For many VCs, exit is the end of the game; you cash in and move on. But as we know, the world of startups is changing, which means that the impact of investing is no longer limited to the amount of money earned.
As investors, we take a closer look at what each investment means to human beings, to tie our mission with our money. And yet one of the events that generates the most momentum for long-term impact – the successful exit of a holding company – is not being exploited.
When properly harnessed, an exit can be the start of a company’s real impact, especially when we’re talking about giving all founders a level playing field and giving the best ideas. The investment world is slowly shedding its “America First” approach as foreign products take the world by storm and international companies become the norm.
When properly harnessed, an exit can be the start of a company’s real impact, especially when we’re talking about giving all founders a level playing field and giving the best ideas.
Investors will be the driving forces in enabling the most promising companies to create products that countries around the world will benefit – no matter where they were designed. The way they play the game can turn the industry into an industry in which a founder across the ocean is just as likely to change the world as the one next door.
We know the basics of doing this with cash: investing in under-represented founders is a necessary first step. But who’s talking about the power of exits to change the rules of the game for various founders? We have to consider the psychological motivation to see a huge buyout on other entrepreneurs, what the former team members of this startup continue to build and what the achievements of a citizen do for the reputation of this country.
Last year, 41 venture-backed companies saw a $ 1 billion outflow, totaling highest numbers in a decade. We have unprecedented influence to do something with these power moves and four ways to turn them into a domino effect.
1. Competitive effect
When a foreign entrepreneur raises funds from American companies and sells to an American company, other immigrants see it. No matter how revolutionary their product idea might be, American immigrants will always be more reluctant to put their eggs in the entrepreneurial basket, at least as long as 93% of all venture capital money continues to grow. to be controlled by white men.
This, despite research suggesting that immigrants contribute 40% more for innovation than local inventors.
What these foreign entrepreneurs need most is the confidence, role models and success stories that prove other people like them have been successful, especially when these founders are making waves in the same industry as them.
So a large, well-publicized release will create momentum in the industry for other foreign founders to fuel their business and seek to take it to the next level. Not only that, it will instill more confidence in fundraising, and investors will appreciate it.
I was inspired to write this column after Returnly, a fintech founded by another San Francisco-based Spanish immigrant – in which, for full transparency, I invested as an angel investor, then for Series B and C via my fund – was acquired for $ 300 million per Affirm.
While there is undoubtedly a personal financial gain worth celebrating, the success of a foreign founder who has persevered against all odds in an ecosystem as competitive as Silicon Valley, has raised big rounds among ‘investors based in the United States and was ultimately an inspiration to other various founders around the world. We saw this in the amount of media attention it received both in the business and mainstream press in Spain and in the flood of login requests and kudos that followed on LinkedIn.
The impact of an exit is greatest when it shows foreign entrepreneurs that there are globally-oriented organizations that help startups like theirs gain equal access to finance. This means having venture capital firms that showcase international entrepreneurship and foster networks of global experts.
As investors, we can maximize the impact of our exits in the industry by extensively highlighting the foreign origins of our founders when it comes to promoting the exit, including telling about challenges and opportunities. that they encountered during their trip. We can use the victory to impress upon our fellow investors that diverse and international entrepreneurship is an undervalued gem. We can personally take the victory to strengthen our brand as a brand that empowers foreign entrepreneurs in this niche, attracting more people to seek funding with us in a cycle of positive reinforcement.
2. Wealth effect
The windfall of a big exit puts all previous investors in a privileged position, and the money is unlikely to stay for long. They will be looking to reinvest in other high potential businesses – likely ones that look a lot like the one just sold.
But in addition to these investors multiplying the positive impact in their own portfolio, they will make other investors behave in a similar way.
Every release – good or bad – sets a precedent for this niche and type of business. Other investors will follow suit if they sense that one of their peers is on a cash cow. Because founders of foreign and ethnic minorities are still under-represented in seed funding, this makes this field less competitive while offering enormous potential. Venture capital firms looking for unique opportunities will spot when an investor has made a huge profit from an unconventional startup, especially if they continue to invest in others in the same field.
To help this, Angels and VCs who were behind a recent release and are reinvesting in similar founders should publicize these indirect investments, explaining how their previous success motivated them to support similar businesses. They can also express within their network their decision to raise certain entrepreneurs because they have seen that it works.
The founder of Returnly recently offered to reinvest part of his income in our fund, allowing more foreign entrepreneurs like him to access capital. If, as investors, we foster meaningful relationships with our funders and truly care about empowering diverse entrepreneurs, we will see more of this circle of wealth return to our mission.
3. Team effect
The PayPal mafia is a collection of former PayPal executives and employees – such as Elon Musk, a South African, and Peter Thiel, a German-American – who seriously disrupted not one but several industries through technology. Some of the companies they’ve founded include YouTube, LinkedIn, Yelp, and Tesla, and they’ve even been named U.S. Ambassadors. It’s just a business. Imagine what other diverse and motivated teams can do with the influx of cash and inspiration that comes with a great outing. There will be a ripple effect from team members eager to start with themselves who feel empowered by the success of someone who has believed in them.
Their companies will be more likely to “pass it on” when it comes to giving equal opportunities to people regardless of their origin and will generate more jobs for people with their mission. Take Thiel, who has so far supported more than 40 companies in Europe only.
As a VC, we can capitalize on this team effect by keeping an eye out for spinoff companies that arise and supporting them where possible (with experience and contacts, if not with capital). But beyond that, you can also consider encouraging these people to join the investment arena, perhaps even within your company. Many founders and executives of successful start-ups are turning out to be investors – the PayPal mafia has contributed to some of the most notorious funds around. The origin story of these former team members will make them more inclined to support underrepresented founders they can support. In turn, new entrepreneurs will derive more value from their personal experiences.
4. Reputation effect
Although Returnly is headquartered in San Francisco, its founder is Spanish and many of its employees were based in Spain.
This means that the impact of Returnly’s exit will be felt across the Atlantic as well as among fellow Americans. The same goes for other notable sales, like AlienVault, which was founded in Spain and had several offices there. AlienVault was acquired by US telecommunications giant AT&T for $ 900 million. Or IPOs – earlier this month, Spanish-born payments firm Flywire filed for an IPO that could value the company at $ 3 billion. The success of a startup strengthens the reputation of its entire team and, with it, other founders and talents with the same country of origin, the same background, the same training and the same dynamism.
It follows that investors and other stakeholders will be more inclined to support opportunities among founders from the same home country if that says something about the mission, expertise, and culture they bring to their startup.
At the same time, growing startups will be more interested in hiring talent from clearly performing teams. This not only means hiring more foreign experts in the United States, but looking to outsource further. We’re already much more comfortable with remote teams, and it’s more profitable for half the team to work while the other half is asleep. But founders will always be more attracted to countries where local talent and innovation are already considered flourishing. Open this conversation with the companies in your portfolio.
VCs have the power to change an industry forever, connect startup ecosystems across continents, and see startups grow around the world. But it’s about staying relevant as an investor as much as making sure that this next step in the startup world is positive.
Investors who do not recognize that the future of startups is global and diverse in nature will not be in step with the best opportunities – and will not be selected by the best founders. Rather than trying to catch up, help build this ecosystem.