The Role of Seed-stage Capital and the Steps for Start-up Success
Director of Portfolio Engagement, Venture Lab
Venture capital globally has been booming; according to Preqin, the aggregate value of investments in early-stage start-ups rose by more than 50% in 2014. According to EMPEA, the amount of venture capital invested last year in emerging markets increased 150% compared to 2013, and the trend is continuing unabated this year.
Accion Venture Lab is a seed-stage impact investor, providing capital and support to start-ups in the financial inclusion space globally. Financial inclusion is about increasing access to and quality of financial tools, products and services to underserved consumers globally. Our companies typically leverage technology or employ some business model or process innovation to achieve this. We currently have portfolio companies that are active in the Philippines, Malaysia, Thailand, Singapore, Indonesia, China, India, Kenya, Tanzania, Ghana, Rwanda, Brazil, Mexico, the United Kingdom and the United States, and have looked at investments in many more markets across South and Southeast Asia, Sub-Saharan Africa, MENA and Latin America.
For a start-up to succeed, it takes more than money backing a good idea. As an active, hands-on investor, we have seen that the biggest challenges faced by early-stage enterprises are in the areas of sales and marketing, human capital and access to capital. These challenges exist at both the company level and at the market level.
At the market level, companies are more likely to succeed in a market that is enabling and has a strong entrepreneurial ecosystem. This includes the presence of angel investors (often successful entrepreneurs themselves who can provide mentorship and capital to startups in their earliest days); other venture capital and private equity investors (who have helped create an understanding of the value of external capital and stakeholders); open and enabling regulation (particularly relevant to investors in the financial services sector); growing mobile phone/smartphone and internet broadband penetration (again especially relevant for those in the FinTech space); strong local talent pools; and communities and support structures for entrepreneurs. Accelerators and incubators can help provide those support structures and networks; the ones we believe to be most effective are sector- or stage-focused and are able to provide entrepreneurs with targeted and tactical support instead of merely a co-working space and some generic advice. Moreover, a level of political and economic stability helps to enable all of the above. As such, countries like India, Kenya and Mexico have been major areas of focus for us since they meet the above criteria.