Golden Horn Ventures

Knowledge Economy Society and Emerging Markets

Economic Development Program For a Knowledge Economy Society

We are going through a paradigm shift from Industrial based economy to Knowledge-based economy. We can take advantage of this paradigm shift and create an impact and wealth in our region and the “emerging markets” by educating young, establishing a new “mindset”, creating global technology companies while creating new wealth creation mechanisms. These will be the pillars of Knowledge-based economy for many hundred years to come.

Emerging markets are “emerging” because they have missed the industrial revolution. Business ecosystems and society dynamics, what makes an industrial based economy function hasn’t been built in emerging markets. What has been built in emerging markets were replicas of Western businesses without the underlying ecosystems and without the necessary sociological aspects to support society and create value. There are other psychological aspects such as 400 years of business and “attitude” copying and not “creating” or “innovating” resulted in a lack-of self esteem in people.

The new renaissance is the ‘Knowledge Economy’ or as some call it, it is the ‘Information Revolution’. We are in the very beginnings of economic, social, financial and structural changes. In a Knowledge economy the structures of a company, a society and financial organizations and business models are still open questions to be answered.

There are many implications of a Knowledge economy. Some of them are mentioned below.

• Industrial economy is based on goods and exchanging these goods. Information economy is based on creating value through exchanging information or information based services, immaterial goods or digital goods.
• Knowledge economy is not industrial production without factories: it completely changes our perspective of machines and their efficiency. It is distributed and creative in its nature. People can connect anywhere in the world to create and deliver value. For the first time people anywhere can do anything.
• Industrial economy was based on information asymmetry. Thus the institutions in its ecosystem have been supporting information asymmetry. However, in Knowledge economy, there is no information asymmetry. This is very important because it allows any value company to be created anywhere in the world when/if “mindset” is there to nurture it.
• Centralized vs distributed is a big theme. Knowledge economy will shape central mechanisms; such as monetary systems. The change will be so disruptive that the organizational structures will change with it. The centralized linear structures will be replaced by distributed agile organizations.
• Software is core at this economy; as software is eating the world; ie. Software is changing all of the industries; with software, inefficiencies no longer exist. With software solutions scale. Software is already eating many markets from media to finance to fashion to retail … Every industry is becoming an information economy.
• Now one person can make more difference than any other time. The barriers to create a product have decreased.
• Knowledge based economy enables a world with like minded people to create value together, it almost creates a virtual world and virtual citizenship for people, all connected to each other with the same vision of the world, with the same values.
• Knowledge economy is more about a mindset, it is not about where people are born but what people do, how people think, what value –systems they believe in.
• The value system is based on globally connected, innovation, science, “long term” value creation, abundance mindsets.
• It creates a compassionate society….

We are establishing an Economic Development Program, whose mission is to use technology as a change agent and help to build the pillars of knowledge economy in developing new world societies and economies.

• The program is about ideas, creating companies, educating young and entrepreneurial minds, nurturing minds of the young and entrepreneurs and connecting like-minded people to create more ideas and more companies and thus creating new wealth generation mechanisms.
• The long term mission of the Economic Development Program, is to build societies which are basis for next generation civilization and art and culture.
• Just as England became the epicenter of Industrial revolution starting from the East India company until today, the Economic Program will target building the pillars of knowledge economy with new business models, creating new companies and educating young to create more companies and more wealth. This time the geographies will not matter, but the mindset and values will matter. In order to be a citizen of the knowledge based economy, one will create value and believe in abundance and live in an innovative mindset.
• This will include changing the wealth creation mechanisms and connecting and nurturing like-minded people.

Some Thoughts on the Next Decade

Next 10 years will bring many changes to our lives, not only from the perspective of the products we use but also in the business models we deploy and how wealth is created.

We already have much data on us and more to come with wearables and smarter devices surrounding us. Internet of things is right around the corner.

With advancements on artificial Intelligence and ability to have meaningful conversations with chat-bots, we will reach to information and consume information faster.

This is not a small change. This change has many big implications on many industries from medical services to education, from travel industry to law. What has happened to the media industry will start happening to many industries one by one. Anything that can be automated will be automated, and decentralized and distributed. Any profit margin will keep on being squished which will push our businesses in need to find new ways which will push for some structural changes too, from business models to employment and to company structures.

