We are brainstorming a new solution to a widespread challenge in many countries: How to develop a self-sustaining, independent local tech ecosystem. We propose that governments should systematically support funding for their diaspora founders, not just founders locally.
There are three main players in any tech ecosystem:
- The first are founders who want to build companies and need funding. In many ecosystems outside of the major tech hubs, founders face cultural, legal, reputational and other hurdles to building a successful tech company. As a result, many of them emigrate to the U.S. Immigrants contribute to the success of the U.S. innovation economy at a vastly disproportionate rate.
- Next are VC firms looking for founders. In a very small number of geographies, there is no shortage of VC funds (NY, CA, Boston, Israel, Beijing). But in most cities in the world, there is only a relatively small number of VC funds.
- Then you have national and local governmental organizations interested in promoting economic growth and job creation. They particularly want to see a thriving tech ecosystem generating high-paid jobs.
Our proposal is that many governments that are not major tech hubs (i.e., most countries excluding the U.S., China, Israel and India) should stop restricting themselves to supporting locally domiciled VC funds.
Many countries’ governments (Canada, France, etc.) have created or supported funds to invest in local VC managers. Usually, governments have a two-part goal: Achieve good returns and generate jobs. However, in many cases, these VC funds have failed on one or both counts.
There is a reason the definitive book on the topic has such a depressing title: “Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed — and What to Do about It,” by my former professor, Josh Lerner, head of the entrepreneurial management unit and the Jacob H. Schiff Professor of Investment Banking at Harvard Business School.
Silicon Valley, Singapore, Tel Aviv ― the global hubs of entrepreneurial activity ―all bear the marks of government investment. Yet, for every public intervention that spurs entrepreneurial activity, there are many failed efforts that waste untold billions in taxpayer dollars … [The book] reveals the common flaws undermining far too many programs ― poor design, a lack of understanding for the entrepreneurial process, and implementation problems.
Our proposal is that many governments that are not major tech hubs (i.e., most countries excluding the U.S., China, Israel and India) should stop restricting themselves to supporting locally domiciled VC funds. Instead, they should consider investing in VC funds that invest in their diaspora.
We argue that this benefits the home country in three ways:
Remittances: Entrepreneurs will send money home to their families.
Brain gain: If you look at the leaders of the tech ecosystem in most countries, you will see a very disproportionate number of people who have education and work experience abroad, especially in the U.S. Diaspora entrepreneurs bring the knowledge and understanding acquired outside the country that may help them see possibilities not apparent to people who have not lived elsewhere. On the other hand, these entrepreneurs often encounter entrenched attitudes, resentment from non-migrants, and administrative barriers in bringing money, materials and equipment from abroad.
Job creation: Even if a French emigrant starts their business in New York, when they expand, France will be a logical place for a European HQ. In addition, as the firm grows, there are many functions they may set up in their home country, such as engineering, QA and customer support.
The private sector has already identified this opportunity. In New York City, there already exist numerous VC funds with particular interest in certain diasporas. For Israel, we have Elevator Fund, Hanaco, Innovation Endeavors, JANVEST Capital Partners, Pereg Ventures, Team8, numerous others. See “The ultimate guide to US investment in Israeli startups.”
Governments could model these efforts on leading global public/private organizations that have supported diaspora entrepreneurs in many other ways.
Networking, mentoring and training: Governments can offer opportunities for diaspora and local business leaders to meet one another and discuss potential business and investment opportunities in the homeland. Many of these groups also offer startup services such as market research, business plan advisory, matching with seasoned executives and registering a business. A few such groups are the African Diaspora Network (ADN), The Indus Entrepreneurs (TiE) (Southeast Asia), Advance (Australia) based in New York, C100 (focused on Canadian tech leaders), GlobalScot, Irish Executive Mentorship Program and Red de Talentos Mexicanos.
Investment (almost entirely in the home country): Investment is typically in the form of pooled private and public funds, or matching grants, and typically requires a physical presence in the home country. A few such organizations include:
- The African Foundation for Development (AFFORD) was founded in 1994 as a nonprofit organization by Africans living in the U.K. to help expatriates there create wealth and jobs back home. Its investment activities include the Diaspora Finance Initiative (DFI), AFFORD Diaspora Grants and the AFFORD Business Club.
- Moldova has a Pare 1+1 program that offers funding and entrepreneurial training to immigrants (and returnees) into Moldova.
- Chile Global Ventures (part of Fundación Chile) finances startups through its network of over 100 influential Chileans living in the U.S., Canada and Europe. They invest in Chilean startups or companies abroad founded by Chileans.
- Ecuador’s Fund El Cucayo provides risk capital in a matching-funding format, 50-50 or 25-75, to returning Ecuadorian entrepreneurs in Ecuador.
Recruiting new citizens: The Canadian Startup Visa Program is great for recruiting international talent. This is an enormous opportunity for Canada to further leverage its historic openness to immigrants. From my point of view as an American, our history of welcoming immigrants (including my French father) is one of our greatest advantages compared to our geopolitical rivals. We’re fools if we don’t aggressively leverage this unique asset.
So here’s our question: Which forward-thinking governments are open to the idea of supporting funding to their diaspora? In our conversations with some senior government officials outside of the U.S., what we’ve heard is, “We love the idea, but it would be difficult to get political support for anything that involves sending money abroad.”
Who can surmount this challenge?