The diaspora dilemma
Diasporas are often touted as a silver bullet for startup ecosystems. The truth is more complicated than that.
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The GrowHome backstory, and overarching thesis
In mid-2020, a couple of months after the lockdown had started, Marwan and I launched GrowHome from our respective bedrooms. We had met at the University of California, Santa Barbara (where we were still students, albeit Zoomed ones). Both of us were heading toward an international development path. He was guided by his insatiable desire to contribute to the development of his home country, Palestine, while I had been convinced by the energy and people I had met at the World Bank Youth Summit I attended in 2019.
The pandemic-caused introspection allowed the seeds of doubt to seep into our minds, not so much about the mission of international development but about the way it was done. Seminal and sometimes virulent readings such as Dambisa Moyo’s “Dead Aid'“ and William Easterly’s “The White Man’s Burden” led us to rethink our career approach.
The hypothesis that emerged from our back-and-forth conversations about the topic was the following: the only way a country can sustainably develop is through locally-bred innovation. On top of that, startup ecosystems in emerging markets are starting to gain some steam but still lack proper funding and expertise. Our proposed solution was GrowHome, a platform connecting diasporas from these emerging markets to startups back home.
In September 2020, Marwan and I both headed back to UC Santa Barbara and got started on building GrowHome. Our beachhead market was Palestine, due to Marwan’s evident connection to it. Our initial plan was relatively simple, divided into 3 main steps:
- Create content about the Palestinian startup ecosystem to garner the attention of startup-minded Palestinian diasporas.
- Launch a simple platform to put Palestinian startup founders in contact with diaspora Palestinians ready to get involved.
- Build an equity-crowdfunding platform, enabling Palestinian startups to easily raise from diasporas and diasporas to easily invest in promising startups back home.
GrowHome ran for 2 years. Steps 1 and 2 were a relative success, while Step 3 was rushed and led to GrowHome’s demise. The entire GrowHome journey helped me identify 5 little-known factors that are essential to consider when trying to stimulate diaspora involvement in a startup ecosystem. This is what I want to talk about today.
Lesson 1: Not all diasporas matter
Out of the millions of diasporas a country may have, only a select few are relevant to the country’s startup ecosystem. These diasporas have to add value to startups. Being interested is not enough. If you want to get these diasporas to invest in startups, the scope is even more limited. Not only do you need to find diasporas that are familiar with the workings of angel investing, but that are also willing to take a leap of faith and invest in a country they have seldom invested in.
One of GrowHome’s biggest mistakes in that aspect was focusing on the number of diasporas showing interest in startups back home, rather than the number of diasporas that could and wanted to add value to the ecosystem. This led to erroneous marketing efforts, aimed at bringing more and more people to the platform rather than doubling down on our most valuable users. This strategic mistake was also bolstered by our youth, inexperience, and quick jubilation in the face of vanity metrics.
If you want to stimulate diaspora engagement in your country’s startup ecosystem, I would thus take three prior steps:
- Clearly define what you want those diasporas to do (mentorship in a specific sector, angel investing, international expansion)
- Severely restrict your outreach to the diasporas you know are capable of doing what you want them to do.
- Be exigent with the diasporas that ask to join. If they don’t add value to the startups, they shouldn’t be involved. The primary goal is and should remain to support the startups.
Lesson 2: Finding the right wording between “helping” and “investing”
Cultural and emotional affinities to a specific country are what you’re banking on if you’re planning a diaspora play. Otherwise, you would be targeting anyone that fits your criteria, not just diasporas (maybe you should by the way, as explained later).
However, startups aren’t NGOs, and if you want to get diasporas to invest in startups, phrasing it as “helping startups” just won’t cut it. Otherwise, you would be building a traditional crowdfunding platform (which, once again, maybe you should do as explained later.)
If you want diasporas to invest in startups, you have to present them with an opportunity for a lucrative exit, topped with the emotional satisfaction of contributing to their home country’s economy. The other way around doesn’t work. You can’t ask a diaspora investor to “help” startups back home by “investing” in them. If a diaspora is investing, they want to at least discern the possibility of a financial return. Otherwise, they would donate.
With all that being said, convincing diasporas to invest is harder than just getting your wording and semantics right. The situation is complicated by another potent factor.
Lesson 3: Investing in startup ecosystems with little to no exits
Getting diasporas to invest in startups back home thus requires the proven possibility of a lucrative financial exit. However, what are you supposed to do if the ecosystem you’re dealing with is nascent and has very few exits to show for? This was GrowHome’s case with Palestine. The ecosystem was and still is very nascent, and it was hard to prove to our diaspora users that the opportunity for an exit was strong, as there was no precedent.
I describe this catch-22 situation more in-depth in this article, where I explain that in emerging startup ecosystems, the lack of startup exits makes investors frisky to invest in startups, and the lack of investment, in turn, leads to a lack of startup exits.