My bet is that our civilization will move to a completely new paradigm with the pressures from the implications of advancements in technology and status of the economy. We will focus on “change” and value “creativity”. We will find new organizational structures and new employment models. We will work on new business models that will create wealth and create wealth for the masses. I believe this will have quite a positive impact on each one of us, forcing us to embrace our creativity and cherish what makes humanity so great.

Another big change which will happen will happen in the UI ( user interface) level whether it is messaging, commerce or social interactions. It will happen in 3D environments. When we combine artificial intelligence and chatbot-like experience with 3D UI, it will be a very immersive experience. I can’t wait for all these pieces to come together. Especially when we have invested in these opportunities since 2009.

These are some of the vertical opportunities that I see coming out in the next 10 years. From education to health care to government services and law, many industries will be disrupted. However, a very important opportunity that will open up a whole spectrum of changes is the need to make changes in the business model. This is a very deep conversation involving discussion of “money” and its role as a tool for societal change. There is no escape from it, I believe it is ripe for change too!

When new “business models” will emerge, we will have much more scientific advancements and big paradigm shifts in the “core” technologies that we use. From space exploration to engines we use in cars, from nanotech to green tech, from physics to genetics, in my belief, business model changes will enable many more paradigm shifts and advancements.

We have positioned since 2009 for the changes we believe in and building patiently for them to come to the reality. As hard it is to invest in ‘long term’ — longer than it is usual business practices in emerging markets — it is also very exciting that our initial bets are becoming realities of our lives.

The future is truly in the hands of bold and passionate, on the hands of the ones who have perseverance.

What does the bullfighter, samurai and entrepreneur have in common?

They all perform an art, not a science.

When they face death, if they succeed to live, creativity comes out.

They all need to be indifferent to life and death.

Under conflicts, they need to stop thinking and start acting. acting in a way that it can't be performed with "mind" only, it needs to be performed almost metaphysically, with their unconsiousness.

 

What does Venture Capitalist protect?

Venture Capitalists main job is not to protect paper bills/ paper money. However, for paper bills to multiply, venture capitalists need to protect the mind-set, with which innovation can live and prosper. This is why venture capitalists ask for high management fees and success fees from their investors. The art of venture capital is in living and practicing this mind-set.

Billion-dollar idea is the focus of a venture capitalist. Disruptive technologies, paradigm shift, finding the black swan is what venture capitalists need to think, live and die for. The rest is in the hands of entrepreneurs and the team.

In the emerging markets - including Europe- where when entrepreneurs choose the path to innovation, technology and start-up life - the world is quite lonely. In a path to creating "billion-dollar" companies, the tools in emerging markets - such as law and accounting system - as well as people around (family, friends, teammates), aren't positioned for support, but rather create barriers when there is a conflict. And there is always a conflict when you are moving and growing and especially disrupting.

I have come to realize more and more that there is a "billion-dollar" mind-set.

Billion-dollar mind-set represents:

-- no entitlement, pure meritocracy,

-- courage and fearlessness,

-- honesty and self-esteem,

-- discipline and asceticism,

-- investing in a long term vision and believing that long term vision always wins,

-- lust for meaning and mission,

Did I say courage and fearlessness? I want to say it twice. It is crucial to remind the value of "Mission" and "Courage" together.

The dilemma of a venture capitalist in an emerging market is that it is very schizophrenic to protect the mindset without tools in place. The tools in place need to be in accounting, law, business society rules, etc. 

For example, according to accounting and written law in Europe and most of emerging markets, "value" is only defined by hard assets such as real estate, machines, doors and chairs. In this definition, "value" is very well defined and easy to part or share.

However, when the value is in soft assets, especially when it is startup value, things get complicated. If soft value isn't turned into hard assets and "paper money" yet, then what does law protect? How can it be written in the books? When the accountant writes it in the books, can she defend it? Can a lawyer defend the company and company's soft assets to anybody who is trying to kill it? Can any company lawyer in Turkey say " It is all about the entrepreneurs. It is all about the company"?

If the company lawyers, company accountants doesn't understand the value, then who protects the company and the soft value in the long term? Just the entrepreneur? How can she defend it if the lawyer doesn't believe her? Quite often, so-called venture capitalists in the emerging markets are too busy protecting themselves rather than investments.

