Venture capitalist and VC4Africa member J. Skyler Fernandes is working with the Worldwide Investor Network to launch “The Global Innovation Fund”: a micro-fund focused on identifying top international startups, providing them the capital needed to enter the US market, and to help turn New York into the “Ellis Island of innovation”.
What is the Global Innovation Fund and why was it started?
“The Global Innovation Fund is a micro-fund, starting as a $5-$10M fund, with plans to grow into a $50M fund, and is focused on identifying the top international startups and providing them with the “launch pad capital” necessary to enter the US market. We’re looking for the best and the brightest minds around the world, wherever they are, which have begun to validate their business in their country of origin, and then bring them to the US. As a New York based fund, our goal is to help make NYC the “Ellis Island for innovation”.
We’re launching the fund as a response to global eco-systems that are being created around the world, where entrepreneurs are finding homes to brainstorm at innovations hubs, find team members, and gain support to test and launch their businesses within incubators and accelerators. The top international tech startups are an untapped market for US investors, you won’t find them in Silicon Valley. They also don’t have the network or clear path for entering the US market, which is many cases is a large multiple the size of their current market.
The founders of The Global Innovation Fund have one of the largest networks among the 300+ global incubators and accelerators, as well as among US venture capital funds through the Worldwide Investor Network. These relationships are critical for being able to help bridge companies into the US and upstream them to US venture capital funds.”
Can you explain the model and why you think this will work?
“As a micro-fund, the Global Innovation Fund can make investments larger than accelerators and seed funds, but smaller than traditional venture funds. I call this the “missing middle”, as this represents size of funds that are able to invest the size of capital that most entrepreneurs really need to start, between $250K-$1M, but also find it to be the hardest capital to raise, as most Venture funds don’t invest that small, and most angel groups, seed funds, and incubators can’t do that large. Accelerators, angels, and seed funds also have a difficult time doing follow on rounds, and are usually good for just one investment.
The Global Innovation Fund was designed to be able to do 2-3 follow-on rounds in a portion of the portfolio companies, and it’s not just focused on large seed rounds, but also Series A rounds as well. Micro-funds will play an increasingly important role in the eco-system for entrepreneurs with regards to capital raising and support in growing their business. Another important point is that international investors are unlikely to invest in a company to move abroad, and US venture funds don’t have the best networks for deal-sourcing international startups, so international startups looking to enter the US market don’t have a clear path for doing so. The Global Innovation Fund is filling not just the financing gap for startups as a micro-fund, but also the network gap between countries with its global to US focus.”
What have you accomplished with the Global Innovation Fund so far?
“We have the right people working on it and are currently gaining great support from all key players, including New York venture capital funds, incubators/accelerators, law firms, as well as the public sector such as Mayor Bloomberg and the United Nations. The Global Innovation Fund is being launched by the Worldwide Investor Network’s (WIN) team, which has been building an eco-system in New York for international startups over the past two years, where startups can pitch to local venture capital funds and get support from the WIN team. WIN has shown there is an appetite among US venture investors to see innovations that are taking place around the world as a number of companies have been funded after presenting. The Global Innovation Fund will be able to build on and take advantage of the WIN platform, its progress, and track record. WIN provides the home base and support for international startups, and the Global Innovation Fund will provide the “launch pad capital” to grow after they land in the US. The next major WIN event will be in New York on Feb 20-21st: Funding The Best In Global Innovation II.”
What do you feel will be the biggest challenge/risk in making it work?
“One of the biggest challenges is being globally focused, and not on one single country. We are already getting high quality deal-flow from around the world, and it can be overwhelming to sift through so many great opportunities. Some countries are certainly producing more globally competitive technologies than others, and we are starting off by focusing on those countries, but region wise, we’re looking at all continents, except Antarctica. Each continent has key countries where interesting things are being created. But it’s important to note, that even if a company does great in its country of origin, it may not be a fit for launching in the US market. This part is not as obvious as you may think and we will be focusing on that risk very carefully.”
How have investors in the US responded to the idea?
“They get it. But since a micro-fund with a focus on international startups coming to the US, hasn’t quite been done before, there is always caution. The creation of such a fund is becoming inevitable, it’s where new innovative funds are heading, and the main challenges all come back to finding quality partners with the right relationships and experience, as well as proprietary and quality deal flow.
While there are no similar funds to point to for track record validation, there are lots of indictors for why such a fund has strong potential to succeed. There has been a lot of data aggregated on funds that show that when new funds focus on geographies and sectors that don’t get as much attention, they often outperform an average fund, as the accessibility to such capital is scarce and fund managers have the ability to cherry pick, rather than compete for great deals.
