Operators are at the heart of emerging market innovation hubs forming outside Silicon Valley — but further investment and enablement is required
The mobile start-up and small and medium enterprise (SMEs) ecosystem is growing. While the majority of innovation has historically come from Silicon Valley, in recent years other hubs have taken hold in Europe and, increasingly, emerging markets. In Silicon Valley, tech firms and internet players have been at the forefront of innovation, but in emerging markets it is increasingly mobile operators that are demonstrating how to foster this in the absence of the widespread entry of traditional capital providers.
Growth in the mobile start-up and SMEs ecosystem in emerging markets is driven by rising mobile penetration, increasing pervasiveness of the mobile internet and the opportunity to offer services that fill access gaps for mid and low income populations (in areas such as financial services, health and employment). However, a set of investor perceptions are a key barrier to developing sustainable entrepreneurial ecosystems in emerging markets. These are not driven by the technology capabilities or idea generation of the entrepreneurs seeking funding, but by a general lack of business skills and acumen to monetise them. This has led to a lack of funding for early stage ventures, where a significant chunk of budding innovation sits.
To better understand what has been driving this funding gap we conducted a survey of capital providers including donors, impact investors and venture capitalists (VCs), incubators and accelerators with active investments in emerging markets. We asked them to identify the main challenges they faced when investing in ICT in emerging markets. These were grouped into different risk categories: quality of entrepreneur, quality of idea, business model, return on investment, country risk and ecosystem. In this report we analyse these investor risk perceptions as well as the increasing role of the mobile operators and wider public policy context in developing self-sustaining innovation hubs.