What emerging markets can learn from the West’s “unicorn factory”

By Mark Heynen

About this op-ed’s author:

Mark Heynen has led go-to-market in emerging markets for large and small companies, from Google’s initial push into maps in the mid 2000s to Facebook’s early mobile efforts and ultimately co-founding PayJoy, a Silicon Valley-based fintech, in 20 countries. He currently serves as VP of Partnerships at the Stellar Development Foundation, an organization focused on emerging market financial inclusion. 

He has also raised ~$100M in early stage VC, venture debt, and SPV debt financing across four companies he built, and advised companies on fundraising.

He now runs Next Billion Advisors, a global network of seasoned and rising digital entrepreneurs who collaborate regularly to help emerging market founders succeed.  His views are his own.

The Realistic Optimist is a subscriber-funded publication.

This allows for deep, nuanced and sponsor-free articles.

Unicorn factory farming

Sam Lessin, an American VC, recently pontificated on the end of what he calls the “unicorn factory system”. He describes a configuration whereby each investor along the fictional assembly line packaged companies to raise their next round, omitting deep questioning of those same companies’ business fundamentals.

This system, he argues, has led to disappointing IPOs such as Bird, whose underlying unit economics did not stand the test of public scrutiny. Adding insult to injury, Lessin posits that the good companies to come out of that era, such as Stripe, were kept private while not-so-good companies were dumped on public markets via shady SPACs. In the US specifically, stringent antitrust regulation has also reduced big tech’s propensity to acquire startups.

The increasingly disenchanting exit path for startups on the factory line has created a nefarious snowball effect, where the entire sector’s attractiveness to LPs, employees, and would-be founders has decreased. The end of COVID-induced ZIRP (zero-interest-rate-policy) has also turned off the seemingly endless tap of funding the sector used to enjoy.

The result is American venture capital’s existential crisis, which Lessin predicts will usher in the return of more artisanal, less “predictable” VCs and companies.

Relevance to emerging markets

This still doesn’t seem to have afflicted emerging market (EM) startup ecosystems as severely, for various reasons.