What Do Venture Capitalists Look For in Emerging Markets?

by Zahra Shah

According to Investopedia, the definition of an emerging market economy is:

The economy of a developing nation that is becoming more engaged with global markets as it grows. Countries classified as emerging market economies are those with some, but not all, of the characteristics of a developed market.

As an emerging market economy progresses it typically becomes more integrated with the global economy, as shown by increased liquidity in local debt and equity markets, increased trade volume and foreign direct investment, and the domestic development of modern financial and regulatory institutions.

Currently, some notable emerging market economies include, Mexico, Russia, Pakistan, Saudi Arabia, Brazil, Kenya, Nigeria and Ghana.

Emerging markets are increasingly grabbing the attention of investors, with more investments seen in Pakistan than ever before. Though whatever the market, the core fundamentals of what investors look for in a business don’t seem to drastically change. Having spoken to investors like Anthemis and SpeedInvest, those common factors are:

  1. Team

Pre-seed and Seed investments are about investing in the team. If investors believe that the team can execute the business effectively, then this factor can bypass other factors such as a country’s socioeconomic factors.

When looking at the team, Investors are looking to answer the following questions:

  1. Has the team executed before?
  2. Do they have good experiences coming into this startup?
  3. Is there good chemistry between the team members?
  4. Are they committed to the startup and ready to persevere through the challenges they will face?

Brand recognition can help with this. For example, if the founder of a ride-hailing app is an ex-Careem or Uber employee, then this can positively impact their credibility. Similarly, VCs may also look at the educational background of the team.

VCs aren’t silly, they know that it is likely that 8 out of 10 of their investments will fail. But the two that will make it is what makes it all worthwhile. Looking at the team’s determination and chemistry between them is crucial for investors to ensure they have the right people.

2. Market Opportunity

Geography isn’t always a focus for investors, but there are some questions that VCs must ask themselves when looking at the environment a startup is coming from and where they are headed. Those questions might be:

  1. Is there a market opportunity in the country?
  2. Is it a regional or global opportunity?
  3. Does the market have large economic growth to sustain the innovation?
  4. Is there a growing and young population?

Pakistan, for example, has a huge population of over 220 million people; 63% of which are between the ages of 15 and 33. The country has is geopolitically stable, is strategically positioned so that startups can grow into Asia and the Middle East, it has a large diaspora community and its neighbouring countries are also flourishing - crucial factors for funds.

A global brand is yet to come out of the region like Ali Baba or Shein. So investors must ask themselves, is the market opportunity something I want to do?

3. Investment Dynamics and Market Knowledge

Even if the team has the relevant background to execute the business,  investors need to know the local market perspective. If they don’t have this knowledge, they need a co-investor who understands the market. Having co-investors who are familiar with the market and have international relationships  can help with this to minimise risk.

International investors need to be able to trust and build relationships with co-investors in the market they are looking at. However, the challenge here is that the investor ecosystem, on a global level, is not mature enough for such dynamics and relationships to be made easy.

However, this doesn’t mean that some funds shy away from being lead investors in these markets. They do exist.

4. Regulatory Environment

The MENA region in particular has a wide spectrum of regulations. The quality and cover those legal frameworks are offering companies and end customers differs immensely from the UAE to Saudi Arabia, to Palestine.

The struggle comes when no investor wants to be the first to invest in a country with changing, weak or unknown regulatory environments. Once other investors have gotten involved and de-risked, then investors don’t mind being the fourth or fifth investor in the region.

However, even a weaker regulatory environment can be overlooked to a certain extent if the team is strong and determined enough.

5. Things to Avoid

Although VCs may focus on specific sectors, there seems to be one common theme when it comes to avoiding certain markets.

VCs want to invest in big markets where multiple players are active. The more fragmented a market, the better it is for startups to thrive. Of course, a VCs bet is that the startup can build as much market share as possible - a monopoly, eventually. But markets that are oligopolistic or monopolistic structured by the incumbent are difficult for startups to break into.


The world of Venture Capital isn’t as elusive as it may seem, especially for startups in emerging markets. Although some socioeconomic and legal factors in a country may be a hurdle for investors, the common theme seems to be that if the team is dedicated and experienced, and there is a viable market opportunity, the possibilities are open.

Special thanks to Daniel Keiper Knorr and Farhan Lalji for their input.

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