If there is no one else in the business environment to think, live and protect the mind-set then how can there be any venture capital, innovation and wealth creation? It is an uphill battle that we are fighting. We are not finished yet, in fact we are just starting as we have just started understanding.

Venture Capital in Emerging Markets Conference, 9 - 10 June 2008, Istanbul, Turkey

Golden Horn ventures is organizing a conference in Istanbul, Venture Capital in Emerging Markets. The goal is to bring together fund investors, venture capitalists from all over the world and entrepreneurs and discuss investment strategies, the right and wrong practices of venture capital in emerging markets. Please check out http://emergetechvc.com for more information on the venue and the agenda.

Companies Defined by Competition

To argue that any place will replace the Silicon Valley as the center of technology universe is just a futile exercise. But I believe that more and more success stories will come out of anywhere in the world, and will disrupt the existing winners, the ones in the Silicon Valley.

One common mistake that companies outside of the Silicon Valley do is letting competition define their products.

This tendency has many reasons naturally. There isn't enough support (financial, business connections, etc.) to back up novel ideas and companies. Companies tend to do what everyone else is doing, or better, the bigger guys in the Silicon Valley are doing, just to guarantee to survive.

For example, after YouTube's success, every country got its share of local YouTubes, the copiers. The same was true for eBay as well. YouTube and eBay are known models. It is easy to create applications and websites that imitate them on the surface. And everybody knows that they hit it big. So local versions of them should too, right? I don't think so! It rarely happens that imitators understand the underlying ingredients for a success behind YouTube or eBay. I don't want to get into the details of why eBay or YouTube was successful in this post. However, as an entrepreneur who targets even a local success of a YouTube imitation, he/she needs to bet more than just an imitation of YouTube. He needs to have an original idea that serves the local needs. He needs to create a product regardless of imitation, regardless of competition! He needs to know how to create an original product and an original company at the end.

Let's take another example, a company that is offering enteprise applications such as CRM. Let's say that this fictitous company is competing with the big guys, the usual suspects; Oracle, Microsoft, SAP, etc. etc. Their proposal to their customers is a check list that combines both Oracle's and Microsoft's offerings all united together. The killer part is not only their long list of checklists Oracle, Mircosoft and SAP combined, but also their price tag, which is 1/10 th of the competitors' offerings!

This is just wrong! It is a waste of resources thrown just to stay one step behind of the current winners. There are so many things to do in the enterprise space. It is a land of opportunity. The difficulty of usage of the enterprise applications, the long and difficult processes to get the systems up and running, the price tags, the long trainings needed for users, the neglections of users and user habits, etc. of the competitor offerings don't ring any bells?

The problem is they don't have the courage or the means or the vision (or a combination of all) to not let the competition rule their product and company. This is just a fatal mistake for a startup.

The winners set their own game. They have their own vision. They want to change the world.

What I want to say is, forget the traditional way of doing things. Get out of your obsessions with the features lists of the big guys. Stop letting competition define your products. You have a chance to change the world. It is your turn now. Don't let the competition define you. You try to define the competition, you create one yourself!

Mae Ozkan

Examples of Changing Early Stage Technology Venture Capital Landscape

There were two interesting news this week:

The first news was coming from India. Google takes an LP (Limited Partner) approach to two early and seed funds in India and for the first time invests in venture capital funds. My take on this is that Google is willing to catch the ideas early no matter which geography of the world the innovation comes from.

An innovative company such as Google itself, is betting early and seed stage companies and technologies and tools that they will create on geographies outside of the US. I congratulate Google on its vision and act.

The second news was about the successful technology venture vapital firm of Europe. Index Ventures closes its forth fund at more than $400 million and reaching the total capital under management to over $1.3 billion. It is getting exciting in Europe as well.

We will see more and more success stories from all around the world as more capital and interest goes to early stage companies outside of the US. This is just the start of the globalization of early stage venture capital. The results will be innovation and information flowing throughout the world regardless of borders and geographies, democratizing and leveling the field of innovation.

Mae Ozkan

Leveling the Field for Innovation

One of the problems with the entrepreneurial environment of the emerging countries is not the lack of ideas, but the lack of tools that help the entrepreneurs to make something out of their ideas and the examples of successful companies.

