November 18, 2019

Report Examines How Asia's Millennials Are Shaping the Digital Economy

"The world's millennial generation is a major driving force behind the digital economy," asserts a report by The Economist Intelligence Unit (The EIU). "Their consumption patterns and preferences underpin the growth of new interconnecting ecosystems of recreation and commerce."

Commissioned by the Singapore Economic Development Board, Asia's digital millennials: Mobile, social and borderless examines the ways in which the consumer behavior and digital habits of millennials in Asia converge or diverge from those in other parts of the world. This report is the first of a two-part research program that explores how millennials are shaping the digital economy through their use of online and mobile technologies for recreation and commerce. This post focuses on the second part of the research program.

The report importantly notes: "Relative to millennials in Europe and the US, those in Asia are unique in that they are both digital and mobile natives, with many in the more recently developing markets of South-east Asia and China having gone online first through their mobile phones." To highlight the differences in their consumption habits borne out of this unique experience, The EIU surveyed 826 millennials across 12 countries in Asia and the West. They found that Asian millennials are much more likely than their Western counterparts to:

Be heavier users of chat/messenger services and use those and other social networks to influence their purchasing decisions and those of others. "The importance of chat to Asian millennials underlines its growth as a platform beyond messaging. This offers opportunities for companies to engage them through more advanced features, such as chatbots, both those driven by artificial intelligence (AI) and those with real staff. The readiness of millennials to share their experiences provides opportunities for businesses to convert millennial customers into influencers."

Have adopted mobile e-payments faster, selecting it as their favored means of payment (over debit cards, still the most popular method in the West). "Millennials' comfort with mobile payments offers opportunities for businesses to build better mobile experiences for their websites, and integrate both website and app with a smooth hand-off to a broad range of payment options that encourage the mobile user to complete a purchase on the phone."

Photo: The EIU
Have deeper and broader tastes, stretching from local and global, making their preferences both complex and unpredictable. "This embrace of international content and products offers companies in Asia a chance to both expand the range of internationally sourced goods and services they offer, and to reduce the friction and cost for obtaining those products. South-east Asian millennials, for example, are just as picky about the cost of shipping as their Western counterparts (51% said it was very important in both groups), suggesting that there's room for businesses to find cheaper ways to ship goods around the region."

The report produced the following conclusion:
Asia's millennials have grown up in a world that has changed more rapidly than that of their counterparts in the West. The rise of mobile communications infrastructure has transformed connectivity in much of the region, providing services and goods potentially more advanced than those in more developed countries.
This report adds to the growing evidence that Asian millennials are much more likely to be regular international online shoppers in the next three years—62% of South-east Asians and 72% of East Asians agree or strongly agree, versus 47% of Westerners. Similarly, they're much more likely to use their mobile phone for cashless transactions in the next three years: 73% of South-east Asians and 79% of East Asians agree or strongly agree, versus 57% of Westerners.
At the same time, they have absorbed and adapted a much broader range of influences—local, regional and global—compared with their Western counterparts. An Indonesian millennial is likely to be as comfortable with South Korean messaging apps as with Facebook, and to buy from a Chinese vendor as from a Western one. This has created a discerning generation with an advanced grasp of technology and sophisticated tastes, matching and often surpassing their Western counterparts in the devices they own and what they do with them.
Asia's millennials are also more likely to consume e-books, online newspapers and magazines, mobile gaming apps, music streaming and podcasts, and social media, than counterparts in the West. The leapfrog in connectivity has created a generation eager to consume more, if their needs and tastes can be understood and catered-to by today's globally minded businesses.
How is your business capturing the opportunity to satisfy the demand of Asia's millennials?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

November 17, 2019

Mobile Is Accelerating Digital Transformation in Pakistan, Says GSMA Report

"Mobile technology is at the heart of digital transformation in Pakistan driving social development and economic growth," explains a report by GSMA Intelligence, the research arm of the GSMA, a UK-based industry association. "Digital transformation is underway in the country, with government and public institutions as well as private and development organizations using digital platforms to increase engagement and improve service delivery to its citizens."

The power of mobile to accelerate digital transformation in Pakistan discusses the following:
  • Pakistan government socioeconomic aspirations in context;
  • Digital transformation in Pakistan and the role of mobile technology;
  • Mobile technology contribution to social and economic progress in Pakistan; and
  • Opportunities ahead to accelerate the impact of mobile-enabled digital transformation on socioeconomic progress.

