The growth of innovative, early-stage enterprises in developing countries is hampered by a lack of both appropriate financing and targeted technical assistance. Supporting innovative entrepreneurs to get out of the ‘Valley of Death’ with early-stage financing, is a cornerstone of development as it helps to enable more sustainable businesses, leading to job creation and economic growth.
Panelist Hossam Mahgoub, President and CEO of alKhawarizmy Software (Egypt), gave his perspective as a technology entrepreneur on some reasons why companies struggle, "I am reporting from the valley of death. I am there. The valley of death looks bleak, but hopeful too because we, as entrepreneurs, have control over whether our company dies or whether we continue to go forward with hard work and passion. The real problem lies with how are we looked upon by the big companies. You say, 'I have a technology that may fit into your plans' and the company says 'You’re too small for us to look at.'"
One solution might be supporting SMEs and making them part of a recognized or official program. Certainly many incubation centers, accelerators, and global business facilities try to do just that but an enabling national environment must also be created. Fadi Ghandour, founding partner of maktoob.com, reminded the audience that entrepreneurship is part of nation building and that, "Entrepreneurship must be fostered with public-private, non-profit partnership. Government must enable legal circumstances and deepen financial markets for startups. Private enterprise should not be seen as the enemy to government."
The panel discussion was followed by a question & answer session with the audience, which explored early stage financing gaps, financing methods, current services, and possible World Bank Group interventions.
- Fadi Ghandour - Founding Partner of Maktoob.com, the world's largest Arab online community
- John May - Chairman Emeritus of Angel Capital Association, Managing Partner of the New Vantage Group
- Hossam Mahgoub - President and CEO, alKhawarizmy Software, Egypt
- Adrian Magendzo Weinberger – Deputy-Director of Innovative Entrepreneurship, CORFO Chile
- Mohsen A. Khalil - Director, Climate Business Group, IFC
A recent World Bank Financial and Private Sector Development report titled, ‘Small vs. Young Firms across the World: Contribution to Employment, Job Creation, and Growth’, found that in the developing world, small and medium-sized enterprises (SMEs) are the fastest growing contributor to employment growth. These engines of growth hold the potential to drive sustainable development, but are often hampered by lack of early-stage financing and the technical assistance and mentoring crucial to their ability to expand and create jobs.
The ‘Valley of Death’ financing gap was described in infoDev’s 2008 study ‘Financing Technology Entrepreneurs in the Developing World’. The study outlines how SMEs traditionally tap friends and family for startup capital in the US$50,000 range and below. For needs above US$1 million, innovative SMEs can gain traction with venture capitalists, private equity firms and banks. The ‘Valley of Death’ is estimated to be in the US$ 50,000 – US$ 1,000,000 financing spectrum.
Supporting innovative entrepreneurs to get out of the ‘Valley of Death’ with early-stage financing, is a cornerstone of development as it helps to enable more sustainable businesses, leading to job creation and economic growth.
 Meghana Ayyagari, Aslı Demirgüç-Kunt, and Vojislav Maksimovic. 2011. “Small vs. Young Firms across the World: Contribution to Employment, Job Creation, and Growth.” Policy Research Working Paper 5631, World Bank
 Financing Technology Entrepreneurs & SMEs in Developing Countries. 2008. An infoDev Study on the funding challenges and opportunities facing Technology SMEs in developing countries. /en/Publication.542.html.