After a strenuous first half of the year, many investors and entrepreneurs are looking to fast-growing hubs and emerging markets around the globe for growth opportunities.
Following a record year in 2021 both in terms of the volume and number of transactions, Russia’s VC market has taken a hit in the first six months of 2022 following Russia’s invasion of Ukraine in February.
The latest numbers speak for themselves: Russian companies closed 85 deals valued at $658 million in the first half of this year compared to 228 transactions during the same time period last year – valued at $1.9 billion, according to data compiled by analytics firm Dsight. As the overall number of deals tanked, the first half was dominated by one transaction: remote productivity app Miro’s $400 million Series C round that closed in January.
With many founders and investors fleeing or pausing their operations in Russia, this data isn’t surprising. The question is- what does the future of Russian-speaking VC space look like going forward?
Over the last six months, investors have seen entrepreneurial talent adjust, adapt and bubble up in new startup hubs around the world.
“There are new clusters of entrepreneurs being created in cities like San Paulo, Dubai, Istanbul, Jakarta, Bangladesh, Mexico–I’m sure that we will see a lot of very interesting and powerful projects started in 2022 in these locations,” says Alexey Solovyov, a Dubai-based investor and founder of A.Partners investment firm [no relation to the author]. “We are seeing a flow of serial entrepreneurs who are looking for the best markets for the application of already-working business models in both B2C and B2B segments.”
Investors like Solovyov plan to follow these startups and entrepreneurs and focus on these new innovation hubs, wherever they are. A lot of them are based in less developed markets, offering greater opportunities for growth. A.Partners is specifically looking for entrepreneurs with successful exits in their home markets who are now looking to replicate similar business models in fast-growing emerging markets.
“Many products and services at the intersection of the consumer market and IT that we are used to (Fintech, EdTech, FoodTech, HR, creator economy), have not yet penetrated so deeply into the lives of people in different markets,” Solovyov noted.
To support these emerging hubs in Latin America, A.Partners have organized a community of founders targeting the Latin American market, helping entrepreneurs to share contacts, expertise, and even relevant talent to build their businesses.
Fintech and education tech are among the fast-growing sectors in the Latin American startup space, boosted by growing consumer demand: there are more than 10 million small and medium businesses in the region. This region produced six new fintech unicorns last year alone.
“The fintech companies have been at the forefront of implementing digital strategies and processes that help local businesses operate efficiently, which in turn helps boost the hyperlocal and nationwide economy,” Solovyov notes. “In a few years, we expect to see the same chart for the EdTech market.”
Currently A.Partners’ portfolio includes a Brazil-based edtech company called EBAC Online, which raised an $11 million Series A round from A.Partners and other investors according to Crunchbase data.
The turmoil of the last half a year has accelerated and shifted plans for many entrepreneurs, and Russian-speaking founders are no exception.
“The current situation has become a driver not only for those who were going to launch in new markets, but also for those who were not going to,” Solovyov explains.
At the same time investor risk appetite and priorities are changing as well.
“Venture investors have become quite conservative in their approach to early-stage deals,” Solovyov says, noting that the geopolitical realities are transforming the VC market. “New rules of the game are established, and we are seeing the installation of new benchmarks. The good news is the demand (for certain) products will not go away: If the founder does something that the consumer really needs, then he will succeed in any case.”