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Startups that win in emerging markets: what are they made of?Startups that win in emerging markets: what are they made of?Startups that win in emerging markets: what are they made of?

Startups that win in emerging markets: what are they made of?

What are the most successful startups in markets like Latin America made of? Allen Taylor, of venture capital fund Endeavor Catalyst, gives his answer

Allen Taylor's been around the world – and we're not only talking about that year when he traveled 300,000 miles on an airplane. Although born in the United States, Allen has seen innovative entrepreneurship flourish in regions like Africa, Southeast Asia, and our very own Latin America. We know he left all these places with more than just photos and friends: he's also seen what it takes for startups to win in emerging markets.

Allen is a managing partner at Endeavor Catalyst – the venture capital fund built to support the entrepreneurship non-profit Endeavor. Created about a decade ago, Catalyst has just raised US$292M for its fourth fund and plans to invest in 100 to 200 startups.

Wanna know more about Endeavor Catalyst’s plans for fund IV? We got you covered. But Allen also answered questions that every startup founder in Latin America wants to know: what is the pattern seen in startups that win in emerging markets? And since past performance is no guarantee of future results, what are some trends and promising segments for innovative businesses in emerging markets for the next few years?

The winning pattern in startups from emerging markets

Allen says it's not only him that noticed that there are patterns for startups' success across markets. Global similarities are also on the list of other international investors in startups at later stages, such as General Atlantic and Riverwood.

There are some conclusions worth highlighting specifically from Endeavor's perspective, though. The first one is that there's a very clear pattern around regional winners.

These are business models that will exist in different places around the world, and there will be a national winner in big markets, like Brazil and Mexico. Or you can have a regional winner when you include smaller markets in your mix, like selling to Latin America as a whole.

The number one example of this trend is Mercado Libre. Mercado Libre was the eBay for Latin America and still is today. Allen gives us more examples of national and regional winners in the region: Clip in Mexico, Creditas in Brazil, and Rappi across LatAm.

There's a new trend on the block: going global

We mentioned some stories from 1st generation entrepreneurs. But Allen sees an interesting trend: as we get into the 2nd and 3rd generation of entrepreneurship, you see more companies with global ambitions coming out of Latin America

And this reflection comes not only from being a managing partner at Endeavor Catalyst. "I sit on the board now and I'm a small LP and kind of advisor to a seed-stage fund called Alter Global. [...] Alter's entire thesis is that there are patterns and trends emerging from, frankly, markets like India, Indonesia, and Brazil, and that they're going to spread to all the other emerging markets. And I think that's very real for the next decade."

[Innovation] is no longer something created in Silicon Valley and copied elsewhere in the world. I think innovative business models are actually coming out of places like Brazil, India, or other markets. (Allen Taylor)

It's not only business creation that is going global. The three biggest factors for company building in Endeavor's view are access to capital, access to talent, and access to markets. And they're all going global-first.

"I've actually written a couple of blog posts about the capital one. This concept of decoupling capital from geography, where it doesn't really matter anymore and you can invest all over the world. I think it's super powerful, and will probably end up being one of the biggest impacts of everything we've lived through over the last two, two and a half years."

Allen credits this shift from regional to global partly to the behavioral changes brought by the covid-19 pandemic. People took chances because they were forced to do so. People never would have done virtually things like working, but then ended up saying "oh, wait, this works! We can do it like this!"

On global-first access to markets, a good example from Endeavor Catalyst's portfolio would be the content production startup Hotmart, from Brazil. Or the management software Pipefy, which was built in Brazil but sells in the US. Even the foodtech NotCo, born in Chile but also with their eyes set on the US. 

"It used to be 85% regional and only like 15% of these global businesses [in Endeavor Catalyst's portfolio]. If I look at last year, it's almost 25% or 30% that are global or have global ambition", says Allen.

Sometimes this trend emerges from day 1, like what happened to Pipefy and NotCo. But other times it's an evolution from the pattern of regional winners. After completing their first domination quest, they upscale their ambition to become global. 

That's the story of the cross-border payment solution dLocal, and also of the used car marketplace Kavak, which announced an expansion to Turkey recently. "[Kavak is] kind of really saying 'hey, we can do this in these markets all over the world'", says Allen.

Big opportunities, waiting to be conquered

We want names: what are some of the biggest opportunities that startup founders in emerging markets can potentially tackle?

"For folks out there, working in companies and thinking about businesses that they might start in the future, understanding where each market is along the spectrum of development of the venture and entrepreneurship ecosystem is important", says Allen.

Let's explain: the development of venture and entrepreneurship comes in waves, whether you're in Southeast Asia, China, India, Africa, the Middle East, or Latin America. 

Wave one is consumer, commerce, and digital infrastructure. Mercado Libre it's a classic wave one, getting the population ready to buy and sell products online.

Wave two is technology coming to disrupt and enable the biggest parts of the economy. "You can kind of map it out and look at financial services, healthcare, education, food and beverage, agriculture, transportation… The biggest parts of the economies will get digitized and technology will come to them. And this will create opportunities", says Allen.

Wave three is where things get interesting for Latin America, in the vision of Endeavor Catalyst's managing partner. That's the digitization of the entire small and medium businesses economy, which is a huge part of the economy in places like Brazil or Mexico. Only in Brazil, 30% of GDP and 54% of formal jobs come from SMBs.

Think about all of the many services for small and medium businesses that are still being done on pencil and paper, and how big the opportunity of digitizing them is. These are businesses like Contabilizei, Conta Azul, or Omie in Brazil. And there are going to be more of those in the future, says Allen.

Why is it so important to realize which wave your country is in, and build a business that rides it like a professional surfer? "If you try to build a wave three business today in Pakistan, it might be tough. But if you're doing it in Brazil, it's a great moment to do it."

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