Many years ago, while I was living in Mexico City, I saw the advertising of theatrical play called: “La importancia de llamarse Ernesto” (The importance of being called Ernesto). As you know, Ernesto is a Spanish name. When this happened, I was very young to actually know who Oscar Wilde was, but the title got stuck hard on my memory. It wasn’t until I was in high school, that I discovered that it was a mistranslation from: “The importance of being earnest” and that, also as you probably know, earnest is a synonym of Serious, Solemn, intense… etc.
What does this has to do with Entrepreneurship? Well, I wanted to use this story to point out that companies sometimes get “lost in translation” the realities of emerging countries look very different from Menlo Park, Mountain View and San Francisco. This gives local (emerging market) entrepreneurs a great opportunity to design solutions that are domain-specific and can solve problems in ways that probably no product manager in a multinational corporation could ever figure out.
Chances are that if you are creating a startup, you will need venture capital, and if you need venture capital, your investors for will ask for sure… “What’s your exit strategy? An exit strategy is the way startups payback to their investors by having a liquidity event (normally by getting acquired by a larger corporation, or going public). VC are not interested on keeping your company for a long time, they want a return and they want it to be big and hopefully fast!
One way to answer this question is to reverse engineer your startup. That is, creating and designing the company from its inception, targeting to be acquired by a specific company or industry. So, here is some personal analysis that might help you do precisely that:
Rumors are circulating that Facebook is planning to go into the remittances market. Why are they doing this? Why now? They are doing it because it makes a lot sense. To really understand this phenomenon, it’s important to dissect the full ecosystem, there are lots of moving parts:
- Facebook as a public company needs to prove to the market that it can create a sustainable business outside of their traditional advertising revenue stream, that’s been exhausted by a constant intrusion to their users’ privacy and an overwhelming advertising marketplace: “In its last quarterly earnings for Q4 2013, total average revenue per user was $2.14 globally, but only $0.20 of that came from payments.”
- The recent acquisition of WhatsApp mimics the tremendous success of Tencent’s WeChat growth (in users and valuation) by the introduction of money movement capabilities on the red envelope app: “WeChat payment registered users reportedly jumped 5 times given the viral effect of the red envelope app, analysts at investment bank CLSA noted in a recent report, where they valued WeChat at some $65 billion in part because of the success of these services.” Shows that Facebook is looking very seriously on how to get into this market.
- The recent announcement of pre-paid SIM cards with free access to WhatsApp sends a clear message of carries aligning with Facebook to offer ubiquitous services to the base of the pyramid.
- The recent announcement of the filing for a money transmission license in Ireland and the integration with various remittances companies like Azimo and TransferWize indicates a clear trend that Facebook is targeting the global remittances, including those to high-income countries, are estimated at $581 billion this year, from $542 billion in 2013, rising to $681 billion in 2016.
- The recent investment of $40M by Accel Partners in WorldRemit validates that the remittances market is heating up.
- Facebook is already connected to many remittances originators and recipients, and it could easily disintermediate the current providers that act as a bridge between the participating parties.
Probably nobody knows the remittances market, challenges and opportunities like the Latin Americans do. Just in 2012, the flow of US remittances to LATAM was +$61B!
So if you have a disruptive idea, a new distribution channel, some new technology that can streamline the process, now is the perfect time to do so, and of course… happy to entertain a conversation (email@example.com)
More to come in future posts… stay tuned.
I am not sure LATAM entrepreneurs should start companies with the hopes of being acquired by US giants – for instance, those who build clones hoping of being bought by their US counterparts usually set themselves up for disappointment. Even with original concepts, targeting Facebook as a potential buyer could also be the wrong focus – if you look at the remittances vertical, BlueKite’s $15 million exit came from Xoom, not from Facebook.
Anna, thanks so much for your comment. It’s a very fascinating topic. Acquisitions to gain market share have been very common in LATAM. I think we are about to see a new set of transactions trying to gain domestic expertise and execution.
I do hope we’ll see more and more acquisitions – I am just wondering whether LATAM entrepreneurs and VCs should work with that exit strategy in mind.
from what i’ve seen, US companies are more acquisitive and pay higher multiples than non-US companies. since investors will eventually require a return on their investments — and IPOs are more difficult and less common — it seems reasonable for latam-based startups to consider US acquirers.