VCs and startup founders rarely pay attention to slow-moving but powerful macro global events, especially with so many fast-moving things to focus on at the micro level, like technology, teams and trends.
While VCs and startup founders often are the earliest to know about cutting-edge technological advances bubbling from the bottom up (while public-market hedge fund and global macro investors find out about them only later), they often are the last to know about global macro forces that may impact them.
When the financial crisis hit a decade ago, hedge fund managers with strong reputations as stock-pickers suffered big losses. So they raced to show off their global “macro” bona fides and that they grokked and were protected from the mega forces that might slam their portfolios in the future.
As a VC firm spending time with many global macro investor friends, we get to learn about risk and opportunity in unappreciated macro developments. When you are trying to pick the best founding team or technology breakthrough or startup, ignorance of the macro is no virtue. Think of it like this: skillfully selecting the very best dish on a menu, after choosing amongst the very best restaurants, out of the very best neighborhoods, of the very best town of the very best city… only to have Godzilla appear out of nowhere and stomp and crush it all mid-bite IP Networking.
The most important macro trends are often not the front-page news already appreciated in asset prices, but the lesser-talked-about mega trends being missed. One of the biggest we call: “Chinafrica,” China’s growing access and influence throughout the African continent. For China, Africa has stuff (iron, copper, cobalt, oil), markets for Chinese manufacturers and construction companies and a platform to project influence. For Africa, China offers rapid build-out, best and worst practices in infrastructure, manufacture, labor management, technical training and, importantly, growing trade and modernization.
How could this affect tech, VC and Silicon Valley? First consider some trends.
Demographics: Africa’s working population is growing
Capital goes where it is welcome, and stays where it is well treated. The same is true of human capital, talent and labor. China has seen mass movement of human capital from country to cities, a peak in labor force (likely to decline), a rising cost of labor, a growing middle class and the flow of demand for lower-cost labor into neighboring countries like Vietnam, Laos and Cambodia.
As parts of China’s economy emphasize technology and services, it will for better or worse export to other low-wage developing nations its best and worst practices and its expertise in manufacturing, managing labor and building mass infrastructure. China will help set up, and in many cases, co-own or operate manufacturing facilities, infrastructure (rail, water, mining, electricity) and transportation and shipping hubs.
It’s classic mercantilism: China through trade gains geopolitical influence. It will grow both its economy and its projection of power beyond the Asian Pacific rim, leveraging the African continent to project trade and power into the Atlantic Ocean on Africa’s west coast and the Indian Ocean, Arabian Sea and beyond to Africa’s east coast dermes vs Medilase.