The Realistic Optimist in April 2024

Dear readers,?

April was a fruitful month for The Realistic Optimist .

The steady arrival of summer, dotted by cold and rainy days, made every ray of sunshine delectable. Writing during Parisian winters is a pensive exercise, where the border between delightful melancholy and somber gloom is thin. Writing during Parisian spring is unequivocally bubbly, where long days of toil are rewarded by Seine-side pints.?

These physical pleasures distract from but don’t eliminate consuming internal interrogations.?

Is the EU complacent with an expansionist war criminal or is it wisely avoiding belligerence with a nuclear-wielding nation? Why does the Israeli army seemingly enjoy a greater right to civilian destruction than others? Will increasingly fierce China-US competition yield a sclerotic bipolar world or a peppy multipolar one? How can all countries achieve Western-grade living standards without dilapidating Earth’s resources?

The Realistic Optimist, unfortunately, doesn’t have sensible answers to those questions. It does have some pointers on other topics though.?

VCs & currency depreciation

A common theme across emerging markets (EM ) is currency depreciation. That is, the loss of a currency’s value compared to others. It is different from inflation, which refers to a rise in local prices for gas, shampoo, tomatoes… Depreciation and inflation can be linked, but they aren’t the same.?

Depreciation has been a perennial problem for investors in EMs. If the company you invest in grows its revenue 10% during a given year but the local currency depreciates 10% during that same year, your return on investment (ROI) is questionable.?

Startups in these markets have two solutions. They can either sell their product abroad, earning “stronger” currency. Or they can grow faster than the depreciation rate.?

If VCs in EMs pick the right horse, their investment should comfortably outgrow any local depreciation. There’s somewhat of a science behind doing so.?

Read: “How VCs can beat currency depreciation ” by Robin Butler CFA , partner at Sturgeon Capital .

“Impact” metrics

An unavoidable player in “poor countries’”?startup ecosystems are development finance organizations (DFIs ). DFIs fund incubators, run “entrepreneurship” programs… But they confuse people. Their taxonomy isn’t clear. To DFIs, it seems like a “startup” can be anything from a roadside vendor selling SIM cards to a university student with a crypto app.?This is caricatural, but only slightly.

The people implementing these programs are well-intentioned. But one cannot forget where orders are coming from: Western nation states. They have their own agenda, especially the one of “showing” that taxpayer money is put to good use. This focus on “showing” rather than dry, sober financial performance metrics unbalances KPIs. DFIs are looking to have “impact” (a frustratingly evasive term) while founders are trying to get their companies off the ground.?

The Realistic Optimist sought to demonstrate its point through a fictional short story featuring Leo and Zara from “Datastan” who get funding from the “Brenmark Development Agency”.

Read: “The impact of impact metrics ” by Timothy Motte , founder of The Realistic Optimist

Copycat startups

America is losing any semblance of moral high ground. Especially in the Middle East, its triply disastrous handling of the Afghan, Iraqi and Gaza situations has all but increased an already slim regional popularity.

Americans do one thing extraordinarily well, however: tech innovation. American startups have pioneered internet business models. They embody the “there is (or there can) be an app for that” ethos.?

Some people seem uncomfortable with founders copy-pasting American business models locally. Maybe because of the US’s stained international reputation. These businesses are called “copycats”, which sounds derogatory. Copycats' critics are beside the point.?

Americans, Nigerians and Brazilians essentially want the same things: live healthier, move around faster and spend less time on menial tasks. Your average person from Manila, to Stockholm to Amman just wants a less cumbersome life.

Locally adapting a proven solution to a “geography-agnostic issue” (ie: who likes to wait in line to pay a bill?) seems like good business.?

Read: “They’re not copycats, they’re smart iterators ” by Timothy Motte, founder of The Realistic Optimist

Reframing brain drain

The vast majority of countries suffer from brain drain, the exile of its best and brightest. This is because those best and brightest want a quality of life and job opportunities that aren’t available locally. How does this affect a country’s startup ecosystem?

This is a complex issue, one that the term “brain drain” erroneously simplifies. Talent leaving an ecosystem doesn’t mean it will never come back nor engage ever again. Having a wealthy, connected and skilled diaspora can even be a great asset for a young startup ecosystem.

But it’s the home ecosystem’s role to foster that engagement. Realistically, diasporas don’t have any prosaic reason to engage, only emotional ones. If startup ecosystems want to sustainably attract its diaspora, it needs to lay the foundations for tangible, exciting local business opportunities. Think of India.?

Read: “Brain drain isn’t binary ” by Omar El Hyani , investment director at MNF Ventures .

The Realistic Optimist's views are decorrelated from the views of its contributors.