This year’s EBAN Winter Summit put heavy emphasis on impact investing for startups. How do startups impact the world? We sat down with Pierre-Alain Masson, Co-Founder and CEO of Seedstars, a group investing in startups in emerging markets. We share here with you some highlights.
(Featured Image: Pierre-Alain Masson, Co-Founder and CEO of Seedstars / Image Credit © Anna Katina)
Emerging markets between challenges and opportunities
Seedstars pursues seed stage investments in Africa, Asia, the Middle East and Latam. “There are only a few established players in those emerging markets. This is a green field full of opportunities for startup products. That is what we invest in at Seedstars,” began the co-founder.
Created 5 years ago, Seedstars boasts today the largest entrepreneurship network in emerging markets. “We created our network through events, meetups, and startup competitions,” explained Pierre-Alain. One hundred twenty people are employed with Seedstars.
On stage, Pierre-Alain gave a simple example of a product order and delivery, as well as the challenges in emerging markets face. For many of the markets, credit cards are a luxury, debit cards are equally rare, and online purchases virtually unheard-of. As for South Africa, 60% of the population does not have access to grids. Finally, deliveries are made difficult due to the lack of physical addresses or simple difficulties in reaching the country by normal means of transportation.
“Startups can come up with so many ideas that would greatly impact the life of the population. They just need to adapt to the local challenges,” explained the co-founder.
Interestingly, some innovations arrive faster on these emerging markets. “This is the leapfrog effect! Some innovations are implemented easily because there is are no heavy legacy programs into which products must integrate, and countries are able to jump straight to the most innovative solutions.” Delivery of medicines by drones are now common in those countries, for example.
“In order to source the best startups, Seedstars hosts the world biggest startup competition in 65 countries located in those emerging markets, with a one-million-dollar prize!”
Building the largest entrepreneurship network in emerging markets
Emerging markets represent 2/3 of the global GDP and will continue to grow. “Seedstars aims at creating the future unicorns coming from these emerging markets,” declared the co-founder.
Thanks to the entrepreneurship network, Seedstars has a strong presence on the ground in over 80 countries and can source the right opportunities to invest. They have developed partnerships with a lot of corporates partners, ranging from governments to foundations. They also host more than 200 events per year to create meet up between startups, entrepreneurs and government officials.
In order to source the best startups, Seedstars hosts the world biggest startup competition in 65 countries located in those emerging markets, with a one-million-dollar prize! There are six thousand applications, 700 startups selected, 65 finalists, and one winner. “This initiative is our means to meet the startups, select them, and then offer them an incubation and acceleration program in our offices. In the last five years, out of the 230 companies selected, 90% are still alive!” proudly said the co-founder. Seedstars has also implemented physical hubs and co-working space in more than 15 offices where startups are incubated.
As entrepreneurs themselves, Seedstars is taking consistent measures to leverage the data they have received thus far using machine learning. “Over the past years, we received over 6000 applications each year in the context of our competition, where companies shared their data with us. We are now building a machine learning algorithm to help screen more efficiently and support the decision-making process. Obviously, the machine does not make decision for us, and we still get to pick the winner at the end!” emphasized the co-founder.
“Continued relationships with some of the largest companies in the emerging markets helps Seedstars provide their portfolio companies with an exit in the future.”
Impacting people’s live
“With 84% of the global population living in emerging markets, we see not only billions of opportunities to take in those countries, but also billions of lives to improve.” – Seedstars
Through its wide network, Seedstars can focus both on high growth companies and micro entrepreneurs. However, a strong focus is placed on finding the 6% of companies creating more than 50% of the jobs, and to, of course, support them primarily. “High growth companies create more than 200 jobs. We therefore want to focus our efforts on those companies in order to have the biggest leverage and biggest impact as well,” explained the co-founder.
Continued relationships with some of the largest companies in the emerging markets helps Seedstars provide their portfolio companies with an exit in the future.
Here are some examples from the Seedstars’ portfolio:
This Nigerian startup addressed the underserved banking market. With only a phone, people can take out a loan. They have developed an algorithm that analyzes different elements, creating a credit score and estimating the maximum loan amount they can get. Users can then have access to credit cards and order their goods online!
Based in Nigeria, this startup disburses loans to SMEs that need working capital in order to build an inventory, for instance.
This startup targets the 4 billion people in the world without a physical address that need to have access to the same services as domiciled individuals. OkHi has developed an application that allow persons without a physical address to save, customize and share their important locations via their GPS location and become easily reachable.
“There are also some local business angels willing to invest with the aim of impacting, especially the new generation of millennials that take over family business and think in a less traditional way of investing.”
Next step: scaling up
Seedstars is now preparing for the next stage: scaling up. The future looks bright given that, on one hand, there are a lot of requests from governments, corporations, and impact investors who want to target those markets. And on the other hand, Seedstars has access, depending on the regions, to between 10% to 60% of the available VC deals (over one million dollars) done on those markets through their network.
“The few local venture capitals that exist still lack a proper foundation. Therefore, they are looking to invest with us,” explained the co-founder. “There are also some local business angels willing to invest with the aim of impacting, especially the new generation of millennials that take over family business and think in a less traditional way of investing. In both cases, this is a win-win situation. They bring their network and we bring our expertise,” concluded the co-founder.