Based on my experience of working in developing countries such as Afghanistan, Uzbekistan, and Iraq, I concur that a "knowledge-based economy is built on the foundation of common access to fast, reliable and affordable digital content and services by individuals, businesses and public institutions." The report notes that in "Pakistan, this is primarily enabled by mobile technology, which now provides access to digital services for more people in the country than any other communications technology; 70% of internet users in Pakistan only ever access the internet on a mobile phone."

The report further says: "Rising smartphone adoption means more people are able to use feature-rich and IP-based digital content on their mobile devices, mitigating the challenge of much lower penetration of PCs and other data-enabled devices. The Pakistan Citizens Portal, which connects government organizations both at federal and provincial levels, is powered by smartphone apps on the Android and iOS platforms, so can be accessed by people on mobile devices."

Moreover, "In addition to internet connectivity, mobile technology enables cellular IoT (Internet of Things) connectivity for a variety of personal and industrial devices. Currently, IoT applications in Pakistan include solar-powered home solutions enabling off-grid rural households to power electronic devices; on-board diagnostics (OBD) devices for fleet management; and IoT solutions integrated with vehicle and motorcycle insurance products to reduce theft. In future, cellular IoT connectivity and services will play a vital role in implementing smart city solutions, which can help governments at different levels to cope with rapid urbanization and improve security services."

The report's key findings include:
  • Mobile broadband networks now cover 80 percent of the population and 97 percent of internet connections are mobile;
  • Pakistan has nearly 700,000 cellular IoT connections across areas including agriculture, clean energy and safe water solutions;
  • Mobile technology is the primary channel for digital financial services, digital birth registration initiatives, digital health solutions and digital learning;
  • Mobile operators and the ecosystem also provided direct employment to around 320,000 people in Pakistan in 2018;
  • The mobile ecosystem in Pakistan plays an increasingly important role in economic growth, contributing around $16.7 billion, equivalent to 5.4 percent of GDP; and
  • Enablement of digital ecosystem is largely supported by timely policy interventions for the facilitation and enablement of the industry and most importantly the end-user.

What mobile products or services do you think should be developed to help accelerate Pakistan's digital transformation?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

November 16, 2019

Making Money on Their Investment, Teams That Win, and Eight Other Things Angel Investors Care About

A significant amount of my weekly schedule is meeting with startup founders to hear their investment pitch. While I have particularities in what I want to hear in a conversation with the founders, I enjoy learning from other angel investors on what they value.

The Alliance of Angels, a group of angel investors who invest in Pacific Northwest startups, held an event, "The Top 10 things That Angel Investors Care About," on Nov. 12, 2019 in Seattle, Wash. featuring Lowell Ricklefs of Traction Advising. While you can view the presentation slides here, this blog post will focus on a few points that I found useful.

I strongly agree with Mr. Ricklefs that founders should not "spend too much time in the weeds about your product." Rather, they should discuss how they will "build a business that clients will love." This is what I call the "WOW Factor." What impresses me most when I hear an investment pitch is the founding team's plans to build a business that clients or customers will love.

As indicated in the slide on the right, Mr. Ricklefs discussed how angel investors want to invest in a company that is led by a strong management team. Not only do angel investors want to support a company lead by a team that is experienced, passionate, and knowledgeable, but that want to support those founders possessing common sense, integrity, and strong leadership skills. Each one of us periodically come up with a great business idea and a few may be able to create a product. However, it takes a winning team to execute a business plan effectively.

With respect to a go-to-market strategy, Mr. Ricklefs is correct to note that "the biggest problem early stage companies have is driving scale" and "you have to establish traction then scale." He says angel investors want to know your path of driving awareness to interest to engagement to revenue.

The presentation importantly notes angel investors care about a company's pricing model. The founders must explain how they will make money. "Revenue is king (license, transactional etc.)," says Mr. Ricklefs.

I appreciated the discussion on how investor pitches should cover exit scenarios. When should investors expect to receive a return on their investment and what is the internal rate of return (IRR)? 5x IRR? 10x IRR? Mr. Ricklefs recommended that founders provide a few examples of similar companies that have produced successful exits for their investors.

The presentation's concluded with a few basic points for founders including the importance of articulating their message clearly and succinctly. "Don't make [the investor] try to decipher what you are saying," Mr. Ricklefs advises. He also recommends not spending "time pitching to investors who don’t invest in your space."