When applied to diaspora investing, this leads to a conundrum that in my opinion only has one solution. Find the few, preferably high-net-worth diasporas who are willing to take massive risks in kickstarting an ecosystem that has the potential to become lucrative with time. These individuals are rare but exist. It might even require looking outside of the diaspora scope.
It is important to note that this problem drastically decreases with time. As soon as the ecosystem flywheel is launched, and a startup ecosystem starts experiencing a couple of exits, the pitch to diaspora investors gets easier and easier. The cases of Israel and India are potent in that way.
Lesson 4: Distrust of local regulations
Counter-intuitively, diasporas are sometimes the hardest people to convince. They know their country, its intricacies, and the problems it faces more than anyone does. In many cases, their country’s dysfunctioning is what made them leave. Some diasporas want absolutely nothing to do with the country they left.
When it comes to diaspora involvement in startups back home, there is an evident trust issue. For investing in particular, diasporas can be very reluctant to send, let alone invest, their money into jurisdictions they have had bad experiences with. If you have some background on the Lebanese crisis, it is easy to understand why a Lebanese diaspora wouldn’t want to invest in a Lebanese startup with a Lebanese bank account.
There isn’t really any solution to this issue, as trust can’t be shortcutted. What exists as of now are workarounds. In Palestine for example, many founders will incorporate both as a Delaware C-Corp and as a Palestinian identity, and do the same for their bank accounts.
This adds a small layer of trust, but it doesn’t solve the internal complications of the market. For example, a diaspora might be turned off from investing in a startup from their country which they know is an administrative nightmare.
This point is, in my opinion, the hardest one to solve. There aren’t really any counter-arguments you can make, and the little trust that is built can be shattered in an instant. The only way out of this one is for local ecosystem actors to force legislative changes, such as what Tunisia did with the StartUp Act. And even then, the situation is far from perfect, as many members of the Tunisian diaspora have told me.
Lesson 5: Structure your approach
All of the lessons above result in this one. I believe that the key to stimulating diaspora engagement in a country’s startup ecosystem is to be methodical, structured, and extremely patient in your approach. It will take 5-10 years.
If I were to make a playbook for GrowHome again, here’s how I would do it:
Step 1
Create a media company that covers, pragmatically and honestly, the opportunities and challenges coming from the startup ecosystems you’re trying to target. This will build credibility within your audience, and make them understand you’re not sugarcoating anything.
Step 2
Launch a simple, crowdfunding platform enabling diasporas to donate (not invest) in very early-stage startups from their home countries. I would envision $50K tickets max, equity-free. The goal here would be to kickstart a new generation of founders and get diasporas comfortable with a monetary exchange between them and their home country’s startup ecosystem.
Step 3
Start offering, in very small quantities, syndicated deals into the top 1% of startups from the targeted country. Diasporas have to feel that you are handling all legal aspects, that their money is safe, and that the startups selected have a decent shot at exiting. You would have to lead the rounds.
Step 4
If step 3 goes without mishaps, launch a broader equity-crowdfunding platform enabling diasporas to invest in highly-vetted startups from their home countries. Hopefully, the first three steps will have led to a maturing of the ecosystem, better local regulation, and a larger quantity of quality deals.
Bonus
I would also say that keeping this exclusive to the diaspora is optional. GrowHome made me realize that while diasporas do make sense as a beachhead market, a lot of other people are interested in these markets and want in. If they have the willingness, the resources, and the capacity to get involved, it would be a shame to exclude them.
The potential for this is massive. It’s just really hard.
I am still absolutely convinced that diasporas have a crucial role to play in their home country’s startup ecosystem. The examples set by pioneering countries in this aspect, such as India, are proof that it can work. The increasing need for purpose in one’s life and work is felt even stronger amongst diaspora populations, resulting from a mixture of survivor guilt and visceral emotional attachment to one’s land.
The GrowHome journey taught me that the diaspora’s desire and enthusiasm are there. We were featured in the Jordan Times, got great feedback from the Palestinian founders we were trying to support, and some of our diaspora users such as Hani Azzam have launched their own diaspora engagement initiatives.
As with many of the startup ecosystems I cover however, there is a severe lack of discourse. People aren’t debating enough, disagreeing enough, and challenging each other on the feasibility and strategies to effectively engage diasporas with startups back home. The opportunity is often oversimplified with statements such as “diasporas sent $773B back home in 2021, therefore they are the key to kickstarting their home country’s startup ecosystem”. There’s a difference between sending your Palestinian grandma $200 a month and investing $50K into a startup in Gaza.
As demonstrated through my 5 lessons, the reality of such a vision is complex. The diaspora’s willingness to get involved exists, it just needs to be harnessed, strengthened, and translated into concrete, pragmatic actions. That takes time, energy, and realism. But what good idea doesn’t?
The Realistic Optimist provides weekly, in-depth analyses of some of the most relevant stories in our now-globalized startup world. Subscribe below to receive it directly to your inbox and don’t hesitate to share it with your colleagues :)