s easier and cheaper, in terms of higher valuation, than locally. “One of the reasons why you’re seeing technology valuations being so high in the US is that especially with the pandemic, the role of technology and the impacting part of the GDP that traditionally have nothing to do with technology companies is more understood. Therefore, technology is being leveraged in so many other industries and the impact is becoming evident.” he said.
Andreas emphasized on the fact that we are already seeing that in other parts of the world but we will continue to see that especially in non traditional tech spaces, such as education and financial services. Regarding the role that Endeavor can play in this, Andreas insisted that mapping models of obstruction in local economies that have nothing to do with the US and being able to share these stories and connect the right people in markets worldwide is a unique role that the Endeavor network can play. “There is a lot of power in information, knowledge, understanding and being able to connect people and put stories together” he explained.
The Multiplier Effect
“One of the things that really move startup ecosystems is getting mid-sized companies to be massive.” pointed out Lazarow. The author showcased the importance of the multiplier effect, a concept that lies at the heart of Endeavor. The multiplier effect focuses on the impact created by this generation of entrepreneurs that scale, who end up training their executives on how to build a fast growing startup and then soon they themselves become the next generation of founders or angel investors. Alex also focused on the exponential growth of entrepreneurial ecosystems worldwide in the past years, while bringing up China as a great example. This is another proof of the power of the Endeavor model, in terms of helping entrepreneurs leverage the world’s resources and scale, according to Alex.
“If you wanna keep up with the Joneses, essentially you might have to make the wrong business decision and go commercial and go for the US, where the margins and the opportunity might be better.” M. Veremis
Alex Chatzieleftheriou agreed that it is important for every entrepreneur to understand the needs of the company at any given time. He shared his own experience from Blueground, that launched in Greece and soon entered a growth stage. Alex and his team realized that the business model works really well in Europe and the Middle East and they knew that they wanted to accentuate that growth because the business needed capital. “We actually did expand to the US. It was much more competitive but we did end up raising more capital and high valuations”. He also insisted on the important role that Endeavor can play in bringing together these entrepreneurs that are at this stage and those who are now considering where to expand next and have them share their point of view and discuss whether this is the right thing to do. “Pulling in entrepreneurs that have been through this stage to coach up and coming entrepreneurs would be helpful.” he explained.
“There is a lot of power in information, knowledge, understanding and being able to connect people and put stories together” A.Stavropoulos
The author of Out-innovate wrapped up the discussion by pointing out a great difference between scaling in Silicon Valley and in emerging markets. In Silicon Valley, explained Lazarow, there’s a treadmill and you build the start up, then scale and then become an angel investor. There is this dimension of giving back to the ecosystem. Whereas in most startup ecosystems, entrepreneurs are building the treadmill and the ecosystem at the same time. “One of the things that’s pretty powerful is ecosystems being built around the needs of entrepreneurs and by entrepreneurs.”
The Endeavor network, with its framework and resources, is a great way to camelize local entrepreneurship and the key is to figure out ways for entrepreneurs to be engaged in their communities in a way that is authentic and, first and foremost, led by entrepreneurs.