The scarce resources are finances such as venture capital for early and seed stages, business experience and an open environment, where innovative ideas are fed by each other and talented people are supported by experience and networks.
In emerging countries, all of these important ingredients are lacking. The environment doesn't have finance tools. The environment doesn't support openness. There is no conversation among companies where they encourage each other for more innovation and build on top of each other's ideas. An open environment could easily be supported by rewarding the talented and innovators and encouraging dialogs among them.

The scarce resources are barriers to produce meaningful products and companies from innovative ideas and technologies. The end results are what makes the difference in the world. The consumers don't buy the ideas, but the products. However, the scarcity of tools and opportunities to make the end results and successes from meaningful ideas stay on the way of an entrepreneur.

However, luckily, the world is changing. Some of the ingredients that are needed to turn ideas into products are becoming more available for people all around the world. The result will be leveling the field for innovation and thus, the ideas will worth more and more as the needed ingredients are becoming abundant and commodities.

For example, the Internet has leveled the reach of information for most parts of the world. The open source movement has been a great force in the industry. It has disrupted many companies, while giving opportunities to many entrepreneurs with ideas.

Now, the rise of services such as Amazon’s Simple Storage Service (S3) and Elastic Compute Cloud (EC2) that are cheap alternatives to storage and heavy lifting of Internet applications, will level the playing field. Solving heavy lifting problems will result more time being dedicated to differentiated ideas. The result will be more innovation and smaller market cycles, therefore more opportunities for the ones that have the right alignment, and more threats for the ones that are big, hard to move and lack an understanding of the industry dynamics.

The technology industry is going through a faster chage more than ever. It will change other industries related with it, including the venture capital industry. When the ideas matter, the power of whoever holds bigger chunks of money will be replaced by whoever holds the bigger and better ideas and whoever has the value to add. This exciting change will disrupt many things along with it. These changes will give a chance to the world's best kept secret projects to be secret no more!

Mae Ozkan

A Brand New World: The Promise of Globalization is Here to Stay

The cover of Economist magazine's Sept 16th issue reads "Surprise! The power of the emerging world". The articles inside are very interesting and supports Golden Horn Ventures belief in the emerging markets and Turkey in particular. There is one survey on the world economy titled, The New Titans.

Here is an excerpt from it:

"Last year the combined output of emerging economies reached an important milestone: it accounted for more than half of total world GDP (measured at purchasing-power parity). This means that the rich countries no longer dominate the global economy. The developing countries also have a far greater influence on the performance of the rich economies than is generally realised. Emerging economies are driving global growth and having a big impact on developed countries' inflation, interest rates, wages and profits. As these newcomers become more integrated into the global economy and their incomes catch up with the rich countries, they will provide the biggest boost to the world economy since the industrial revolution. Indeed, it is likely to be the biggest stimulus in history, because the industrial revolution fully involved only one-third of the world's population. By contrast, this new revolution covers most of the globe, so the economic gains—as well as the adjustment pains—will be far bigger..."

The chart numbered "2" shows that countries that were once strong, became weaker with the industry revolution and they are"re-emerging" again.

The article continues as follows:

"Emerging economies as a group have been growing faster than developed economies for several decades. So why are they now making so much more of a difference to the old rich world? The first reason is that the gap in growth rates between the old and the new world has widened (see chart 3). But more important, emerging economies have become more integrated into the global system of production, with trade and capital flows accelerating relative to GDP in the past ten years...."

"What is also new is that the internet has made it possible radically to reorganise production across borders. Thanks to information technology, many once non-tradable services, such as accounting, can be provided from afar, exposing more sectors in the developed world to competition from India and elsewhere..."

