Startup exits in a startup ecosystem act as a metric to measure the performance of a local startup scene. But exits become far more beneficial for local ecosystems especially emerging startup ecosystems.
When a startup IPOs or gets acquired, it is not only a big check for the founders and stakeholders but it affects multiple elements which ultimately helps the local economy and the local entrepreneurial scene. Here’s why:
Startup exits create inspiration and FOMO (Fear of Missing Out) for aspiring entrepreneurs
In many emerging markets like Iran, the startup scene is usually few years old with few or no major startup exits. The first generation of local entrepreneurs test business models, learn from more mature markets and provide a local solution for partners. When small startups turn into major success stories and newspaper headlines, that’s where the inspiration happens and the second and third generation of entrepreneurs arise.
When a startup exits with high digit valuation number, it catches the eyes of aspiring entrepreneurs, investors, and the public. Usually, the majority of the people in emerging markets do not have the knowledge on how high-tech startups are evaluated. The high valuation number creates FOMO (Fear Of Missing Out) among aspiring entrepreneurs and investors. This inspires the youth to build value-creating startups that will ultimately boost the startup ecosystem and the local economy. More government and media attention are also on the list.
Creates more business interest for local investors
In early years of a startup ecosystem, investors see “Websites & apps” as they call it, as risky low margin businesses. The first major exits shifts some investment interests to the tech sector which causes more money flow in startups. This will also create more awareness for other government organizations and institutions.
When the first estimate valuation of Iranian startups came out, many investors got interested in the tech sector and attempted to understand how tech startups work. It is safe to say when a major exit happens the effects would be massive. This will also create better deals for entrepreneurs. Fundraising is a big issue for startups in emerging markets as there is less competition among investors, and entrepreneurs have no other choice than to stick with the investment options they have in front of them. More investors mean more options for entrepreneurs to choose, which will result in better deals.
Founders of the exited startups become angel investors
In most cases, the founders and major stakeholders of the startup that exited become angel investors that invest the majority of the money they earned through the exit back to the startup scene. These angel investors also become the best mentor an entrepreneur could have because of their knowledge and experience they earned through growing their startups to exit. Entrepreneurs also rush to get funded by these angel investors as the money would be one of the smartest investment money an entrepreneur could get for its startup.
To name an example, the exit of Jordan’s Maktoob by Yahoo caused the founders to get quite a lot of money. The founders of Maktoob invested a quite sum of that money on local entrepreneurs in Amman which was the first brick in creating the vibrant startup ecosystem we see in Amman today. Same stories like such can be seen in many parts of the world like Berlin, Toronto, Estonia and Helsinki.
In a nutshell, startup exits are far more beneficial for the startup ecosystem than it is for the founders. We hope to see more startup exits in emerging startup markets in the next years to come to boost local ecosystems and inspire more visionary individuals on becoming entrepreneurs.