Creating Virtuous Cycles: How Venture Capital Support Fuels Founder Success

Looking back at the 50 years of venture capital investments, success has often followed a power law, with a few portfolio companies capturing most of the returns. Diversification across industries has been key for successful VC firms to achieve above-market ROIs. Understanding this power law is crucial for investors as it creates cumulative advantages beyond economic returns, attracting new resources such as capital, talent, and investment opportunities. Conversely, failure can lead to negative feedback loops, reinforcing disadvantage at all levels.

Therefore, VCs have a strong incentive to create virtuous cycles and maximize success for each investment. Recent market corrections have highlighted the importance of building sustainable businesses that can withstand market cycles. To achieve this, investors must adopt a hands-on approach and provide founders with comprehensive support. This challenge is particularly critical in frontier markets where entrepreneurs face unique obstacles such as limited access to capital, underdeveloped infrastructure, and regulatory uncertainties.

Prominent venture capital firms such as Sequoia Capital, Andreessen Horowitz, Greylock Partners, Accel, and others, have emphasized the importance of generating value for their portfolio companies. These firms have established themselves as some of the most founder-friendly venture capital firms by providing comprehensive support to entrepreneurs at every stage of their business. This support goes beyond financial capital and includes strategic guidance and operational assistance, such as recruitment, sales, coaching, finance, and more.

On the opposite end of the spectrum, Tiger Global, despite recent setbacks, has emerged as one of the most successful investors in recent years, known for its hands-off approach to supporting founders. The firm believes that founders are best equipped to lead their own companies and, as such, refrains from participating in day-to-day operations. Tiger Global does, however, offer a valuable array of resources to its portfolio companies. This includes granting access to its extensive network of contacts, sharing expertise in finance and operations, and leveraging its experience in facilitating company growth and scalability.

While there is no one-size fits all strategy for VC investments and different approaches can be equally successful for investors, we will explore how hands-on founder support is crucial in frontier markets such as Africa and the Middle East.

The Value Acceleration Imperative in Frontier Markets

In these markets, the most successful founders tend to exhibit qualities such as resourcefulness, adaptability, resilience, and flexibility. They are skilled at building strong networks across regions and are open to seeking external advice to navigate the complexities of building a business in a more challenging operating environment. These founders understand the value of collaboration and actively seek out opportunities to learn from others, making them well-equipped to navigate the unique landscape of frontier markets.

They share this profile because these founders are confronted with a different set of challenges than their counterparts in the US or Europe. Regional entrepreneurs have limited access to resources such as infrastructure, financial capital or talent, and deal with uncertain, and oftentimes conflicting, operating markets. This makes it even more imperative for them to develop creative technological solutions that empower industries and communities, while presenting a unique opportunity for investors to generate returns and contribute to solving some of the world’s biggest challenges.

These markets are now at a tipping point, with founders building innovation that have a significant impact on local communities as well as global markets, and international capital investing in the most promising regional technologies. Nevertheless, these markets are not without their hurdles. For one, many of these founders are first-time entrepreneurs. While their fresh perspectives and innovative mindsets help them tackle g-local issues in unique ways, they are still novice in scaling businesses effectively. Moreover, expanding into frontier markets can pose certain obstacles due to their fragmented nature, including differences in languages, cultures, currencies, and regulations.

These are some of the reasons why early-stage investors have a crucial part to play in supporting frontier market founders. By providing hands-on strategic support, investors can help entrepreneurs scale their businesses more effectively and create unique solutions that cater to the realities of their customers and markets. Ultimately, supporting founders allows investors to also participate in the value creation process for local communities since allowing innovative technologies to scale directly impacts the quality of lives of various stakeholders. Investors who recognize the potential of frontier markets and are willing to provide strategic support and funding can help bring innovations to these regions, solving some of the world's biggest challenges and improving the lives of millions.

Value Creation in Practice

At Global Ventures, we firmly believe in delivering comprehensive and hands-on support to our portfolio founders, equipping them with the essential resources, guidance, and connections they need to thrive. You can find more detail on our support framework here.

We actively demonstrate our support for founders through our involvement in governance, expansion, and fundraising. In terms of governance, we assist founders in establishing effective boards of directors, advocating for the inclusion of independent board members, and providing valuable insights on board communication best practices and board pack templates. When it comes to expansion, we have successfully guided numerous portfolio companies in expanding their operations throughout Africa, the Middle East, Pakistan as well as Europe and the US, whether through organic growth or strategic acquisitions. We accomplish this by facilitating connections with potential clients and partners in new markets, aiding in market entry, navigating regulatory requirements, and securing necessary licenses. As for fundraising, ahead of facilitating connections to relevant co-investors, we prioritize assisting founders well in advance of launching anew round. We help them prepare comprehensive data rooms, refine pitch decks, and develop a well-defined strategy for investor introductions.

Lastly, acting as a sounding board is perhaps one of the most valuable contributions we make to our founders. We actively listen to their ideas and concerns, offer constructive feedback, and help them overcome challenges. We believe this type of support is invaluable, particularly for founders who may feel overwhelmed or uncertain about their next steps. We strongly believe in providing our founders with options. Rather than prescribing what they should do, we guide them in exploring a wide array of possibilities, empowering them to make informed decisions that align with their vision for their companies. This approach encourages founders to take ownership of their businesses and build organizations they can truly be proud of.

Supporting founders creates virtuous cycles. When our founders thrive, we thrive. This is why we remain committed to continuously improve our value creation efforts and create cross pollination within our portfolio.

Successful support in venture capital requires a steadfast commitment to the long-term. Investors understand the importance of prioritizing sustainable business growth over quick profits, urging portfolio founders to adopt a similar perspective. The essence of supporting founders lies in a profound dedication to their success, providing unwavering assistance throughout their entrepreneurial journey.

While frontier markets like Africa and the Middle East are still in the early stages of developing their tech ecosystems, they offer a distinctive opportunity for investors. Venture capital firms that emphasize value creation for their portfolio founders in these markets can not only generate attractive returns but also contribute to addressing significant global challenges.