Tech hubs outside the U.S. are growing fast, with information economy ecosystems in South-East Asia, Latin America, the Middle East, and Australia expanding into compelling alternative locations to foster and build high-quality companies. Smaller hubs are also emerging throughout the world, flying under the radar – for now.
Investors may have historically shied away from some of these markets because of a perception of higher risk, and indeed emerging market economies can be volatile. Events like the Latin American debt crisis of the 1980s or the Asian debt meltdown of 1997 have upended those markets in the past and made many lenders wary.
However, rapid growth technology companies have unique tailwinds that differentiate them from general industrial companies in their same home markets.
Already these smaller hubs are increasingly attracting global capital investment because of quality talent pools, a culture of innovation and strong prospects for future growth. Australia, for example, had just 15 venture capital firms in 2011. Ten years later, it has over 100 venture firms, and has produced a number of unicorns and globally significant companies.1
But not all emerging tech ecosystems are created equal.
Through our 30 years of experience in technology lending across global markets, we’ve been able to observe, learn and track elements underpinning and supporting new technology hubs. Below are four criteria we look to when evaluating emerging tech ecosystems:
Four ingredients for a successful emerging tech ecosystem
#1: An Entrepreneurial Network Effect
The most successful tech hubs thrive in places where the network effect creates a cycle of innovation. Each element is essential on its own, but when combined, the power is magnified.
Dubai and Riyadh, for instance, have capitalized on a strong talent pool, progressive governments and policy, and significant public and private investment, domestically and internationally, to create the right conditions to make a name for themselves on the world stage.
Innovation then multiplies, where one success can spawn dozens of others. New companies split from the original. Founders and early investors redeploy funds into new start-ups. Proven models generate spin-offs. Just as PayPal veterans went on to launch multiple, successful start-ups, founders and investors in emerging tech markets can build a long-lasting, resilient ecosystem of support for next wave entrepreneurs. Similar dynamics are already playing out in the MENA region following Uber’s $3.1B acquisition of Dubai-based Careem.2
#2: Talent Base
Talent is a critical element for emerging tech hubs. In order to thrive, technology ecosystems must have a highly educated, experienced workforce with specialized technology skills physically present in their home market. Many smaller economies historically exported much of their technology talent to Silicon Valley, as their young people attend university and graduate from schools overseas.
However, today we are seeing this educated, experienced workforce increasingly returning to their home markets to continue their careers. As these ecosystems continue to grow in both scale and quality, fewer talented tech engineers and high growth entrepreneurs will find the need to move abroad, collectively improving the foundations for a strong local market.
#3: Environmental Factors
Technology ecosystems thrive when they are supported by high quality infrastructure, innovation-friendly government policy and supportive legal frameworks. In the Asia-Pacific region, for instance, Singapore has risen to a dominant position with a well-developed IT infrastructure, favorable regulation and a government-wide commitment to research and innovation.
Elements of a dynamic infrastructure include state of the art cloud technologies that enable companies to scale rapidly and easily. A robust cloud facilitates faster, leaner company growth. Companies powered by reliable, high-speed internet can integrate remote capabilities and reduce time-to-market for new products. The cloud can remove barriers to entry, enabling start-ups to operate and perform like much larger competitors.
Tech hubs in emerging economies can sometimes be more supportive of innovators than established ones. Because emerging economy governments know there are gaps in their economies, they are more motivated to fill them. This creates opportunities to build local, digitally native businesses that can leapfrog old line incumbents. Under the right conditions, these businesses can grow locally, and then globally.
For example, FinAccel, in Singapore and Indonesia, which started in 2015 as a consumer focused fintech firm has quickly expanded to become a powerful financial services player across South-East Asia.
#4: Support Systems
Many emerging technology ecosystems have a winning combination of culture, talent, and infrastructure. But, in addition, having a trusted financial partner can be crucial to their long-term growth and success.
The availability of equity and debt financing is a key component to a thriving technology ecosystem. Tech entrepreneurs often focus on venture capital, but debt expands the financing solutions available to high growth technology companies. It’s cheaper than equity financing, and often when commercial banks won’t lend to younger, innovative companies, private debt financing becomes an integral complement to equity financing to propel growth. However, in many emerging technology hubs, debt capital is hard to access.
Fast-growing technology companies need someone who understands the nuances of their business journey, where they are coming from and where their growth path might take them. The right partners can provide flexible capital solutions, across equity and debt, whose structures and terms are tailored to specific companies’ needs.
Nurturing the growth of the next great tech hub
In a globally connected economy, technology ecosystems are springing up everywhere, as fast-growing upstarts in Asia and Latin America grow to rival established centers in the U.S. and Europe. PFG has been a financial partner in emerging technology markets across the U.S. and globally for more than 30 years, providing equally innovative financing solutions, strategic advice, networking capabilities and global connections to enable companies across these hubs to flourish.
To find out how we can help your venture reach its potential, get in touch with us today at info@pfgrowth.com.
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1“A Decade of Growth in VC Firms in Australia 2011-2021,” Artesian, May 21, 2021
2 “What Careem’s $3.1Billion Acquisition Means for the Middle East,” Forbes, April 17, 2019
The views and opinions expressed in this article are those of the author and may not necessarily reflect the views or positions of any entities they represent.
