In my interview of repeat founder Tivan Amour, I got a more personal perspective of the perils of founding a startup in an emerging economy. Fresh from an experience in the US that left him and his co-founder confident they could build a web business anywhere, they started a venture to sell shoes in Mexico. The business got off to a surprising amount of early traction. Ultimately it failed because the founders were not aware of wrinkles in the world of Mexican finance that turned into an unsurmountable obstacle. Tivan learned a lot from the experience and is putting it to good use building a new way of designing and selling urban bikes (Link to Fortified Bike).
However, emerging economies can also create opportunities for founders knowledgeable enough to navigate their idiosyncrasies. Lulwa AlSoudairy, a young Saudi woman, together with her co-founders, is creating a marketplace for handicrafts of the Middle East. They see an opportunity in connecting artisans (many of them women) working with traditional crafts and designs from the region, with buyers in the region. Despite online shopping being well established in the area, local handicrafts are mostly ignored by digital retailers. You may gain an appreciation of the crafts Lulwa seeks to preserve by perusing her website Artistia.com. She is achieving growth by providing services tailored to the vagaries of commerce in the Middle East.
MercadoLibre, Inc. (MELI), Latin America’s version of eBay, has shown that there is a path to success for savvy and well-funded startup founders in emerging markets. The company’s Argentine founder, Marcos Galperín, while at Stanford Business School, was able to pitch his idea successfully to investor John Muse, of Hicks Muse fame, while driving the latter to the airport. Since its IPO on the NASDAQ, MercadoLibre has substantially out-performed the NASDAQ Composite for the last ten years.
Compared to developed markets, emerging markets seems to offer many more high-return opportunities. However, the reason these low-hanging fruits abound is that it’s much harder to pick them than it appears. Founders need to jump through many hoops before being able to bring a product to market. The cost of capital is high, the legal frameworks are usually dysfunctional, the infrastructure is deficient and purchasing power, though rising, is still limited. Countering these trends is the improbable existence of highly motivated and capable local entrepreneurs who persevere in situations where most others would give up. In upcoming episodes of the Angel Invest Boston Podcast (Sign Up to Our Newsletter Here) we will explore further the opportunities and challenges of founding startups in countries ranging from China to Poland and get to speak with some of these indomitable founders.