Navigating Venture Capital in Emerging Markets

Building and funding companies for Emerging Markets has its own unique challenges and difficulties. Get some insights on how to navigate them.

Building and funding companies for Emerging Markets has its own unique challenges and difficulties.

From accessing capital to developing the right talent, it all comes down to the humungous effort of creating something from scratch and continuously creating value through sustainable business models.

There are many things in emerging economies that differ from more developed ones: government policies, access to financial institutions, liquidity, spending power, and many other aspects that can make the business ecosystem more and more difficult.

But it doesn't just stop there - compared to developed markets, people also have different needs and ways of living, markets are more fragmented and less productive which makes informality a day a to day problem for the workforce.

To better understand these nuances we talked to Andrew Durke, our Investment Director, who joined Polymath a few months ago to raise our Seed Stage Fund for 2023.

Before joining Polymath, Andrew worked in other emerging markets like Southeast Asia and Africa, which has given him a broader view of how these markets work and the main challenges we face when creating companies to serve them.

Andrew’s first exposure to startups in emerging markets was when he decided to join venture debt firm after reading an article about impact investing while working for a commerical real state firm in his home state of Texas.

“The marketing for impact investing was really good and I was kind of sold, it was the first time I ever heard of the concept and I was very naïve, but I said “this is what I want to do: use my financial background, invest in businesses, help people that need it, get rich, save the world, everyone wins”.

With inspiration from that article and a considerable amount of time and effort, Andrew was able to change his career path for good. He packed one suitcase and moved to Uganda to work in Venture Debt. It was his first time working in an emerging market.

Andrew while working for an AgTech Startup in Cambodia
Andrew while working for an AgTech Startup in Cambodia

“Two things really stood out: one was the immense amount of potential to make improvements that really helped people, to create social or environmental impact… whatever you wanted to change the potential was there.

And the other one was the potential to create economic value. I would walk the streets and I couldn’t go more than five minutes without finding an opportunity to use this or that technology, change a revenue model or whatever it is to make businesses more productive”.

But even though opportunities for improvement were everywhere, the one thing that Andrew found more difficult at the time was the execution part, and as you will see next, that part continues to be one of the central issues for building in emerging markets.

“Execution was tough, there was no follow-on financing, there was no market for exits and it was incredibly difficult to find talent”.

Although Andrew personally sourced some successful deals, the overall portfolio struggled and he decided to explore markets beyond East Africa. He moved to consulting projects in Eastern Europe and Southeast Asia which led him to start conversations with many entrepreneurs and investors.

“It was a consistent story of either we are very early, we are brand new and we don’t how we are doing yet, or we are having trouble executing. But you could still see the potential, you could see what’s possible but everyone was having a difficult time executing”.

After those years of living out in a suitcase and working in different emerging markets and entrepreneurial ecosystems, Andrew went back to the US to do an MBA at the University of Chicago and ended up leaving again, this time to Cambodia.

“As the execution was definitely the hard part, I wanted to get experience in operations, and in strategy, and in management, and in all the different things that you need to execute”

In Cambodia, Andrew worked for an agtech startup and then as the Chief Operating Officer of a VC firm that sometimes created its own companies; he got to work very closely with portfolio companies and be very hands-on with operations, exactly what he was hoping for. This operationally heavy, execution-focused approached produced good results.

“We certainly had our challenges and plenty of ups-and-downs, and COVID hitting at this time didn’t help, but the portfolio was doing very well overall.”

After some time in Southeast Asia, Andrew wanted to be closer to home, so he started to look for opportunities in Latin America when he came across Polymath and the rest is history.

The hard thing about…

Pretty cool journey, right?

The coolest part is how much Andrew’s experience can teach us about the nuances of building businesses for emerging markets.

Up until now it has been clear how important and difficult it is to execute in these contexts, but there’s more to it, so we will now focus on the most interesting findings from Andrew’s journey.

This time we are going to hear it from his own voice. So let’s get those headphones!

Venture Capital is as much an operational business as it is a financial business.

Coming from an operational background can be a huge advantage for investors, especially in the early stage where metrics are less likely to give an accurate idea of what the business can eventually accomplish.

Especially in the young and developing ecosystems, like the ones in South East Asia, Africa, or Latin America, it becomes more important because Founders are looking not only for money but for investors that can actually offer operational experience and advice to their businesses.

LatAm is an ecosystem as a whole, and the mobility of talent is proof.

Having the same language and somewhat similar cultures is a great advantage LatAm has over other emerging markets. In the last few years, we have seen many companies become regional, as well as the Talent coming in and out of them.

Having that much space to grow as a region, is definitely something you cannot overlook when analyzing Latin America’s ecosystem.

Startups are hot!

If you are here you probably already know that startups have been a hot topic for several years in the region. But let’s face it, there are still many opportunities in the region, especially when it comes to serving the middle and emerging middle-class.

Early stage is a completely different game

Yes, it is. And yes there is a gap in Latin America.

Early Stage investment requires completely different capabilities and approaches than the later stages. We have seen regional and local investors get into that game or even angel investors trying to maximize their investment with lower tickets.

It all comes down to the maturity of the ecosystem and how we get to a point where that gap is closed.

In the end, that’s what we are trying to do at Polymath by launching an Early Stage fund specialized in capitalizing on the builder and operational experience we have to gather in 10 years of building companies for LatAm’s middle-class.


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