The Rise of Tech Unicorns in Developing Markets

Silicon Valley has been the biggest hub of global innovation for over half a century. However remote working is expected to continue post Covid-19, and tech giants and young entrepreneurs alike are seen moving out of the Valley —a migration trend that actually predates the pandemic.

New York and Los Angeles saw steady growth in unicorn startups from October 2020, but emerging markets outside the US are just getting hotter and hotter. Excluding China, countries like India (14), Israel (13), Brazil (12), South Korea (10) and Singapore (5) added a record number of unicorn startups in just the past year.

Global startup financing in Q2 of 2021 reached USD156.2 billion—a 157% year-on-year increase and a record quarter high, according to? CB Insights’ State of Venture Report - of which the US made up USD70.4 billion, followed by Asia contribuing USD42.2 billion.?

Whether it’s Singapore’s Carousell, a pre-owned goods marketplace, India’s Apna, the leading professional job network, or South Korea’s Dunamu, a fintech startup that’s democratizing crypto trading, the diversity of these tech unicorns is a testimony to the dynamism of the markets they’re emerging from. The tensions between East and West are also redistributing the usual money flows for investment, as people search for new markets and opportunities.?

Success mantra of tech unicorns in emerging markets

More than 10,000 tech companies have been founded in emerging markets since 2014, of which almost half are outside China. Needless to say, there are a number of reasons why tech unicorns are flourishing in emerging markets but a key one is that increasing affluence is finally enabling business models that solve some fundamental problems in these markets.

Delhivery, a supply-chain logistics company valued at $3 billion, didn’t let India’s national lockdown in March 2020 slow them down. Within a week, they were operational in 15,000 postal codes across India, using technology to sort between essential and non-essential products. As Delhivery prepares to file its IPO, it will no doubt be looking? to emulate Bukalapak’s stock market debut in Indonesia. The decade-old e-commerce platform, Bukalapak became Indonesia’s first tech unicorn IPO in August 2021, raising $1.5 billion in the country’s biggest ever IPO with a market value of $6 billion. Tech unicorns debuting on the stock market in the middle of a pandemic is a strong message about the strength?of these emerging markets.?

Singapore isn’t immune to tech-focused logistics startups trying to breach? unicorn status, given pandemic disruption propelling demand. Logistics maverick Ninja Van raised just under $300 million in May 2020, with an estimated $800 million valuation, whereas Zilingo’s online shopping portal has almost reached unicorn status despite the pandemic slowing down their 2018-2019 momentum.?

Rapid digital adoption and young, tech-savvy talent is another tailwind spurring tech startups towards unicorn status in emerging markets. For instance, increased technology adoption in ASEAN will continue, thanks to the rise of digital natives, VC funding in tech innovations, and digital transformation backed by government spending. By 2030, there will be nearly 600 million internet users in ASEAN, and service delivery will pivot towards digital models. Additionally tensions between East and West is creating a need for new investment locations outside the more traditional channels.?

Partnering with other tech startups to uncover unique opportunities is another avenue being explored by these young founders: for example, Hong Kong-based logistics startup Lalamove and popular chat app Line combined forces to power LINEMAN in Thailand in 2016. Line leveraged Lalamove's delivery network to enter the delivery space, while Lalamove used Line’s over 30 million users to scale in Thailand. And last year, LINEMAN merged with Wongnai to expand aggressively in the pandemic-driven deliveries space. This is just one example, but as rural and low-income communities connect digitally, additional barriers to growth are being removed in these markets.

A Harvard study noted that entrepreneurial efforts in emerging markets have a higher survival rate than those in the US. One likely reason is that, unlike in Silicon Valley, startups in emerging markets know they aren’t likely to get? huge capital injections to accelerate their growth easily. That means their business models have to be even more solid; and as a result of not having external investors, there is less focus on growth at all cost.?

What the future holds for emerging market tech unicorns

The challenge for emerging market tech unicorn startups is how they convert their growing dominance in one market and replicate it in another market altogether. It’s never easy, of course, and it involves thinking about the localization paradox.

It’s basically a strategy choice—should a tech unicorn that became successful focusing on cracking just its home market never look to expand into other markets? And it if doesn’t look across to distant shores will investors want to buy in? And will competitors eventually arrive to oust them? And if they do choose to expand internationally, how does it go about doing that? A young startup trying to attack several markets at once runs the risk of spreading itself too thin, not dominating in one market first and refining their learnings market by market.

Should Zomato or Swiggy (app-based food delivery startups based in India) be confident with winning in India alone, or should they replicate their model in other markets? Success in one market doesn’t necessarily transfer into another, as M-Pesa found out in Africa, where they struggled to replicate their success in Kenya and South Africa. It’s about being “glocal”.

The benefits to a tech unicorn of entering new markets successfully are huge, least of all with a rapidly expanded user base. Greater access to talent is a major win, too—a study of 628 entrepreneurs from emerging markets found 75% blamed a shortage of talent as a huge barrier for their business. Going global not only helps a startup's brand building and revenues, it also positions the company well for foreign investment

A Village Capital study suggested that out of 300 unicorn start-ups in the US, only 18% focused on health, food, education, energy, financial services, or housing—that number is well over 60% in all emerging markets so clearly the developed and emerging markets are solving different challenges.?

However, it's going to be fascinating to see how these 2 different approaches to start up - the rapid, well funded global roll-out or the deep glocal bootstrapped approach - play out as they look to dominate in new markets.?

Whatever happens though we can be sure that the entrepreneurial spirit is strong and will continue to disrupt every facet of our lives so it's time to strap in and get ready for things to keep changing. It brings to mind one of my favourite sayings;- “Live as if you were to die tomorrow. Learn as if you were to live forever” - Mahatma Gandhi