Model for cultivating start-ups starting to catch hold around the world


Donna Harris and Even Burfield, 1776’s founders, at the Challenge Cup competition semifinals this week in Washington. (Jeffrey MacMillan/Jeffrey MacMillan )

Evan Burfield landed in Cape Town, South Africa with low expectations.

One of the founders of the 1776 business incubator in Washington, Burfield had spent the past two months traveling the world in search of innovative and ambitious start-ups, holding pitch competitions in technology hubs like Boston, Los Angeles and New York City.

“I hadn’t heard much about the Cape Town start-up scene,” he said, noting that his team was trying to hit as many continents as possible during 1776’s Challenge Cup, a global, tournament-style competition for start-ups in sectors like education and health care.

It turns out, the “start-up scene” on the southern tip of Africa looks a lot like the one emerging in cities across the United States — and really, across the world.

“We got off the plane, we called an Uber, and we took it to a place that looks just like 1776, where we met with a bunch of brilliant entrepreneurs and angel investors,” Burfield said. “That’s when it hit really home, that this start-up culture and way of doing things has become unbelievably globalized.”

“It’s amazing the speed at which everyone is learning from everyone else,” he added.

Burfield and 1776 co-founder Donna Harris sat down with us just before the final rounds of the competition kicked off this week in Washington to discuss what they learned during their travels (to eight cities abroad and eight in the U.S.), what patterns are emerging around the world, and some of the nuances that still make each start-up ecosystem unique. Here are the key takeaways from our conversation.

Different countries, same problems

“One of the most fascinating things was that every city, especially internationally, was convinced that their challenges in education, or their challenges in healthcare, were unique,” Burfield said. “In India, they kept saying, ‘It’s not like in America, where you have it all figured out. We have real challenges with our education system.’”

His response: “Really, because we thought you had it all figured out.”

As a result, he said, there is more overlap between start-ups that are trying to tackle the exact same problems in different corners of the world. Harris noted that the trend has become even more prevalent as large venture capital groups have shied away from early-stage start-ups, leaving many of those deals to individual angel investors.

“Angels are are typically very local, so the deal flow they are looking at is confined to their own backyard,” she explained. “So these investors think they have found something unique, but they don’t have the global lens to realize there are six different companies in six different cities all doing the exact same thing.”

“That’s going to be an ongoing challenge going forward,” she said.

Investor terms not yet uniform

By speaking with entrepreneurs attacking the same challenges with very similar solutions, Burfield noted, it was possible to compare the type of deals they were striking with investors — and on that front, there is still lots of variation around the world.

“In South Africa, for example, the deal terms are way out of market,” he said, meaning entrepreneurs there would have to give up a much larger stake in their companies to raise an amount of capital comparable to the terms they would face in the United States.

“Frankly, they had start-ups that were just as strong as those in other parts of the world, but wow were they getting capital on significantly worse terms,” he added.

Similar start-up spaces

New business accelerators, incubators and co-working spaces are sprouting around the country and across the world — and while they may have different funding models and cater to different types of companies, most are starting to look very similar.

“Nearly everywhere we went, the spaces looked and felt identical, in terms of that open layout, high density, very vibrant,” Harris said. “I wouldn’t say there’s an exact formula, but there’s at least a recipe that seems to be resonating around the world.”

At the same time, she said, many have mixed in elements that reflect their unique surroundings. For example, at a new business incubator in Denver, Colo. called Galvanize, the space “has a bit of a brewpub feel to it,” she said, “which makes sense, because its in a district that’s lined with small bars and brewpubs.” The same is true in Moscow, where local start-up hub Digital October has a restaurant as part of the facility.

“I think you’ll start to see even more places taking that approach, melding a collaborative workspace with those social components,” Harris said.

Pitch perfect? Not always

Great businesses can be found everywhere. Great business pitches? Not so much.

“It was clear in some ecosystems that there is culture of pitch coaching, and in others, they were baffled by even the most basic concepts,” Burfield said. Harris agreed, saying she “was stunned at the difficulty some entrepreneurs had pulling out a one-minute pitch.”

“When you think about what that means from the perspective of building a company, it’s actually a big problem,” she said. “If you can’t tell people in a concise and motivational way what you do, how are you going to raise money or find customers.”

Burfield says the most stark contrast was in Tel Aviv and Silicon Valley. In the latter, he said, judges heard from “a lot of lightweight, social-mobile start-ups, not really of any higher or lower quality than in other places — but man, could they pitch that stuff.”

Conversely, Tel Aviv, he said, “looked like it was going to be the strongest city we visited about two hours before we started the competition. In one-on-one session beforehand, it was clear that these were some really interesting companies tackling big-time challenges.”

“Then they get up on stage, and the quality of the pitches was really poor,” he said. “It was almost hard to believe. Then again, when you look at the Valley, it’s clear that that’s one of the reasons companies out there have so much success. They know how to tell their story.”

Follow J.D. Harrison and On Small Business on Twitter.

J.D. Harrison covers startups, small business and entrepreneurship, with a focus on public policy, and he runs the On Small Business blog.
Comments
Show Comments
Most Read Business