We’re also seeing a growth in incubators in the US that have a more global focus, and more and more international incubators are being created as well. This is creating a built up demand for funding international startups, and the Global Innovation Fund plans to take the lead here with its approach and strategy.”
Why are you interested in Africa?
“There is well known saying, “If you can make it in New York, you can make it anywhere”. No truer words could be said about Africa. Some of the best innovations are the result of harsh environments, both physically and fiscally. Africa’s wide array of countries face a variety of big challenges, but at a time when there have never been more leap-frog technologies surrounding them. These situations make entrepreneurs think differently than in the US. Africans are solving problems that people in the US don’t have…yet, and are actually ahead of the US in some sectors because of this. For example, Africa is an excellent environment for mobile payment technologies, alternative energy, and healthcare technologies to thrive first due to the conditions. Most US citizens still have never made a mobile payment, but in many African countries this is more common than credit cards.
The US and the world can learn a lot from observing the evolution of mobile payment in emerging markets. The US is following, not leading here. In many ways this is also true within the alternative energy and health care sectors as well, as the gap between the problem and the solution, are even further apart. That’s where innovation and evolution happen best.”
How do you see the world of entrepreneurship changing? Is it time to look beyond Silicon Valley?
“Entrepreneurship is becoming more global. Increasingly tech innovation is coming from outside the US, with entrepreneurial eco-systems growing within the BRICS (Brazil, Russia, India, China, and South Africa), and other key hot spots such as Israel. In the US, while Silicon Valley still dominates, the east coast has come into its own, with New York, NY, Stamford, CT, and Boston, MA as prime hubs, and Chicago, IL and Austin, TX are up and coming. The past few years have really shown an amazing entrepreneurial revival since the dot com boom, but this time it’s not the rise of the internet in the US, it’s the rise of entrepreneurial eco-systems globally. The growth of new incubators and accelerators has been staggering across the US, as well as internationally, especially in Africa. In the past 24 months in Africa, 60+ incubators have been created across the continent, in fact, there are so many that there is even a hub, Afrilabs, to connect and collaborate across many of them. While the dot com era may have seen the overabundance of new VCs created, we may be heading towards an over saturation of incubators. The new trend I’m seeing is a movement towards micro-funds, as there is a great opportunity to sit between incubators and VCs, and play a critical role in the “funding food chain”.”
What would you suggest to African startups that want to enter foreign markets?
“Make sure you’re doing it for the right reasons. It’s not a simple decision. Also, if you currently have local investors, you should consider how they may be impacted if you decide to enter a foreign market, as the new market could be where the “big success” happens, and they may or may not be able to benefit from the success if they don’t own a piece of the “foreign equity pie”. Most US investors will require you to create a US legal entity for them to invest in, and that may complicate things with your local African investors. Companies, especially startups, have limited resources, and they need to be careful not to spread themselves too thin over too many geographies. Entering the US market is a big commitment, as it’s a bigger market than most and will require a strong focus and likely additional resources. Spreading out to neighboring African markets can be easier and more strategic. Focus on where your target market exists and where you have relationships or can acquire those relationships.”
Why should African startups consider your channel?
“Like every entrepreneur who is raising capital, the best thing to do is raise smart money or quality capital. Lots of angels and funds can cut checks, but it’s important to find out who is going to be able to help you the most after they invest. The Global Innovation Fund’s team has key relationships with east coast and west coast VCs, which can be helpful for finding co-investors, as well as high level industry relationships to help close clients, forge partnerships, fill key management roles, and surround you with strong advisors.”
As a member of VC4Africa, how do you see the community and what role do we play?
“VC4Africa has become for Africa what Gust.com and Angel.co are for America. VC4Africa is helping to legitimize the startup and early stage investor community in Africa, and making the world feel even smaller by making it easier to find and connect with innovators on the continent.”
J. Skyler Fernandes, member of VC4Africa Investors, is a venture capitalist at Centripetal Capital Partners, works with the Worldwide Investor Network to launch The Global Innovation Fund, and is also the founding partner of One Match Ventures: his personal seed fund. Additionally, Mr. Fernandes is the COO and Board Member of the South African Chamber of Commerce in America (SACCA).
Read more about the Worldwide Investor Network, their next event and the Global Innovation Fund on the Worldwide Investor Network website.
Also see the presentation by J. Skyler Fernandes below, showcasing the growth of incubators in Africa.