The global venture capital industry has experienced a significant shift in recent years, with more investments being made in startups outside of the United States. According to data from the National Science Foundation, over 50% of VC deployed globally in 2022 went to startups outside the U.S., a stark contrast to 20 years ago when the majority of venture capital went to U.S. companies. This shift has been led by countries like China, India, Israel, and the U.K., but smaller ecosystems across Europe, Latin America, Southeast Asia, the Middle East, and Africa are also playing a significant role.
A report by Endeavor Global reveals that 26% of the world’s unicorns, privately held startups valued at $1 billion or more, are now located in these emerging markets. Endeavor Catalyst, the co-investment fund of Endeavor Global, has invested in over 300 companies across 30 countries, contributing to the creation of over 50 unicorns. Some notable unicorns in their portfolio include Jobandtalent, Kavak, eFishery, Flutterwave, Tabby, and Peak Games.
However, while there has been a surge in unicorn creation in these markets, global venture capital investment activity has slowed down in recent years, resulting in fewer unicorns and a retreat of global investors from emerging ecosystems. This retreat and the reset in valuations have unsettled stakeholders in these ecosystems. Local investors are hesitant to make large investments, and there has been a decrease in the number of unique participating investors in some regions, such as Africa.
In a conversation with TechCrunch, Linda Rottenberg, CEO of Endeavor, discussed the importance of local investors stepping up their game and the need for patient and long-term capital in emerging ecosystems. She emphasized Endeavor’s role in supporting entrepreneurs and attracting global investors to these markets. Rottenberg highlighted Endeavor’s entrepreneur-first approach and its focus on building long-term relationships with founders. She also mentioned the role of Endeavor Catalyst in co-investing with qualified institutional investors in funding rounds of Endeavor entrepreneurs.
Rottenberg acknowledged the challenges of finding enough qualified institutional investors for Series A, B, and C funding rounds in Africa. Endeavor is working to seed the local ecosystem by supporting seed-stage investors and encouraging global investors to consider founders in emerging markets. She expressed optimism about the potential of markets like Nigeria, Egypt, and Vietnam in the next 5-to-10-year period, urging investors to recognize the talent and opportunities in these markets.
When asked about the retreat of global investors and its impact on Endeavor’s deal-making process, Rottenberg emphasized the importance of having a hybrid model that combines a fund with qualified institutional investors and a nonprofit ecosystem. Endeavor is committed to supporting entrepreneurs and exploring options for profitability, debt financing, and equity solutions. Rottenberg mentioned the challenges of restructuring deals in African markets but expressed confidence in the growth potential of these ecosystems.
Rottenberg addressed concerns about the lack of viable growth-stage startups in Africa, attributing it to the high valuations seen during the hype years of 2020/21. She emphasized the need for a strong local investor base in emerging ecosystems, particularly at the growth stage, to ensure continued investments even when global investors pull out. Rottenberg encouraged local investors in Africa to invest now, highlighting Warren Buffett’s advice to be greedy when others are fearful. She also emphasized the importance of an extended time horizon in emerging markets, citing examples from Mexico and other successful markets.
In conclusion, the global venture capital industry is witnessing a shift towards investments in startups outside of the U.S. Emerging ecosystems across the world, including Africa, are attracting investments and creating unicorns. Local investors play a crucial role in supporting the growth of these ecosystems, and the involvement of global investors is essential for their long-term success. Endeavor is actively working to support entrepreneurs, attract global investors, and build strong local investor bases in emerging markets.
