Why The US & China Dominate Tech-Enabled Disruption

Consider the following points:

  • Brazil has more Internet users than Germany and the UK combined. The numbers: 149 million versus 79 million/63 million.
  • The number of Indonesian Internet users (143 million) is more than twice those in France (60 million).
  • There are more Internet users in the south Asia (Pakistan, India and Bangladesh), at a total of 582 million, than in North America at 428 million.

Not only do the world’s developing economies offer a large addressable market, but the population growth rates of countries/regions like Brazil, Indonesia the south Asia are all higher than those of the developed world. One more example to drive this point home: Nigeria (98 million users) is a larger online community than Italy (55 million). Population growth in the former is 2.6% annually. For the latter, it is negative 0.1%. And, of course, high speed Internet access is still coming to many geographic areas within the developing world so we can expect user growth to exceed baseline population growth for years to come.

Despite these large and growing markets, the global venture capital industry and its ecosystem of startups remains rooted in a handful of developed economy locations. San Francisco, New York, London, Hong Kong, Beijing and Shanghai are where you find the big money and the companies they sponsor. India is an up and comer, of course. But search for VCs in Lagos or Sao Paolo or Islamabad, and few/none of the usual boldfaced names have boots on the ground.

We bring this up because a recent article in The Atlantic did a nice job of explaining the impediments developing economy Tech entrepreneurs face in getting their ideas funded and developed. It tells the story of a Pakistani couple that started an online shoe business in 2011 with $10,000 from a Google-backed grant program. Their journey led them straight to America, where a Kickstarter campaign led them to a place in a Y Combinator funding round. Bottom line: they live in San Francisco now. Not Islamabad or Karachi.

Full story here (a quick read): https://www.theatlantic.com/business/archive/2018/11/the-next-great-tech-company/568756/

The real takeaway from this narrative isn’t just that the US has all the VCs and tech talent, however; it is that the American market is a very attractive place to sell shoes (and everything else, for that matter). And to market effectively here, it pays to manage the business locally.

The same dynamic exists in venture capital’s other global hub: China. An article in VentureBeat out yesterday described how local venture capitalists are on the hunt for non-Chinese tech startups that want to crack the domestic market. After they take a stake, the VCs then help the company with introductions to Alibaba, Tencent, Baidu and other local heavyweights.

Article here: https://venturebeat.com/2018/12/01/chinas-vcs-show-new-interest-in-backing-foreign-bred-startups/

Summing up: it isn’t just access to capital or talent that keeps American venture capital at the top of the global heap or allows China to challenge the US for that position. Large and profitable local markets help tremendously. And that may be the most sustainable advantage either US or Chinese venture capitalists enjoy.

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