While various risks are mentioned implicitly in his presentation, I recommend founders include a slide specifically addressing the company's risk factors. A company that is unable to produce the anticipated IRR does so not because of the lack of opportunity, per se, but because of one or more of the following risks: product risk, technology risk, market risk, management risk, scale risk, capital risk, and exit risk. A discussion on the adverse impact climate change may have on a company's operations may be necessary. Founders who are aware of the risks to their venture demonstrate their focus on building a business that clients will love.

What do you think angel investors care about?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

November 15, 2019

Report Examines the Factors Enabling Businesses in Sub-Saharan Africa to Scale Up

Having done business in the world's second largest continent, I concur with a report's assertion that the "rise and fall of interest in Africa has been contingent on its promise for growth." Published by The Economist Intelligence Unit (The EIU), the report adds: The demographic advantage and increasing per-head income spur investors but the regulatory complexities and political risks they encounter turn sentiment. Businesses on the continent are innovative and eager to expand but this is often impeded by limited access to new markets and growth finance. Delivering on the promise of economic growth is closely tied to the ability of home-grown businesses to scale up, so policymakers must establish an environment that enables businesses to thrive.

Sponsored by the Dubai Chamber of Commerce and Industry, Promise and perils: Scaling up businesses in sub-Saharan Africa "examines the factors enabling businesses in sub-Saharan Africa (SSA) to scale up." The report considers "the policy environment, state of technology and infrastructure, and financing options that allow businesses to access markets in other countries on the continent and beyond. In addition, it explores the role of foreign investors in facilitating business expansion, focusing on those based in the" six Gulf Co-operation Council (GCC) countries: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

The report's key findings include:
  • Policies for regional integration are helping African businesses gain greater access to other markets.
  • Expanding telecommunications networks are facilitating the growth of internet connectivity, mobile money and new digital services that build on it.
  • Progress in transportation projects are improving physical connectivity within and between countries in Africa and driving operational efficiencies.
  • Foreign companies with expertise in infrastructure development and emerging technologies are capitalizing on Africa's scaling-up potential.
  • High interest rates offered by domestic banks are a perennial problem for businesses seeking growth finance.
  • Alternative sources such as venture capital (VC), private equity (PE), development finance institutions and even crowdfunding have been more appealing.
  • Corporations are fueling African business expansions, through direct stakes and VC funds.
  • Gulf investment is concentrated in East Africa, with the UAE leading the charge.

The report correctly explains that "financing has long been a bugbear. A quarter of African" small and medium-sized enterprises "surveyed by the European Investment Bank between 2011 and 2017 said access to finance was their biggest obstacle. Improving the depth, speed, cost and variety of financial tools is central to business growth, whether it be from commercial banks, PE, VC, development finance institutions and even crowd-funding."

Furthermore, "PE, which tends to focus on more established firms looking to scale up, closed 1,022 deals worth US$25bn across Africa between 2013 and 2018" as reflected in the chart below. "VC also seems to be gathering a healthy head of steam: African start-ups enjoyed an almost fourfold increase in VC funding in 2018, raising a record US$725m across 458 deals. They are receiving bigger tickets above the US$5m mark too."

"In terms of investment through PE and VC," the report notes "information technology (including internet services), financial services and consumer goods and services have attracted the highest volume of investments over the past five years." As indicated in the chart below, "The fintech sector was, in 2018, by far the largest draw for finance-raising. The data show that EdTech is the fourth biggest draw, which, combined with cleantech at second, shows the centrality of social and environmental narratives to business in Africa. Other sectors of note in Africa include mobility, which is drawing interest from foreign start-ups."

I agree with the report's conclusion that "Africa's growth recovery offers hope the continent can return to its GDP surge in the earlier part of the millennium—but only if its businesses can scale within and across borders. Policy improvements, including trade and customs unions, financial harmonization, and transport integration, are helping companies build regional footprints."

Encouragingly, "Start-ups are attracting VC from some of the world's biggest brands and reaching the international stage through global IPOs. But a perception challenge remains, with many citing political risks as an impediment."

Lastly, "As businesses on the continent scale up, foreign investors are playing an important role on two fronts: building infrastructure that enables African businesses to scale and investing directly in SMEs to facilitate growth."

