Insider learnings from an experienced tech-investor
Two Key Lessons on Investing in New Tech in Emerging Markets
The lessons of nearly a decade of investing in, mentoring, and advising tech companies across emerging markets have been both legion and humbling for me. But two lessons have really jumped out. The first lesson hit home for me two years ago when I spent a month in China. I was there investigating rather than investing — figuring out how local venture capital and tech enterprises were thinking about rising economies beyond their country and even region. By fortunate coincidence, my trip overlapped with a remarkable gathering which the great global tech ecosystem builder, Endeavor Global, hosted. They brought 17 or so CEOs of growth stage fintech companies from Latin America, West Africa and South-East Asia to meet their counterparts, now often decacorns. I sat and observed. What I saw was both stunning and confirming.
DEFINITION: “decacorn” – In 2013 Aileen Lee, one of a cohort of venture capitalists known as angel investors, coined the term “unicorn” to describe tech firms that were mostly unlisted, less than ten years old and had reached valuations of USD 1 billion or more. They were the rarest of creatures, numbering 39 at the time. Yet since then, a combination of asset-price inflation and title inflation has taken hold, turning Silicon Valley into a unicorn factory to rival Hasbro. PitchBook, a data-gatherer, says there have been 1,335 unicorns. It also refers to 108 “decacorns”, of which at least 55 still exist. Technically speaking, decacorns are unicorns valued at USD 10 billion or above. (read more at The Economist).
This was lesson one: for all that divided them geographically, culturally, historically, every one of these entrepreneurs shared similar opportunities and challenges, each one had similar questions and learning. Almost NONE of what they raised had I heard mentioned by or in front of their counterparts in Silicon Valley or New York: how to navigate last mile logistics; how to engage regulatory efforts in constant flux; how to educate millions of people who had never had a bank account or access to credit and now do. These were all unique and uniquely shared challenges among them. And also among the Chinese, who themselves had been “an emerging market” not so long ago. They all spoke the same language, all benefitted from each other’s experiences. I have often been criticized for being a “multi-market” emerging market investor. This was because traditionally there was so much nuance and complexity required to understand any one market. As lesson one above demonstrates, it is now clear that emerging markets are often facing the same overarching challenges, and they can certainly learn from one another. But too many investors – and LPs – miss the biggest shift of all, and that is the pattern recognition shared across these markets. This knowledge is a competitive advantage to finding the best entrepreneurs and, hand in glove, offers unique insights that help the entrepreneurs that I, and the team I work with, to win. On top of that, with the team and current strategy I am working with, we only partner with blue chip investors on the ground we know well. And now, unlike a few years ago, there are a lot of them. The other criticism I have faced for being a “multi-market” emerging market investor is that investing across thousands of miles seems, on the surface, unfocused and logistically impossible. However, this point is easily ameliorated, as technology combined with travel and close partnerships make the world of venture borderless and close. This is especially evident after the global shifts to remote work during the pandemic. As for my second lesson: In these recent days of war and rising inflation, there has been some investor caution, but not a lot. These are still surprisingly frothy days in valuations, with the perception that cooler pricing away from the sun of Silicon Valley has attracted more western attention to emerging markets. In these frothy days, everyone thinks they are a venture capitalist, with great wealth showing up everywhere with little regard for due diligence and willing to pay almost any cap. Such types think any market from Colombia to Pakistan is some new version of an older version of the Valley. I’m sensing the best entrepreneurs don’t love it. So the smart founders are doing something incredibly obvious but which I don’t hear expressed often enough. It was said to me perfectly this summer by one of the greatest entrepreneurs I know from Latin America. When he was raising, early on and before anyone knew who or what he was, he first did a deep assessment of his own weaknesses personally and as a manager. He similarly did a blunt assessment of what needed shoring up operationally to expand rapidly in the areas he was focused upon. So the lesson here is NOT to create a list of the obvious brands that everyone checks, NOT of some individual that carries buzz and a popular podcast. Rather, to eat some humble pie and make a list about shoring up weaknesses and opportunities so that you can be with investors for the long haul. Then focus on execution. In the case of this Latin American entrepreneur, some of his investors were barely known at the time and they are now running billion dollar funds. Yet they are as committed to the entrepreneur as ever. And not only did the best funds come in later, but the best INDIVIDUALS in those funds most helpful to the next stages of what he was building. So the most exciting part of today’s entrepreneur-friendly investor environment is that the entrepreneurs have a choice of with whom to surround themselves. And they know it takes work to discover and be of service to the team that understands what others don’t about what’s on the ground and the scope of problems and opportunities on their terms. “On their terms” is the watch phrase. Millions - I’d argue billions - of people are entering the new economy for the first time and almost overnight, and entrepreneurs don’t need money for the sake of money — playing some kind of lottery. They think “global day one” and know that there is learning and market opportunity from and with markets that share their experiences. All they need is partnership and pattern recognition and, dare I say, a little humility. I, for one, can and will work with that. These are the entrepreneurs who will unleash what they know and with their unrelenting passion, will make something enormous that was never there before.
Christopher M. Schroeder is a co-founder of Next Billion Capital Partners. His blog can be followed here, and on Twitter here.
Christopher M. Schroeder
Global Investor, Internet/Media entrepreneur and CEO focused on Silicon Valley and international consumer, fin-tech, media companies and advocating/mentoring global entrepreneurship. Writer, speaker and moderator on entrepreneurship, innovation and global economies and markets. Adviser to companies and governments in related areas. Author of the Startup Rising: The Entrepreneurial Revolution Remaking the Middle East. Father of three; Husband of one. Lives on an airplane when not in DC or NYC.