Venture capital in emerging markets is harder to come by than it is in developed nations. According to Preqin, managers in emerging economies have raised an aggregate USD 47 billion raised in the past decade, but this amounts to only 16 percent and 43 percent of capital raised by firms based in North America and Europe, respectively. While high volatility and short track records are keeping many investors away, there are growing reasons for the global VC community to consider emerging markets in their portfolios.
Sub-Saharan Africa, in particular, demonstrates the potential of VC-backed companies. A recent article by Maurizio Caio in Proparco’s Private Sector & Development makes the case for building better conditions for unicorns, entrepreneurial companies that achieve USD 1 billion in valuation, to succeed in the region. The article outlines clear strengths of emerging economies in this area including:
- large underserved markets,
- a growing supply of early stage and growth capital,
- recent examples of unicorn companies accessing the global VC market, and
- the high potential of companies focused on tech-enabled solutions.
The article continues to explain the imperative to support a more robust local VC industry. Local governments, the article explains, can “make a difference by creating a supportive environment through regulation, tax incentives for VC investment, and building economic stability to attract more capital.” The author also points to an important inflection point. As VC-backed African companies complete their first life cycle from seed to exit, he recommends that new start-ups be held to the same rigorous standards as their worldwide counterparts to generate the real success stories that attract capital.
Contributed by Leah D. Barto.