Since launching nine years ago, Seedstars has invested in 81 companies in over 30 developing countries. It now aims to invest in 100 more startups with the launch of its second emerging market seed fund, called Seedstars International Ventures II (SIV), with a first 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 firm will invest in startups in Asia, Africa, the Middle East and Latin America over the next three years, with subsequent investments up to Series A.
Some examples of Seedstars portfolio companies include Pakistani e-commerce startup Dastgyr; Saudi Arabia, Foodics cloud-based point of sale and restaurant management system; Indonesian labor market MyRobin; Latin American restaurant CRM OlaClick; and Nigerian B2B marketplace Omnibiz.
Patricia Sosrodjojo, a partner at Seedstars, told TechCrunch that the investment thesis of the second fund is similar to its predecessor: to enter at very early stages, in the technology ecosystems of emerging markets, and look for startups that have the potential to make a broad impact.
“I think of it as three different levels,” she said. “The first is the fact that we get in very early, we’re usually one of the first institutional checks after the angels, so we can help catalyze the capital. The second is the countries we cover where the ecosystems are not yet that developed. And the third is that we are looking for business models that can scale quickly, similar to the normal VC model, but that could affect a lot of people. We are joining many of the ESG.”
One difference between the SIV II and the first fund is that it can write larger checks. Initial checks will be between $150,000 and $250,000, with potential follow-on investments of $500,000. There will also be a tighter geographic focus. The first fund invests in 30 countries and the second fund will also have a global perspective but will focus on one to three countries in each region.
Specifically, these are Indonesia, Vietnam and the Philippines in Southeast Asia (although Sosrojojo said SIV II will also look at other countries); Pakistan and Bangladesh in South Asia; Egypt in MENA; and Mexico in Latin America. His view of Africa will be more widespread; it has already made investments in Kenya, Tanzania and Nigeria.
SIV II plans to follow 25% of its portfolio.
“We’re really looking to diversify holdings, using what we’ve learned from one market to another,” Sosrojojo said. “For example, if we have invested in a B2B supply chain in one country, we can take the learning from that and apply it to another geography. We see that different trends can emerge at different times in different markets, so this helps us see the typical trajectory of a particular industry.”
The fund will focus on verticals including finance, commerce, healthcare, employment and education. In particular, “financial inclusion is a challenge in many of these markets. This is something we will continue to focus on,” Sosrojojo said.
One of the things that makes SIV II unique is that it has a blended finance structure with a facility provided 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 as 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 through the structure.
To help them scale, Seedstar’s portfolio companies participate in a program called the Value Creation Platform, which has a network of 1,300 mentors and includes a three-month “mentor-led sprint” called the Growth Track. Backed by local Seedstars entrepreneur John Atwell, formerly of Naspers and Prosus, with operators who have experience working in high-growth companies such as Careem and SkyScanner. During their time on the value creation platform, companies can experiment to see which growth strategies work best for them.
“Startups can cover different modules, for example if their key is acquisition,” Sosrojojo said. “They can really look at their acquisition strategy and whether it’s not working well. They will work alongside their mentor and our resident entrepreneur John, create a strategy, work with it, monitor it and see if it works. Each startup will decide what experiment they want to do and decide whether they want to translate it into their work or not.”
Gender equality is also important to Seedstars, which points to data showing that only 11% of businesses that receive seed funding in emerging markets are led by women. The Seedstars team has already achieved a 50:50 gender split and its first fund had 26% female co-founders of the business. Seedstars set a challenge for its second fund of at least 30% of the companies in its portfolio having female founders or leaders. Another criterion is the support of local founders.
“There are cases where there are expert founders with really good startups, but we’re trying to cultivate local talent,” Sosrojojo said.