Funding lessons from Silicon Valley, Stockholm

The author's shorthand for Happiness Index, Infrastructure, Talent, Regulations, Access and Capital. The six pillars that make UAE a strong business destination This week, the focus is on capital.

The biggest challenge for startups by far is funding. In a recent article in Forbes, (W.K.) Bill Rader, co-founder and CEO of Efferent Labs, Inc says: "It [finding funding] is a full-time job in itself and there is little an entrepreneur can do to short circuit this cycle. It takes thick skin, a finger worn out dialling the phone, and creative luck. There is power in numbers, and in the funding game, it is all about the numbers. If you have been doing this long enough, you know that it takes hundreds of introductions, calls, pitches and meetings to find the right investor. It is an expensive and exhausting effort."

The same story repeats itself here too. Any conversation with an entrepreneur usually involves a fairly animated session on finding funding.

There are two levels of funding for entrepreneurship. Level one are the hygiene factors - enabling entrepreneurs the basics - food, shelter and clothing. The second level is the investment required for the enterprise. In industrial age economies, the two levels are not as clearly segregated. In more evolved societies, there is a recognition that some level of social security would have a positive impact on entrepreneurship. Like all deployments of funds, there is an inherent risk. Not every beneficiary will translate social security into a platform for creating value. There will, however, always be a healthy, competitive segment that aspires for a better standard of living.

Sam Altman, president of Mountain View-based startup accelerator Y Combinator, is a proponent of Universal Basic Income (UBI). In fact, he is running a social experiment in Oakland, California, to prove the case.

"We should make it so no one is worried about how they're going to pay for a place to live, no one has to worry about how they're going to have enough to eat," Altman said on April 14, 2017, speaking before a crowd at San Francisco's Commonwealth Club. "Just give people enough money to have a reasonable quality of life."

To see this in action, a quick look at the second largest startup hub in the world, Sweden, provides some answers.

Jantelagen, or the Law of Jante, is a Swedish term for a set of rules that prioritises the collective over the individual and promotes humility over hierarchy. It is based on a novel A Fugitive Crosses His Tracks by Dano-Norwegian author Aksel Sandemose. This way of thinking is the driving force behind public policies that are targeted at creating a high quality of life which in turn allows entrepreneurship to thrive. The proof of the pudding is in the eating. Sweden is a country with a population of 9.8 million people. Probably smaller than most megacities in the world. But the wealth of entrepreneurship and big brands that have come out of the country is mind-boggling. Think of brands like Ikea, H&M, Electrolux, Ericsson, Volvo, Saab and even Abba.

This thinking also prompted the government to push technology in the 1990s, laying out high-speed data networks and giving out incentives to buy computers. Fast forward to today and it is clear why Stockholm is the second most prolific startup hub in the world after the Silicon Valley. Think Skype, Klarna, Mojang, Spotify. the list just goes on. The latest kid on the block is Uniti, Sweden's answer to Tesla. A completely crowd-funded electric car that weighs less than 400 kilograms and is likely to cost less than $25,000.

There we have it. The two biggest and best startup hubs in the world - Silicon Valley and Stockholm are firmly behind the concept of a well-structured social system that empowers entrepreneurs. It is logical. As more and more mundane and routine jobs get taken over by robots and artificial intelligence, the value addition will come from entrepreneurs who are not tied down by hygiene factors.

With the basics taken care of, it is likely that financing for entrepreneurial ventures could become democratised. The beginnings of this are visible. At the extreme end of the spectrum are crowdfunding platforms like Kickstarter, Indiegogo and CircleUp. There are more discrete investment platforms like Seedinvest and Lending Club. Plus, there are smaller teams of investors who usually have something in common either professionally or personally. Concepts like UBI could in theory remove a chunk of human-resource costs from the projections allowing for faster break-even and payback based on the strength of the business idea alone.

The digital economy is transforming every aspect of our lives. These are exciting times to live in. There are opportunities and businesses to invest in around you

Become a savvy investor. Even a few hundred dirhams counts for a good entrepreneur.

Source: Khaleej Times