Since its launch nine years ago, seed stars has invested in 81 companies in more than 30 emerging countries. Now it has set itself the target of investing in 100 more startups with the launch of its second emerging markets seed-stage fund, called Seedstars International Ventures II (SIV), with an initial close of $20 million. The fund is expected to total $30 million and its limited partners include the International Finance Corporation (IFC), Visa Foundation, The Rockefeller Foundation and Symbiotics. The company plans to invest in pre-seed and seed-stage startups in Asia, Africa, the Middle East and Latin America over the next three years, with follow-on investments up to Series A.
Some examples of Seedstars’ portfolio companies include Pakistani e-commerce startup Dastgyr; Saudi Arabian cloud-based POS and restaurant management system Foodics; Indonesian job market MyRobin; Latin American restaurant CRM OlaClick; and the Nigerian B2B marketplace Omnibiz.
Patricia Sosrodjojo, partner at Seedstars, told londonbusinessblog.com that the second fund’s investment thesis is similar to its predecessor: getting in at a very early stage, into tech ecosystems in emerging markets, and looking for startups that have the potential to create a make a broad impact.
“I see it as three different levels,” she said. “The first is the fact that we come very early, we are usually one of the first institutional checks after the angels so we can help catalyze capital. The second are the countries that we cover, where the ecosystems are not that developed yet. And the third is that we look for business models that can scale quickly, similar to the normal VC model, but that they can affect a lot of people. We align with many of the ESGs.”
One difference between SIV II and the first fund is that it can write larger checks. Initial checks will be between $150,000 and $250,000, with possible $500,000 follow-up investments. It will also have a tighter geographic focus. The first fund invested in 30 countries, and the second fund will also have a global outlook, but will focus on one to three countries in each region.
These are mainly Indonesia, Vietnam and the Philippines in Southeast Asia (although Sosrodjojo said SIV II will be looking at other countries as well); Pakistan and Bangladesh in South Asia; Egypt in MENA; and Mexico in Latin America. Her vision of Africa will be more widespread; it has already made investments in Kenya, Tanzania and Nigeria.
SIV II plans to monitor 25% of its portfolio.
“We are really looking to diversify our holdings, leveraging the lessons from one market to another,” says Sosrodjojo. “For example, if we’ve invested in a B2B supply chain game in one country, we can learn the lessons from that and apply it to another geographic location. We see that different trends can occur at different times in different markets, so it helps us to see the typical trajectory of a particular sector.”
The fund will focus on vertical markets, including finance, trade, health, employment and education. In particular, “financial inclusion is a challenge in many of these markets. It is something we will continue to focus on,” said Sosrodjojo.
One of the things that makes SIV II unique is that it has a mixed financing structure with facilities offered by IFC, one of its LPs. 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 these investments, because there is a first loss guarantee. This means that if SIV II makes an investment in an IDA country like Senegal and the company does not do well, part of the investment will be covered by the structure.
To help them scale, Seedstar portfolio companies participate in a program called the Value Creation Platform, which has a network of 1,300 mentors and includes a quarterly “mentor-led sprint” called the Growth Track. Supported by Seedstars’ entrepreneur-in-residence Jon Attwell, formerly of Naspers and Prosus, with operators experienced working at high-growth companies such as Careem and SkyScanner. During their time in the Value Creation Platform, companies can run experiments to see which growth strategies are best for them.
“Startups can cover different modules, as if their key is acquisition,” says Sosrodjojo. “They can really look at their acquisition strategy and see if it’s not working well. Together with their mentor and our entrepreneur-in-residence John, they will devise a strategy, get to work with it, monitor it and see if it works. Each startup will decide which experiment they want to do and decide whether they want to translate this into their operation or not.”
Gender equality is also important to Seedstars, pointing to data showing that: 11% of companies those raising seed capital in emerging markets are led by women. The Seedstars team has already achieved a 50:50 gender split and the first fund had 26% female co-founders. Seedstars has challenged the second fund of at least 30% of its portfolio companies with female founders or leadership. Another criterion is the support of local founders.
“There are cases where there are expert founders with really good startups, but we do try to cultivate local talent,” said Sosrodjojo.