The Implications of the Global Web for US Startups

It is extraordinary to think about the recent events in Egypt and the catalyzing impact of both Facebook and Twitter. Not only is it amazing to see people organizing and communicating through new methods on mobile devices, but these services are delivered by companies in the US that are less than a decade old.

Facebook and Twitter are hardly startups anymore, but their audience and usage growth outside the US is a phenomenon that is occurring, albeit mostly on a smaller scale, across the global web. Rapid and viral growth outside of the US without overseas operations is something that is occurring at an unprecedented rate. We just closed a new investment in Ignighter, a fast growing, early stage group dating Internet company headquartered in New York City. This might sound like a similar story to numerous other digital media / Internet startup financing stories that happen every week except that over 95% of Ignighter’s users are in India!

So why isn’t the company in India? How did three young Internet entrepreneurs in New York end up with millions of users in Bangalore, Delhi, Mumbai and other cities across India? This sounds like a fluke, this can’t happen very often. Here is an interesting story in the New York Times about the company (you have to be a subscriber to read it but it is a free subscription).

This is our second investment in a US Internet company that is showing rapid growth somewhere else in the world. Our first experience with this was our investment in Multiply, which was founded and built in Florida and ended up being the dominant e-commerce platform provider in South East Asia (Philippines, Indonesia, Thailand, Vietnam, Singapore).

These are two of our own examples of this trend but everyday you read about another US Internet company like Zoosk or Exclusivley.in whose overseas growth and success is substantial and often they have limited or no presences outside the US.

It used to be that as an early stage, venture backed company you wouldn’t even plan to go international until you had firmly established a repeatable model in the US. Then you would establish a distribution relationship with a company in the new territory, hire a country manager, open an office, do all kinds of product development, and maybe after a year start shipping something with a lot of concern over what the demand curve was going to look like. Today, you put your web site up from your desk in Boston, Chicago, New York, the Bay Area or even Florida and often the consumers somewhere half way around the world take it and run with it. Now, we encourage our companies that get strong traction overseas to eventually setup an office there to optimize their ability to localize the product and interact with strategic partners in the region, but even the process of localization has taken on a fascinating twist through crowd sourcing whereby the customers actually do the language and UX adaptation.

The result is that US innovation can be exported in a way that redefines international trade and global innovation. It also means that the level of interconnectedness between startups and large players is greater than ever across North and South America, Europe, Asia and Africa. One of the major players in this arena is Naspers, which is the company that acquired Multiply and is based in Johannesburg, South Africa. It has an approximately $22 billion market cap and has substantial ownership stakes in Tencent and DST – which in turn has ownership positions in Facebook, Zynga, and Groupon, among others

This unprecedented ability to access global markets by early stage Internet companies affords them the benefits of entering both mature and very large Internet markets in the US and Europe while also enabling these same companies to go after much faster growing Internet markets in South America and Asia (ie: India is growing at 18% per annum and is only 6% penetrated compared to the US which is 76% penetrated and growing on a user basis at only 4% yoy). It also means there are big, web savvy partners around the world for these companies to partner with to grow and create value.

Now, I just wish I had paid more attention to my International economics professor in college.

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