Since its launch nine years ago Seedstars has invested in 81 companies in more than 30 developing countries. The company has now set a target to invest in another 100 startups by launching a second emerging markets seed fund called Seedstars International Ventures II (SIV) with an initial close of $20 million. The fund is expected to have a total volume of $30 million and its limited partners include the International Finance Corporation (IFC), the Visa Foundation, the Rockefeller Foundation and Symbiotics. The firm intends to invest in pre- and seed-stage startups in Asia, Africa, the Middle East and Latin America over the next three years, with further investments up to Series A.
Some examples of Seedstars portfolio companies include Pakistani e-commerce startup Dastgyr; cloud-based management system for points of sale and restaurants Foodics from Saudi Arabia; Indonesian labor market MyRobin; Latin American Restaurant CRM OlaClick; and Nigerian B2B marketplace Omnibiz.
Patricia Sosrojoyo, a partner at Seedstars, told TechCrunch that the second fund’s investment thesis is similar to its predecessor: to get into early-stage tech ecosystems in emerging markets and look for startups that can have a broad impact.
“I think of it as three different levels,” she said. “The first is the fact that we come in very early, we are usually one of the first institutional checks after the angels, so we can help catalyze capital. The second is the countries that we cover, where the ecosystems are not yet as developed. And third, we’re looking for business models that can scale quickly, like a typical venture capital model, but that could impact a lot of people. We join many ESGs.”
One of the differences between the SIV II and the first fund is that it can write larger checks. Initial checks will range from $150,000 to $250,000 with a potential follow-on investment of $500,000. It will also have a closer geographic focus. The first fund has invested in 30 countries, and the second fund will also have a global perspective, but will focus on one to three countries in each region.
Specifically, they are Indonesia, Vietnam and the Philippines in Southeast Asia (although Sosrojoyo said the SIV II would also consider other countries); Pakistan and Bangladesh in South Asia; Egypt in MENA; and Mexico in Latin America. His view of Africa will be broader; it has already invested in Kenya, Tanzania and Nigeria.
SIV II plans to oversee 25% of its portfolio.
“We are really looking to diversify holdings by leveraging experience from one market to another,” Sosrojojo said. “For example, if we have invested in a B2B supply chain in one country, we can take lessons from that and apply them to another region. We see that different trends can emerge at different times in different markets, so it helps us see the typical trajectory of a particular industry.”
The fund will focus on verticals including finance, trade, healthcare, work and education. In particular, “financial inclusion is challenging in many of these markets. This is something we will continue to focus on,” Sosrojoyo said.
One of the things that makes SIV II unique is that it has a mixed financial structure with opportunities provided by IFC, one of its partners. As part of the fund’s mandate, it will invest up to 25% of the fund in IDA countries or low-income countries as defined by the World Bank. This reduces the risk of this investment because there is a first loss guarantee. This means that if an SIV II invests in an IDA country such as Senegal and the company does not do well, part of the investment will be covered through the structure.
To help them scale, Seedstar’s portfolio companies are participating in a program called the Value Creation Platform, which includes a network of 1,300 mentors and includes a three-month “mentor-led sprint” called the Growth Path. Supported by Seedstars local entrepreneur John Attwell, formerly of Naspers and Prosus, with operators experienced in high growth firms such as Careem and SkyScanner. During their time on the Value Creation Platform, companies can experiment to determine which growth strategies suit them best.
“Startups can span different modules, for example if their key is acquisition,” Sosrojoyo said. “They can really look at their acquisition strategy and see if it’s not working well. They will work alongside their mentor and our resident entrepreneur John to create a strategy, work with it, monitor it and see if it works. Each startup will decide what kind of experiment they want to do and decide if they want to implement it into their work or not.”
Gender equality is also important to Seedstars, which points to data that only shows 11% of enterprises that receive seed funding in emerging markets are led by women. The Seedstars team has already achieved a 50:50 gender split, and in its first fund, 26% of the co-founders of the business were women. Seedstars has set a goal for its second fund to have at least 30% of the companies in its portfolio have female founders or executives. Another criterion is the support of local founders.
“There are times when there are experienced founders with really good startups, but we try to develop local talent,” Sosrojoyo said.
Credit: techcrunch.com /