Do you agree with the findings of the report?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

November 12, 2019

Deal Activity to Female-Founded Startups Has Improved, but Roadblocks Remain

A report sponsored by Microsoft for Startups and Goldman Sachs' Launch With GS accurately asserts: "The VC industry has historically been a boys' club. Women have been underrepresented on both sides of the table as investors and as company founders. Considering that women make up half of the world's population and an even larger percentage of buying power, this underrepresentation is a problem not only for talented female entrepreneurs, but also for an industry that relies on scalable ideas to reach its potential."

The report, however, encouragingly notes that "[p]rogress has been made in recent years, and the oft-cited figures mask some of these improvements. For example, deal activity to female-founded startups has quadrupled over the last decade. In 2010, 823 VC investments were made in startups led by women; by 2018, that figure rose to 3,477, and 2019 is on pace to come close to that mark. This indicates that more women are becoming VC-backed entrepreneurs every year, and we expect that number to keep growing as supportive networks for female entrepreneurs continue to expand."

Released on Nov. 11, 2019, PitchBook-All Raise All In: Women in the VC Ecosystem highlights global and US-focused trends surrounding female-founded companies and female-led VC funds throughout the last decade.

The report's main findings include:
Some cities are better than others for female founders. New York and Los Angeles see comparatively high tech deal activity relative to Silicon Valley, despite Silicon Valley's much larger ecosystem.

What it means: Female founders can utilize these datapoints to determine which ecosystems (and VC firms) to target when they're on the fundraising trail.

Female-founded startups have a consistent history of exiting faster than male-led startups. Moreover, female-founded companies are exiting as a faster rate year-over-year compared to their all-male counterparts.

What it means: This reaffirms past research on enhanced business performance for female-founded companies. Venture investors, family offices, foundations and other prospective startup investors can use these datapoints to bolster their arguments for investing in more female-founded startups.

Only 12% of US VC checkwriters are women. Past research has found that female general partners are twice as likely to back female founders. Many (if not most) investment pitches are initiated by company founders, who approach investors looking for an opportunity to talk about their companies, and there are numerous indications that female founders often actively seek out VC firms with female checkwriters to pitch to.

What it means: VC firms can help in a big way by hiring or promoting more women into checkwriting roles. They will likely see an increase in incoming deal flow and open themselves to opportunities that other firms may miss.

56% of limited partners have women in decision-making roles. Limited partners are the original capital source for the entire VC industry, and where they invest their money has a significant downstream effect on future deal flow.

What it means: LPs can play a role, as well. They can use their influence to push for female-focused funds-of-funds, which are funds that take stakes in funds instead of startups. Such funds would ultimately provide more resources for female founders and provide an initial source of capital for female investors looking to set up their own VC firms.

It is worth mentioning the "ratio of female-founded startups has improved substantially since 2010, when they made up only 11.8% of the market. By dollars invested, female-founded startups took in almost 18% of all capital invested last year, higher than the 12% to 14% range typically seen since 2013. More notable, though, are the combined dollar amounts in recent years. Last year, more than $46 billion was funneled into female-founded startups, more than doubling 2017's value. For perspective, only $3 billion went to female-founded startups in 2010, translating into a more than 15-fold increase over the past decade."

What is more, "The gradual rise in female-founded startups can be traced to several factors, including market awareness of the gender imbalance, stronger mentorship networks for women and more women entering the venture side of entrepreneurship."

As an investor in several female-founded startups, it is reassuring to read: "Female-founded startups are exiting at an increasing pace. 2018 saw $26 billion in total sales (through acquisitions or IPOs) for female-founded startups. 2018 was also the fourth consecutive year with at least 200 exits from female-founded companies, which have slowly gained market share over the past 10 years, with 14% of total exit count in 2018. In addition, the number of exits for female-founded companies is growing at a faster rate YoY than exits for companies with all-male founding teams."

Are you investing in female-founded startups?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

November 2, 2019

Identify, Execute, Monitor, and Manage: A Continuous Four-Stage Risk Analysis Process

"In an increasingly interconnected and complex world, it is vital to understand the external risks to your business" The Economist Intelligence Unit (The EIU) correctly notes in a report on how to navigate corporate risk. "Whether a firm is looking to understand the possible impact of" the trade war between the United States and China on its international "investments; the likelihood of new environmental regulations being implemented; or the threat of social unrest disrupting supply chains, being able to identify and understand risks offers the chance to put in place mitigation strategies that could help avoid significant losses. Failure to do so can prove terminal for businesses."

