Venture Capital Insights: Emerging Markets Focus

Alexander Piskunov is a managing partner at KAAN Ventures and a seasoned venture capitalist with a global footprint. His diverse background encompasses roles from an entrepreneur in the UK's non-tech sector to a deep tech investor in the US, focusing on robotics, quantum computing, and space tech. Now specializing in late-stage investments, Alex supports companies in scaling and international expansion. His expertise in startup ecosystems, particularly in emerging markets, positions him as a key mentor and strategist in venture capital.

This blog post is a summary and interpretation of ideas expressed by Alexander and not a verbatim transcript. For the full depth and to hear the discussions in their original form, we encourage readers to check out the full episode here.

How can emerging market startups succeed globally?

There are many challenges faced by emerging markets - political pressures, economic hurdles, and infrastructure gaps that hinder growth. Yet, amidst these obstacles, there's an abundance of innovative ideas and talented founders waiting for the right support to thrive globally. Success is about something other than where you're from, but how well you sell and fundraise, as seen in Silicon Valley and London. By nurturing founders early on with support from investors, accelerators, and government initiatives, we can empower them to become global leaders. Alex’s recent travels across Asia underscored the importance of identifying untapped opportunities, especially as Western markets become saturated with investment. Collaborating with governments in Pakistan, South Africa, and South Korea, he is passionate about building local innovation ecosystems and fostering cross-border partnerships. Understanding diverse cultures and decision-making patterns is crucial for success in today's global landscape, whether you're an entrepreneur, investor, or corporate leader.

How can entrepreneurs manage digital resources effectively?

In today's information age, opportunities abound online, often for free, amidst a sea of resources. However, the challenge lies in navigating the abundance of noise and finding valuable insights. Particularly in emerging markets, founders face the dilemma of sourcing expertise and guidance. While role models offer insights, emulating their success requires discernment due to changing technological landscapes and backgrounds. Accelerator programs, such as Y-Combinator, offer avenues for growth, yet sector-specific ones often provide more tailored support than their generalist counterparts. Angel syndicates, including online platforms, facilitate early-stage funding and deal flow, benefiting both investors and entrepreneurs. The era also witnesses a surge in AI experimentation for automating internal processes, heralding a mixed bag of successors but signaling progress. Notably, startups with adaptable products spanning multiple industries mitigate risks and diversify income streams, aligning with evolving technological trends and cost-efficient development.

"I'm personally a big believer in startups that have a product that can be with relatively small changes applied to multiple industries at once."

How to empower emerging markets to produce more unicorns and better startups?

In the Eastern European market, the landscape is marked by early-stage players like accelerators and angel syndicates. Yet, the ecosystem's volatility poses challenges. Government policies often favor larger corporations, making it difficult for startups to thrive independently. While some see an opportunity for entrepreneurs to build and sell to corporations, many founders seek to innovate and disrupt existing norms rather than return to corporate structures. For investors, early-stage M&A deals may seem promising, but the reality is different. The need to compensate for risk often requires significant returns to offset losses in the portfolio. This intricate policy framework and corporate landscape can hinder local startups and investors from achieving significant success.

What are the key considerations for startup founders expanding into new markets, and how does the landscape vary across regions?

Expanding a startup globally involves navigating a complex landscape, especially for founders from Eastern Europe, Latin America, or Southeast Asia seeking capital in the West. Understanding the nuanced differences between markets is critical—comparing the UK to the US reveals distinct regulations, tax rates, and programs, requiring sophisticated entrepreneurs to strategically capitalize on opportunities.

The timing of expansion is equally crucial. Entrepreneurs expanding too early may lack sufficient revenue streams, hindering talent acquisition, relocation support, and market understanding. Conversely, delaying expansion when firmly established locally poses risks in a fast-evolving global market.

While Eastern Europe is significant, Western investors are increasingly exploring Latin America and Southeast Asia. Notably, countries like Brazil, Vietnam, Malaysia, and Indonesia present unique opportunities. Each region has its focus, from technological prowess to impactful investments.

In the African venture capital landscape, specific countries, including Nigeria, Egypt, and South Africa, stand out. The presence of seven unicorns, with a majority from Nigeria, suggests a promising market. Lessons from successful frameworks in these regions could inform strategies for emerging markets across Africa, fostering growth and innovation.

What are the main reasons Western investors are looking at emerging markets?

In the West, abundant funding from major institutions like pension funds and corporations, particularly in less risky later-stage investments, has led to sector overvaluation, notably in areas like artificial intelligence.

“There is just so much free money available in the West coming from big institutions, like, for example, pension funds, funder funds, and big corporations.”

Consequently, investors are shifting focus to earlier stages, such as seed or Series A deals, to mitigate financial risks and foster closer relationships with entrepreneurs. Additionally, some investors are exploring emerging markets, where competition is lower, and risks are higher, but arbitrage opportunities and reputation-building abound, especially in niche sectors like immigrant founders or female entrepreneurs. This strategic pivot allows emerging fund managers to establish credibility and expand their scope over time.

Which of the emerging markets are the most popular ones?

Africa presents potential, but its development timeline, including stabilizing political situations and infrastructure growth, suggests a longer investment horizon of more than five to 10 years to attract external investors. Latin America, notably Brazil, appeals to North American investors due to geographic and time zone similarities, facilitating due diligence and expansion. However, Alex’s experience underscores Southeast Asia's promise.

“I'm a much bigger believer in the Southeast Asian market.”

Its blend of developed economies like Singapore and emerging markets offers diverse investment opportunities across sectors and business models. Singapore's allure as a financial and technology hub further enhances its appeal for startups seeking international expansion, making Southeast Asia a fertile ground for innovation and success.

Are there advantages to starting startups in emerging markets rather than going to Silicon Valley?

Southeast Asia, particularly Thailand and Malaysia, emerge as global hubs offering entrepreneurs a hassle-free environment to test hypotheses, build MVPs, and tap into local markets with government support diversifying economies. Despite political and economic challenges in Eastern Europe, the region boasts highly skilled talent at lower costs, although recent political tensions prompt entrepreneurs from places like Russia or Ukraine to relocate R&D facilities to more stable environments like Georgia or Armenia.

If these handpicked highlights have sparked your curiosity, you won't want to miss the full conversation with Alexander Piskunov on our YouTube channel or your favorite platform.

Before you go, here are a couple of recommendations to deepen your understanding of venture capital and startup ecosystems:

• “Done Deals” a book by Udayan Gupta - tells about different approaches to investment between the East Coast and West Coast in the USA and looks at the success stories of several famous VCs.

• “Venture Deals : Be Smarter Than Your Lawyer and Your Venture Capitalist.” - looks at investment transactions from two sides of the table, from the side of an entrepreneur who is trying to fundraise, and from the side of an investor