2014 saw an unprecedented amount of funding flow into Asia, with companies such as Xiaomi and Flipkart receiving billion-dollar investments. Yet on the periphery of Asia, developing countries like Myanmar, Pakistan, and Thailand continue to struggle in attracting investor interest.
The reason for this apparent lack of interest isn’t that their ideas are bad. On the contrary, some startups in developing countries have ideas that can rival the best. According to Kevin Virgil, who was managing director of a firm that invests in emerging markets, this is because these investment opportunities, while compelling, simply “did not fit within [VCs] fund mandate, or were too small for their funds to work with.”
This is no small problem. The World Bank estimates that the unmet funding needs of small and medium-sized enterprises in these frontier markets comes to US$1.1 trillion – a sizable sum. Having witnessed this first-hand as investors in these countries, Virgil – along with two other experienced investors, Baldwin Berges and Mark Moline – decided to create a crowdinvesting platform for private investors called Emerging Frontiers to plug the gap.
Collectively, the trio of founders have over 30 years of experience in emerging markets, investing across five continents and over 20 countries. “We believe that high-quality entrepreneurs in frontier markets should have the same opportunities as their counterparts in Silicon Valley,” says Virgil, who is the CEO.
Emerging Frontiers’ model is significantly different from traditional VC funds in that it allows investors to participate at much lower minimums. Virgil says this is done for two reasons: so that more people can participate in these deals, and investors “can more easily build a diversified portfolio of startups, which is the golden rule of angel investing.”
“We are committed to helping investors around the world to more easily access the tremendous opportunities available in frontier and emerging markets,” he adds.
Taking investors to the Wild East
At first glance, Emerging Frontiers seems like a crowdinvesting platform similar to the likes of Crowdonomic. However, Virgil clarifies that, while the site looks and feels like a Kickstarter-esque site, “we are actually more of a ‘hybrid’ between crowdfunding and traditional venture capital.” He elaborates:
Unlike most crowdfunding sites – where investors connect directly with companies raising money – we create a special-purpose entity for each of our investments. This provides benefits to both sides of the transaction in an investment. The company only has to deal with one sophisticated investor – that’s us – and the investors have the peace of mind of knowing that their interests are aligned with a larger group. In my opinion, this is absolutely critical in emerging and frontier markets. We have a track record of fighting for our shareholders’ interests and this is what we are paid to do.
To join the network, investors have to show that they are qualified to do so in accordance with the securities laws in their home country. Only then will they be given information on the company they are considering to invest in, as well as direct access to the company’s management team. “For each fundraising campaign, we organize a webinar with the management team, followed by an online Q&A session where investors can pose questions directly,” explains Virgil.
With this information in hand, investors can then choose which companies they want to work with – and the degree of risk they want to take. Once the decision is made, the investment process can then begin with a click of the button. Or so Virgil envisions it will be done. “We are in process of improving our back-end so that this entire process, from the investor’s decision all the way through to closing, can be completed on our platform,” he says.
Asia leading the way
While Virgil is clear that they will “work in any country where we have a strong network of contacts, and where we can find good investments,” he reveals that Asia is currently at the top of their minds.
“Our emphasis on Asia stems from the tremendous growth that the region is experiencing, and the ongoing surge in local tech entrepreneurship that is very much in demand amongst our investors,” he explains. Currently, they are in the advanced stages of negotiation with startups from half a dozen countries across the region, such as Bangladesh, India, Mongolia, and Thailand.
Currently, the team receives about twenty investment opportunities every week, and are actively curating the best through a screening process. Their experience working in frontier markets has proven invaluable in this aspect, allowing them to tap into a network of local market experts across the globe who “are always the first to review a potential deal,” the team states.
Some of the criteria they look out for are similar to what traditional VC firms identify: traction, potential for scale, and an experienced and capable management team. “We also want to ensure that the deal has a high probability of success when it is launched on our platform, so we often check with key investors in our network to confirm interest first,” Virgil explains.
Once that hurdle is cleared, term sheet negotiations will be done with the company, and then posted up on the website.
Three months into its beta, Emerging Frontiers has over 4,000 registered users and has just launched two investment deals. One is for Emerging Frontiers itself – they are currently raising a seed round to further scale the platform – and another for US-based telco-in-a-box provider Endaga, that is active in Indonesia and Pakistan. The latter is looking to bring in another US$400,000 to add on to the US$800,000 it raised recently.
Ahead of the official launch, Virgil reveals that they have “several commitments for both opportunities” lined up already.
Looking forward, the team is now working to “build a complementary yet fully integrated frontier and emerging market news and analysis portal that will tell stories of entrepreneurship, investment analysis, and market overviews, and other off-the-radar stories from these markets.” This is because Virgil believes investing is a “very social activity as people like to talk about their investments with others,” and he hopes to facilitate this through the creation of an in-house social network.
Additionally, he is looking at forming syndicates of investors – local market experts who allow other investors to follow them into selected opportunities. It’s an idea reminiscent of AngelList Syndicates.
“[This is] an initiative that we are very excited about, and is a much-needed innovation in emerging markets investing. We will soon host a rich variety of opportunities, across multiple geographies and industries,” Virgil says.
See: Myanmar’s startups are on their own for now, but founders have hope
This post New crowdinvesting site wants to bring money to startups in emerging markets appeared first on Tech in Asia.
New crowdinvesting site wants to bring money to startups in emerging markets
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