Money Makes the World Go Round

Recently, I came across a video on twitter that showed “things that just make sense”. It’s a video series of many different foreign customs, products, norms, and solutions that are unique to various countries across the world. For example, the video series showed various “smart” products in Japan’s bathrooms: the toilets all come with bidets and use recycled rainwater-- quite the step up from the wastage issue caused by western-style bathrooms. These products aren’t norms in the US but, recently in the horrific toilet paper crisis that the US suffered due to COVID-19 shutdowns, Americans turned to the “foreign” bidet as a substitute for their toilet paper. The true beauty of the globalized economy came into play, and bidets shot up in search volume across e-commerce channels at unprecedented rates (Side Note: You can see a really cool list of internet searches that shot up during quarantine here: https://meetglimpse.com/covid19/). While the US didn’t necessarily replace toilet paper with bidets, the bidet economy soared and created an industry in the US from a foreign concept. This implies the existence of a disconnect between demand and supply globally. Where there’s demand at one place of the world, there’s supply for it at another.

When we look at the top 20 market cap companies in the world, we see that all of them are located in the US and/or China. Traditionally, these two countries have swallowed most of the capital in the world, with investors speculating trillions of dollars with US and Chinese companies over decades by betting on the ability to scale in such mature economies while relying on the scale of the economies themselves. Investments outside of these two countries have been met with more reluctant speculation due to the undeveloped nature or lack of scale and regulation in these economies. But when we look at more massive economies, they face their own struggles just as much as the underdeveloped economies do. Referring back to the global economy, the problems that developed nations face, that aren’t being addressed or solved in efficient manners, could have their solutions already sitting abroad in untapped markets. If we take US problems and instead of using US manners to solve them, utilize Continental European thinking or Asian/African thinking, disruption is 100% possible and essentially inevitable. The problem here is how to imitate these foreign solutions in regional markets, or take what solutions already exist, and expand them into US borders. Foreign investments are tricky because, with a lack of economic scale, legal complexity, access to financial backing from stable markets, and uncertainty of geopolitical risks, it's hard to justify sustainable investments that have better utility than investing domestically in the US/China.

A key assumption is that with a globalized economy, global talent that now has access to traditionally tight networks of higher education and entrepreneurial backing. Access (by entrepreneurs) to a knowledgeable and motivated network of other entrepreneurs is an important promoting factor for the spread of entrepreneurship. Silicon Valley and other high-profile innovation hubs have greatly benefited from this motivating, knowledge-brokering dynamic. Enabled by this entrepreneurial backing, immigrants are proving the case for global backing in investments. Although first-generation immigrants only make up 13% of the total US population (and an even smaller amount of this 13% getting access to top tier education and entrepreneurial networks), they account for producing over 30% of startups annually in the US. A new study from the National Foundation for American Policy finds that 55%, or 50 of 91, of the country’s $1 billion startup companies had at least one immigrant founder, and 82%, or 75 of 91 of those companies had a first-generation immigrant in a key management/product dev position. Immigrants are founders of some of the most integral businesses in the US economy, including AT&T, eBay, Google, Tesla, Intel, Pfizer, Yahoo, Capital One, and more. If investors can bring this level of institutional backing to entrepreneurs in the relatively untapped markets of their home countries, there can be massive returns to be made in fresh territory.

Another key assumption to be mentioned here is that capital is becoming more efficient and non-discriminatory; Wherever there exists an opportunity for massive ROI, there will be investors combing through the markets. Now, with the combination of efficient capital, global exposure, digitalization, diverse education, and overall new infrastructure-enabled markets, brilliant entrepreneurs are becoming visible across the world. Countries across the globe such as Israel, India, Indonesia, Germany, Sweden, Singapore, and Japan are all experiencing unprecedented inflows of investor capital as US/China firms are now backing these countries and providing them the institutional legitimacy that they didn’t have previously in order to become the next google. The companies being backed are evolving from industrial sectors to more software-enabled tech services that, in turn, are bringing more investor interest. We’re seeing unprecedented amounts of EMEA/Asian based companies that are now disrupting industries and competing globally with US/China backing: SAP, HelloFresh, Trivago (Germany), Paytm, Byju, Flipkart (India), Spotify, Skype, King, Mojang (Sweden), Monday, Landa (Israel), and so many more. As previous barriers such as market scale/fragmentation and geopolitical complexities are overcome from our increasingly globalized economy, the trend of capital flow to nontraditional markets will only continue to surge.

