Capria Ventures announced the first close of its $100 million fund in April 2023. It plans to invest in 20 to 25 startups across Africa, Asia, and Latin America.
As a fund focused on the Global South, it previously invested in fund managers rather than investing directly in startups. That approach was down to a belief that local context was crucial for successfully building and investing in startups.
Following the success of that approach and the creation of an ecosystem of founders and fund managers, Capria Ventures' Fund II will now directly invest in startups but will continue to work with local fund managers where necessary.
Susana Garcia-Robles is a senior partner at the firm whose early professional experience came from working in the US' non-profit sector. However, the Argentine wanted to give back to her region.
Following a friend's suggestion, she joined the Inter-American Development Bank (IDB) for an internship while getting a masters in international economic policies from Columbia University. Garcia-Robles returned to the IDB where she spent the next two decades leading investments in Latin America before moving on in 2021.
"I wanted to go to the private sector and I wanted to take my expertise developed from Latin America to other emerging markets, so obviously Capria was a perfect fit for me."
Building local startup ecosystems
For many emerging markets, the bulk of startup funding comes from venture capital firms in the US and Europe. But while these firms have a lot of money to throw around, what they frequently lack is an understanding of the local business environment. Success, therefore, often depends on their ability to collaborate effectively with local partners.
Startup ecosystems are made up of entrepreneurs, regulators, investors, and academia. These groups that should ideally work together often struggle to do so because they do not understand the needs of the other parties.
However, Garcia-Robles explains that the first step should be getting all the necessary stakeholders in a social setting. In 2016, she co-founded the Impact Investment Task Force for Argentina, Paraguay, and Uruguay where regulators, entrepreneurs, and investors worked together to grow their respective startup ecosystems.
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With limited time for socialising, she advises founders to carefully select the events they attend to ensure that they meet the best partners for their startups.
"Business is about people, so part of how you put the dots together is through social networking," she says, "whether it is creating specific groups where people can meet or having these events that are very valuable, I always tell entrepreneurs to choose the events they are going to go to because they don't have all the time in the world."
She stresses the importance of founders getting in front of as many investors or fellow entrepreneurs as possible at these events.
In the past three years, logistics and cryptocurrency startups in Nigeria have experienced what could happen when startups get on the wrong side of policy decisions. In some ways, the Nigeria Startup Act is a response to these developments, highlighting the need for startups to engage with regulators.
As the only party frequently interfacing with entrepreneurs and investors, Garcia-Robles points out that venture capital associations are well-placed to relay the concerns of both parties to the regulator. Most African venture capitalists agree that it is crucial to get local investors interested in venture capital, but something else they agree on is the difficulty involved in getting local investors to consider venture capital as a worthy asset class.
Garcia-Robles' tip for this group is to paint a picture of the future while encouraging them to set aside a portion of their funds to experiment with venture capital. The funds set aside must be funds the investor is comfortable with losing.
"I would say at least you have to invest in five startups or three startups per year for one or two years. Never do it alone. Go with somebody who knows and has done it before. Learn from them how to engage with the entrepreneur and what questions you ask."
Despite all this, she acknowledges that not all investors will choose to add venture capital to their portfolios.
Where are the exits?
Many people in Nigeria's startup ecosystem believe Stripe's acquisition of Paystack in 2020 was a watershed moment for them. The deal helped investors see the potential for a huge exit from Nigeria.
The next year, startups in the country raised more than $1 billion as Flutterwave and OPay became unicorns.
Exits are important for venture capitalists. Since they do not get dividends from the startups they back, their only hopes of getting a return on their investment is an exit through an acquisition, an IPO, or having their stakes in the company bought by another investor.
"Emerging markets don't get validation by international investors if we don't prove [that] companies can be sold and investors can get their money back with a return," Garcia-Robles says.
Due to an undeveloped economy, IPOs in emerging markets are scarce, limiting the exit options for potential investors. Therefore, Garcia-Robles advises investors to ensure that entrepreneurs understand the demands of venture capital and how venture capitalists think about exits.
She also points out that she tries to see if there are strategic investors who would be willing to buy a portion of the company or all of it at some point in the future. Investors also need to study the regulatory environment as some acquisitions could be held up by regulators.
Derisking investments in emerging markets
Investing in emerging markets carries an inherent risk. Issues like unclear regulation, underdeveloped economies, and low purchasing power often present challenges for potential investors. Therefore, getting them to part with their money for investments in these regions means helping to reduce the associated risk.
"Before you make an investment, you have to have a long-term view that you're going to be in that company at least for five years. You're not looking at exiting the company in half a year or one year."
She adds that strict due diligence must be conducted to have clarity on things such as the regulatory environment the startup will play in, the business model, the competitive landscape, the corporate governance structure, and their plans.
For any risks identified during the due diligence process, she advises investors to work with the founders to find a solution. But they can stop the investment where a solution can't be found or may be too costly.
Finally, she cautions that investors ensure the startups they intend to back have ties to local experts who can help grow their business or help with government relations.
Towards an inclusive ecosystem
You're more likely to see a male startup founder in Africa. However, Garcia-Robles is quick to point out that the situation is not unique to the continent. She adds that due to cultural barriers, women did not get into the workforce at the same time as men.
Even after working women became a common sight, they were still expected to leave their jobs when they had children. Add that to the low number of educated females or those in STEM disciplines and it is clear why there are fewer female founders.
Changing this begins by showcasing role models, women who have gone on to build startups even while raising children. Though she admits that women have not been able to build as many startups as men, she is careful to avoid creating a club for women.
"Women have kind of complained through the decades. 'Oh, this is a men's club.' 'They don't allow us in.' So I don't like creating women's clubs. We have to create a gender diversified club because men and women bring very different skills [that are] so complimentary and valuable."
Advice for emerging fund managers
Garcia-Robles' three tips for emerging fund managers have helped her throughout her career. She has built a strong network, focused on due diligence, and provided value beyond money to founders.
Having a strong network helps fund managers in three major areas. When fundraising, they can generate interest and close rounds faster than those with weak networks. Strong networks also help fund managers to identify and take good exit opportunities, while it aids the vetting of potential partners.
With 2021 serving as a cautionary tale, she believes that fund managers who "focus on due diligence [will] avoid falling for trends, falling in love with the company, and not understanding it."
