June 16, 2014
This year I went to Thailand, Singapore, Indonesia and Croatia and had a chance to visit startups in each of those countries. One lasting impression from all my trips was the quality of products being created. These is no question in my mind that most of the technical talent in the world exists outside the US.
I think there are two kinds of internet companies being created today: global network effect companies and local network effect companies. Global network effect companies are like Google, Facebook and Dropbox, companies with large technical barriers to entry that can easily provide value to everyone in the world from an office in California. Local network effect companies are local marketplaces, business listing sites, real estate listings and ecommerce companies, where there is an advantage to being on the ground and close to your buyers and sellers. These local companies win markets over foreign companies because they are better able to understand and act on local marketplace dynamics.
There will be new billion dollar companies created in the US every year, mostly around new platforms and technologies (drones, VR and self-driving cars come to mind). However, I think a larger share of internet successes over time will come from local companies outside the US. In the past five years, China has had a booming internet economy, with startups like Jingdong (ecommerce), Vancl (clothing), 58.com (local listings), YY (live video) all joining the billion dollar club. The same story will be repeated in every growth market over the world as all businesses become software businesses and they ride the wave of a growing middle class adopting smartphones. This wave is happening in Southeast Asia, where smartphone sales were up 61% in the first three quarters of last year (a total of 41 million handsets).
I’d like to see YC fund more of these foreign local internet companies. Part of this is outreach: I found abroad that lots of founders had heard of YC but thought of it as a pipe dream, only available to American startups. In fact, the Winter 2014 batch had founders from 22 countries outside the US. One of our most successful companies was Bellabeat, from Slovenia, who went on to raise a $4.5m seed round post-YC. Over time, our top companies should increasingly reflect the global distribution of talent, and more of them will come from outside the US.
Foreign companies don’t have to stay in Silicon Valley after they do YC. For companies targeting local markets it usually makes sense to return to where your customers are.
One question then is why you would do YC and come to California for three months if you are planning to base your company in your home country. Silicon Valley isn’t just a place, it is actually a network of talent, capital and connections. Coming to SV to gain access to that network is worth doing, even if only temporarily, and even if it isn’t through YC.
The internet has been a great global equalizer: a team in Zagreb or Hong Kong can reach customers around the world without ever leaving. What they don’t have access to is information: financing connections, partnerships, experience running large scale internet companies. One of our goals at YC is to help many more startups around the world get access to these things.