Masters of Scale Summit: Linda Rottenberg – YouTube

Now, when we first began planning Masters of Scale Summit,
we, Darren and I talked to a number of people in this room
about how we can get the content and the community right.
One of the people we talked to first
was our next speaker, Linda Rotenberg.
So Linda, we’ve known for years as a friend and advisor.
I’m sort of a co-conspirator in trying
to build impossible things in the world.
Linda, as many of you know, has spent the last 20 years
cultivating startup ecosystems around the world,
working with thousands of entrepreneurs
who beat overwhelming odds to achieve incredible success.
And so we talked to her about bringing
20 of her fastest-scaling global unicorn and sunicorn CEOs
here to Masters of Scale Summit.
Welcome to all of you outliers who are in the theater.
We’re so happy to have you here.
But something really interesting emerged
in that first conversation with Linda,
we started to realize that our collective understanding
of the world’s startup map was completely
outdated, and I wonder if you’re going to find the same.
So Linda had a wealth of knowledge
on where unicorns were emerging and also why.
And so she agreed to create an in-depth look
at the data, visualizing it here for the very first time
at Masters of Scale.
She’ll also be sharing the specific strategies she
uses to cultivate these ecosystems.
For a talk given here for the very first time,
will you please welcome to the Masters of Scale stage
Linda Rotenberg.
Thank you.
2021 was the year of the unicorn.
Every day, another startup reached the magical milestone
of a $1 billion valuation.
The first mention of unicorns came
in a 2013 TechCrunch article written
by Silicon Valley VC Aileen Lee.
Welcome to the Unicorn Club.
Lee’s Unicorn Club was mythical, aspirational, and rare.
It comprised just 39 tech startups, all of which
had been founded in the US.
The Unicorn Club was a quintessentially American
phenomenon, or was it?
By the end of 2013, there had been unicorns bred elsewhere
in the world, but no one was paying attention.
In 2017, I appeared on season one of the Masters of Scale
podcast.
The episode was the next Silicon Valley,
and Reed posed the question whether another unicorn
breeding ecosystem could emerge outside the US.
I said yes.
Everyone else said no, except maybe China.
So what would you guess is the percentage of unicorns
bred outside the US today?
Well, in 2021, China bred 17% of the new class of unicorns,
while a full third came from the rest of the world.
Just 51% of the unicorns bred last year
were born in the United States.
That means half the unicorns came from outside the US.
So we’re going to look at a time lapse of unicorns 2014 to 2021.
You’ll notice that in 2017, the rest of the world
starts catching up.
But should we even be talking about unicorns in 2022?
Well, here’s why it’s important to pay attention
to hypergrowth tech startups in the rest of the world.
First, just imagine this unicorn time lapse stretched out
a few years.
As the rest of the world produces more unicorns,
those founders are becoming more globally ambitious.
They’re coming after your talent, your capital,
your market share.
And still almost no one sees this coming.
So let’s look at how it’s been possible to breed unicorns
and build unicorn breeding ecosystems in places
we never imagined.
First, a bit of background.
At Endeavour, we’ve helped build entrepreneurial ecosystems
in 41 emerging and underserved markets
over the past two and a half decades.
Our Endeavour Catalyst Fund has invested in 53 unicorns,
the vast majority from the rest of the world,
a few from underserved markets here in the US.
And Endeavour Catalyst is ranked among the top five
most prolific unicorn investors in the rest of the world.
Now, back in 1997, when we launched Endeavour first
in Latin America, emerging markets were tech wastelands,
unlikely to produce even a single startup worth
a billion dollars.
Entrepreneurs and emerging markets
faced multiple barriers to success.
The high cost of failure, a lack of role models,
limited access to talent, lack of mentors and networks,
lack of trust, and limited access to smart capital.
Still, we believed if you could systematically break down
these barriers, there was tremendous local talent
to be unleashed.
In 1998, I met a 24-year-old Patagonian sheep farmer
named Wences Casaris.
Some of you here know him as Bitcoin Patient Zero.
Back then, Wences was launching the E-Trade of Latin America,
Patagon.com.
He pitched Patagon to every local investor.
There were 34, and all 34 turned him down.
I don’t have the right last name, he explained.
Two years later, Wences sold Patagon at a valuation
of $750 million.
That’s $1.2 billion in today’s currency.
Across Latin America, people started
saying, hey, if Wences can do it, I can too.
And two of those inspired by his story
were Argentine Stanford MBAs, Marcos Galperin,
and Hernán Caza.
The pair moved back to Argentina to found
Mercado Libre, an online marketplace that
would rival eBay and later Amazon.
In August of 2007, Mercado Libre became the first Latin tech
firm to IPO on the Nasdaq.
Now inspired by Patagon and Mercado Libre,
four corporate employees leave their safe jobs
to found Globent, a digitally native software development
firm.
Globent IPOed on the New York Stock Exchange in July 2014.
And that’s when we had an aha moment.
All of these early success stories in Latin America
were being fueled by the role model effect.
If Wences can do it, I can too.
And we likened what was happening in Latin America
to the British runner, Roger Banister.
Now, before Roger Banister, running a sub four minute
mile was universally considered impossible.
But once Banister broke through the physical barrier,
running a three minute and 59.4 second mile,
the mental barrier flipped.
Banister’s record lasted just 46 days.
And today, more than 1,600 athletes
have broken through the four minute mile barrier.
Similarly, the mental barrier flips
when one emerging market founder breaks through.
And by the way, it’s not just geographic barriers
that are being broken.
All of these are recent members of the Unicorn Club.
Now, as we dug deeper, we realized
that successful entrepreneurs were doing more than passively
inspiring the next group of founders.
