Outside of the Silicon Valley bubble

Endeavor CEO sees global potential

Endeavor co-founder Linda Rottennburg and Tarek Sadi, managing director of Endeavor Lebanon
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In the sweltering July heat, entrepreneurs from around the world were in Beirut pitching to join the Endeavor network. Founded in 1997 as a non-profit support network for entrepreneurs (focused on Argentina and Chile), Endeavor is now assisting founders of young companies in 27 countries around the world (including Lebanon since 2011). In 2012, the non-profit adjusted its model by raising investment funds to co-invest in its entrepreneurs alongside lead investors. Executive sat down with Endeavor CEO and Co-founder Linda Rottenberg to discuss the state of global entrepreneurship.

E   Earlier this year, Amazon bought the Saudi-based e-commerce platform Souq.com. Souq had previously raised a finance round, pushing its valuation past the $1 billion mark, and earning it the moniker “unicorn.” The woman who first used this term found 39 unicorns born between 2003 and 2013. In the four years since, there are more than 200, depending on which lists you look at. Are you worried there’s a bubble inflating here?

The problems in Silicon Valley are different than what we see around the world. In Silicon Valley, the valuations got too high. You have [venture capitalists] getting lazy and all fighting for the same deals, and you have people trying to build unicorn companies. And if you’re trying to build a unicorn company, you’re not building a unicorn company. What I see outside the US is amazing talent; still actually low valuations. If anything the entrepreneurs need more equity. We see the capitalization tables are a real problem, where investors are taking way too much equity. The more competition from funds the better, because it will be more entrepreneur-friendly. [Also, outside the US], we’re now seeing serial entrepreneurs who’ve had experience, we’re seeing this c-suite level talent that we didn’t have, and we’re seeing access to markets where you can actually create a multi-country company that is global in nature from the get-go. I believe that going forward, that’s going to become a huge advantage. So I’m really bullish on entrepreneurship outside of the US. So they’re the ones at risk of a bubble [in Silicon Valley], whereas I don’t think we’ve even been able to scratch the surface of the talent-to-capital efficiency here.

E   In the markets you’re involved in around the world, to what extent do you see people simply trying to adapt a successful model to a local/regional market?

First, I do think that these adaptations, the tropicalization of US models, make sense to some extent. Where you don’t have the capital market efficiencies, one potential exit down the road is to have these US companies [buy their local versions].

E   True, but that isn’t a very sustainable model.

Exactly, you have to start somewhere, but we’re seeing two other things. The second thing we’re seeing is some local innovation starting outside the US. I think this is going to happen more and more. I have long had a theory, outside the US, mobile technology is used for everything. Inside the US, it’s still a nice add-on, but people don’t use it for everything. So I actually believe mobile applications are going to be first-generation innovations outside the US and carry over. We’ll see.

Third, what we’re seeing [outside the US], is the opposite of ‘I want to build a unicorn.’ I see, ‘I’m solving a pain point, and I’m using technology to do something that used to be more traditional or family-based, and actually create something that’s more innovative and more scalable.’ So we’re seeing a lot of tech-enabled, rather than tech-centric, businesses in [agricultural technology] in health-tech, [education technology], food-tech. So taking what used to be more traditional industries, and modernizing, creating a layer of innovation. But it’s not just an app, it creates better lives for people at the base of the pyramid or the middle of the pyramid, because they’re closing gaps.

E   You talk about impact a lot on Endeavor’s website. What do you mean by that?

We’re not impact investors, but we’re about high-impact, which for us is also about this growth and the ecosystem multiplier effect [where entrepreneurs give back to the ecosystem by supporting, mentoring, or even investing in younger ecosystem companies]. What I’ve seen around the world is sometimes what people call “impact” investing; they mean there’s trade-offs between growth and the social impact. We at Endeavor don’t believe that. We believe that if you want to achieve high-quality jobs and improve things, you have to scale. What we’re looking at is the entrepreneurs who – rather than seeing everything as a trade-off between investing in the business and achieving the social mission – have to achieve the growth first if they want to improve things. [One of the companies in our network] is training more engineers than any university in Latin America. So even the companies you wouldn’t define as “impact” understand that you can’t build world-class companies in failed societies, and they have a responsibility in their communities to create the best employment.

E   Do you have a set criteria to define what impact companies in your network must demonstrate?

[We don’t have rigid criteria], but what we say to high-growth entrepreneurs and high-impact entrepreneurs is that you can’t check your values at the door. It’s not good enough to create a profitable business that’s good for your investors. If you’re not creating a culture that’s good for employees, if you’re not caring about your customers, if you’re not caring about the people in your communities, eventually it is going to come home to roost, so it all starts with the DNA and the values you instill in your company.

E   Do you see sexism, sexual harassment, and sexual assault as a problem in the global entrepreneurship scene?

We’re seeing marked improvement. About 20 percent [of companies in the Endeavor network are] run or co-run by women, compared to the US, where only around 8 percent of venture-backed companies are run by women. The women in our network are running companies that are incredibly high-impact. We need to tell stories of women that are not micro-credit, but are these high-impact, high-growth companies to inspire others. You need the role-model effect, which is what Endeavor is after.

Matt Nash

Matt was Executive's Economics & Policy Editor and Real Estate Editor from May 2014 to November 2017. He began reporting in Lebanon in April 2007, and his coverage focused on oil and gas, public policy and human rights.