The EIU advises that "[t]o prevent this, risk analysis can be broken down into a continuous four-stage process:"

1. Identify

"Before identifying the external risks they are facing, firms need to understand and quantify their financial exposure—an important dimension of this is geographical." Furthermore, "This type of mapping exercise has become increasingly important in recent years, as global supply chains have become stretched across a growing number of territories, including cyber space, and exacerbated by examples of growing trade protectionism and political risk more generally. A clear understanding of a firm's exposure should highlight key areas of weakness and dependency. This, in turn, allows the firm to start thinking about which risks will need to be prioritized, as there will be trade-offs required when allocating resources for mitigation.

"Once a firm's exposure has been mapped, detailed and understood, the next step is to assess what exactly could put investments and operations at risk. Some of this should already have been achieved by the exposure-mapping exercise. For example, if the majority of sales revenue is earned in a particular country, then difficulty in taking money out of that country would be an obvious primary concern. However, the likelihood of this becoming a problem has historically been much lower within the EU than in emerging markets in Asia, such as Indonesia and Vietnam."

I concur that "[a]pplying this kind of political and economic historical awareness, external country experts can help provide the contextual knowledge and experience to understand which scenarios are more or less likely to occur in particular countries, including scenarios that firms may not have previously considered. This last point is particularly important—thinking outside the box is necessary, as market consensus can severely limit risk analysis."

2. Evaluate

The report accurately explains: "Each possible risk needs to be quantified in order to compare and evaluate them." My colleagues and I have adopted The EIU's methodology by giving "each risk scenario a probability score, and also a score for the likely impact on businesses' profitability. Combined, this gives an overall intensity score . . . . This process allows for the creation of a moving intensity scale—the risk scenario watchlist—as the scoring for different risks changes over time."

3. Monitor

"Without a system in place to monitor key business risks, the assumptions and analysis made by firms can become out of date very quickly."

What is more, "Navigating such shifts requires a monitoring system that cuts through the noise. Firms need to stay in tune with exactly what is going on in a country and to stay on top of geopolitical relationships, by receiving regular country-level alerts and speaking with country experts."

I am fortunate to be surrounded by a network of talented individuals located in key economies around the world where each share information and insights on geopolitical or socioeconomic events they are observing.

The report importantly adds: "One further way in which firms can improve monitoring is through the ability to track specific triggers that are likely to set off identified risk scenarios. This can then act as a form of early-warning system. Some broad examples include: disputed elections or food price spikes as drivers of social unrest in less stable countries; currency devaluations as a precursor to the implementation of capital controls; or falling natural resource prices in commodity-export dependent countries, leading to a drop in government revenue and, consequently, cancellations or delays to government-led infrastructure projects. In addition, some other increasingly important triggers include environmental protests or tensions and major geopolitical disputes, both of which have, for differing reasons, preceded a rise in successful cyber-attacks against governments and associated companies.

"Although many political events are difficult to predict precisely, a combination of specifically selected triggers and the development of, or use of analytical firms with, on-the-ground contacts will go a long way to helping firms prepare for the worst."

4. Manage

"Once key risks have been identified and are being monitored, firms will have a better idea of how to manage them. The intensity scale allows for prioritization, which can be adjusted as events and policies change on the ground. But, to mitigate effectively, firms also need an understanding of the exact areas that will be impacted by a particular scenario, both within their business and also in the wider business environment."

Lastly, I appreciate the report's concluding paragraphs:
Certainly, the global trends towards governments introducing more active environmental and data protection policies, as well as growing trade protectionism, indicate that firms need to pay special attention to managing regulatory changes in coming years. Firms that are able to identify possible regulatory shifts and put in place contingency plans to adapt before such shifts are implemented will have a better chance of success. Whatever the best strategy for each business, the ability to identify, evaluate and monitor key external risks should dramatically improve risk-mitigation efforts.
In an age of increased unpredictability and event risk, firms and governments are more than ever seeking to insulate themselves from the consequences. Global businesses cannot avoid risk—and too much risk aversion can be bad for growth—but they can prepare for risk, just as they can for opportunity.

Does your business employ a continuous four-stage process of analyzing risks? Do you have an alternate solution to understanding the external risks to your business?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.