US Tech Giants are also joining in on the tailwinds of this globally directed capital. As global startups play out the proof-of-concept for investments abroad through their success and ability to operate regionally, and now globally, US firms are looking to enable their own businesses abroad and get access to these markets. In the past 6 months alone, Jio, an Indian mobile-phone service startup funded by Reliance, raised a massive $20 Billion dollars through investments. In May, U.S. private equity heavyweights Silver Lake, Vista Equity Partners, General Atlantic, and KKR together plowed nearly $5 billion into Jio, along with another $4.5 billion from sovereign wealth funds and US tech investors. Not only did LPs take heavy stakes within Jio, but tech giants such as Facebook and Alphabet picked up stakes to the tune of $5.7 Billion and $4.5 Billion. Hundreds of millions of Indians had never used the internet before, but now with cheap cell phone data and fast data connections, Jio, along with several other market players in India, is aiming to bring over a billion users online. To put things in a more global perspective, 2.5 billion people worldwide are yet to get access to mobile internet. This represents a prime opportunity for tech players worldwide to get access to a massive, fresh market that is now technologically enabled for e-commerce, software services, payment solutions, and much more. You could arguably say that the hottest real estate in the world is on the home screen of the billions of new mobile users. Jio already has 400 million users online, more than the entire population of the US, and is continuing to raise money through new global investments that were not seen before in order to further globalize its once-regional market. Even old blue-chip retailers such as Walmart are joining in the Corporate Venture Capital and global investor scene in order to augment its own services and compete with giants abroad. Walmart acquired a (77%) majority stake in Flipkart, an Indian e-commerce company, for $16 Billion. This move was strategic in that it allowed Walmart to not only utilize the innovative e-commerce solutions of Flipkart in order to integrate into its own services to compete with Amazon’s 2-day/same-day prime shipping, but it also allowed Walmart access to India’s massive market and further established its international presence. These investments into Jio further ease up expansionary efforts by the parent companies in the US as it removes the burden of having to organically create a company and compete in a market such as India’s that is conservatively protected by the government and has multiple dimensions of politics/bureaucracy that a regional company would be much better equipped to deal with.

This relationship seen here with Jio and Flipkart is not just a phenomenon that’s local to India, it’s a concept that can be applied anywhere globally with the right backing. We saw Skype transform from a small Swedish startup into one of Microsoft’s key assets in its video-communications services. We saw SAP transform from a small German software company and take hold of ERP services globally. King and SuperCell were small Swedish and Finnish gaming startups that took the mobile gaming sector by storm and dominated globally with apps such as CandyCrush and Clash of Clans. The key takeaway here is that with an increasingly globalizing economy that doesn’t seem to be slowing down anytime soon, barriers for international investments, especially in developing economies, are getting overcome as the upside and merit of these investments are starting to shine through like never before. Increased trade relations and economic interconnectedness between nations will further incentivize inter-state cooperation and provide a strong platform that promotes global peace, thus further mitigating risks associated with geopolitical risks. What we see today with investor interest abroad is only the start, as institutional investors are looking to open up offices abroad and compete heavily for investments that present unprecedented opportunities. I expect portfolio diversification to have a new, geographic dimension in which investments in different regions of the world will become the norm. Finally, with this new platform of capital and institutional backing, global entrepreneurial activity will boom and spur unprecedented innovation to change the society we all live in today.