As the Internet and the abundance of information and technology has connected the emerging world to the developed world (to the distribution points, the centers/hubs of economy), there are more changes coming up.
The Internet feeds emerging markets with information and brings different communication and business rituals. The globalization itself has created know-how in the emerging countries. I have partly discussed the very same points in my previous post titled, Innovation, Technology and Emerging Markets.
What I would like to add to the Economist's article is innovation from the emerging countries and the disruption that it creates on the world economy and markets. Technology introduces many new ways of distribution and creation. It also allows the voices of the poor and far audible all over the world. The products and services of the ones in the emerging markets become available in the international markets as the barriers to entry decreases or better to say, the ability to distribute and innovate is democratized. That will result more innovation from the emerging countries, thus creating more disruption in the world economy.
As a result, the catching up to the developed world standards will be faster than we envision it will be. The way that it will happen will be disruptive. Just as startups can rock the monopolies (eg. the entertainment industry), companies from the emerging world can rock the world economy's existing equilibrium and create more prosperity for many in and outside of the emerging markets. Pretty soon the definitions of "emerging" and "developed" will change. The macro stories will be changed by "micro" successes and disruptive company/product/service names.

Wasn't that the hidden promise of globalization anyway? The promises are there for us to grab. It isn't easy, but it is here and it is the future.

What the Brand New World means for IT?
• Countries that have only been used for outsourcing start creating innovative products and services,
⁃More innovation will come out of the emerging countries as the emerging countries have piled up information and ideas and the reach of technology and building a technology company getting cheaper everyday, thus the geography of the innovation is becoming trivial,

• Local will become international more quicker than ever,

• In addition to big companies (such as Microsoft, IBM) being international and harvesting the benefits of being international, startups from the emerging countries will become international if /when there is a value (a new technology, a new business model, a new distribution model, etc.) in them (I specifically say startups, not companies, because I believe that only startups can pursue opportunities and create disruption),

• The markets are getting bigger (the transition from the mainframe to PC has created more than $300 billion wealth, the transition from PC to services will create even more significant wealth). The sharing of this wealth between the developed and emerging markets is starting to shift as innovation comes from any geography,

• New distribution models make it possible for emerging market players to become global for service businesses and digital products as broadband connection becomes prevalent,

• New business development models are rising: (Business 2.0, A VC blog by Fred Wilson) that are more independent of the geography of the company, but are dependent on the technology and usefulness and their disruptive qualities,

• New venture capital models are rising:( Venture Capital 2.0 , Early Stage VC blog by Peter Rip)
⁃"The basis for competition in the Venture 2.0 Crossover model is a focus on markets, independent of stage, geography, and risk capital instrument.",

• The disruption is happening everyday. The strong is weak when it lacks to innovate (eg. The rise of new business models, the struggle of Microsoft with advertising model vs. the software as a package),

• Innovation, disruption and links; The innovators that have a link to the centers of the economy have a global impact and influence. Disruptors that have links to Silicon Valley will effect the equilibrium of the market.

Mae Ozkan

Brain Drain or Brain Circulation?

I read this article on news.com a few days ago. It is an interview with Anna Lee Saxenian, the dean of the School of Information at the University of California, Berkeley.

In this interview, AnnaLee says migration overseas doesn't need to be one-way brain drain, but would result brain circulation. She supports our belief that innovation can come from any geography of the world, just because of migration and how brain (knowledge, experienece and know-how) circulates.

Here is a part of the interview that underlines our work in Golden Horn Ventures:

Stefanie Olsen(news.com): What makes for a thriving technology community like Silicon Valley? Is it government incentives, cash resources or access to engineers and universities?
Saxenian: It is certainly not government incentives. Silicon Valley has evolved over the past 40 years to be a rich community of skill and social networks that allow people to come together, come up with new ideas, and implement them very quickly.
Because you have a deep base of technical skill, marketing capital, managerial skill that's been around, you also have an ecosystem of suppliers--everything from legal, design, banking, venture capitalists--so if you come up with an idea, like a new mobile media, you can pull together a team faster than any other place in the world. That's a product of learning in a community, and it's very hard to replicate.

Stefanie Olsen(news.com): In your mind, what comes close to Silicon Valley?
Saxenian: These new regions, Taiwan, Bangalore, Shanghai, they are extensions of Silicon Valley. This happens from people with deep roots in Silicon Valley, and then they take with them elements of the Silicon Valley business model--the start-up culture, the venture capital, the idea of minimizing hierarchy and creating more open organizations, which is often alien in places like India and China. Those economies have been dominated by family run firms or state-supported enterprises. And they're not creating head-on competitors to Silicon Valley; they're creating linked partners.
Those places look like hybrids, a cross between Silicon Valley and domestic institutions. They're similar, but they don't have the accumulated know-how and talent there.

Mae Ozkan