They were actively enabling the next generation
to overcome the systematic barriers we spoke of earlier.
So endeavor coined the multiplier effect
to capture these ecosystem inputs.
The multiplier effect is the process
whereby successful entrepreneurs
inspire, train, mentor, and invest in the next generation.
And it’s through the multiplier effect
that tech ecosystems are jump-started.
So with our partners at Bain, we surveyed
thousands of startups across multiple markets
to see how the multiplier effect held up in practice.
Let’s look at our initial research in Buenos Aires.
So this is a Buenos Aires tech sector as of 1999.
The light blue rings are years, and the dark blue circles
are bubbles, are tech startups.
And you’ll see, as of 1999, only 17 startups,
including Gana Mercado Libre, have launched.
You also notice the lines.
These are the connections, the mentorship, the inspiration
that are happening.
Not much connectivity in 1999.
Now it’s 2007.
More bubbles mean more startups, including global.
And more lines mean some more connection.
But still, the ecosystem is not robust.
OK, 2014, lots of lines.
That means the inspiration, mentorship, training,
investment that’s happening.
This is the multiplier effect at play.
And you’ll notice that some of the bubbles
are larger than others.
The bigger an individual bubble, the more influence
that startup founder has, the more lines of connection.
The four big bubbles shown in teal
include Patagon, Mercado Libre, and Globent.
And these are really the ones that catalyze
the multiplier effect.
But to really visualize the multiplier effect,
let’s remove just the four big bubbles
along with their connections.
Without the big bubbles and their connections,
without the multiplier effect, the landscape is barren,
as if we’d been transported back to 1999.
As I said, we repeated this study in multiple markets.
Here you see Istanbul and Lagos.
And every study revealed the same conclusion.
It takes just three to four big bubbles, just three to four,
to jumpstart a tech ecosystem anywhere.
And it sees early big bubbles that
fertilize what will later become unicorn breeding grounds.
Latin America today is home to 50 unicorns, many of whom
trace their start to one of the early big bubbles.
In 2017, we began to notice yet another pattern.
Some big bubbles were becoming unicorn super breeders.
The super breeders were spawning multiple tech companies
from their own alumni.
And this pattern reminded me of something.
The PayPal mafia.
OK, so I’d become obsessed with the idea
of launching or seeding PayPal mafias in emerging markets.
My good friend and board member, Reed Hoffman,
tried to convince me to say PayPal networks.
Oh, the mafia, Reed.
OK, this is the PayPal multiplier effect.
And the bubbles here include the companies
founded or funded by the early PayPal employees.
You may recognize some of the names on the right.
This is the Roppy mafia, Columbia’s first unicorn
and online delivery super app.
The alumni of Roppy have spawned over 100 tech companies
throughout Latin America.
And it’s not just Latin America.
This is the Kareem mafia.
After Uber bought the Dubai based ride hailing company,
the Kareem mafia went into super breeder mode.
Now over 100 Kareem led companies have been launched
throughout the Middle East and North Africa.
In Southeast Asia, we’re seeing the emergence
of super app tech mafias.
In fact, just yesterday, I spoke with founders
of two companies who had trained at one
of the early big bubbles.
And we’re seeing the beginning of fintech mafias
in sub-Saharan Africa.
But it’s not just the quantity of companies
that these mafias are spawning.
It’s that the second generation, the talent, the ambitions,
the scale is off the charts.
OK, so up until now, we’ve been talking
about top founders who actively seek
to multiply their impact and build their ecosystems.
But the inverse also holds lessons.
So here’s what not to do if you want
to build a healthy unicorn breeding ground.
Whenever I hear or see emerging market founders or VCs pushing
NDAs and non-competes or telling their teams don’t network,
I ask them, would you rather model yourself
on Silicon Valley or Route 128?
The response is almost always, what’s Route 128?
Route 128 is the highway surrounding Boston suburbs
where I grew up, which led the early computer chip development
industry.
In fact, between the 1960s and 1980s,
Route 128 dominated tech, hiring three times as many tech
workers as in Silicon Valley.
But the big bubbles on Route 128
did not employ the multiplier effect.
Instead, they discharged their teams from peer networking
and they deployed NDAs and non-competes.
In order to stamp out competition.
Well, the strategy backfired.
The 1990s recession hit.
The Massachusetts miracle abruptly ended.
And today, few remember the impact of Route 128
on tech history.
By contrast, Silicon Valley’s culture
was forged by a group of engineers and scientists
dubbed the Traderist Eight when they defected
from Shockley’s secretive and hierarchical semiconductor
lab.
Not only did the Traderist Eight seed Silicon Valley’s
cross-pollinating culture, they also
bred the first super breeder tech company, Fairchild
Semiconductor.
Now, the bubbles we’re looking at here
are just the direct spinoffs of the early Fairchild team.
The Fairchild Mafia did deploy the multiplier effect,
inspiring, training, mentoring, and investing
in the next generation.
Today, hundreds of Bay Area companies, the Fair Children,
trace their routes to the Traderist Eight.
So the lesson of Route 128 is this.
A unicorn that doesn’t breed even more unicorns
is just an endangered species.
And the lesson of the Traderist Eight,
the lesson of the Traderist Eight, the more future unicorns
you breed today, the stronger your local ecosystem
will be tomorrow.
But the real message is not about unicorns.
It’s about the power of the multiplier effect
to transform tech wastelands into places
where jobs, innovation, and opportunities multiply.
So what does all this mean for the future of the Unicorn
Club?
Well, since you masters of scale are competitive,
I’ll end with this.
How big is your bubble?
OK?
Oh!