Venture capital firm Amadeus Capital Partners is using its MTN-backed Amadeus IV Digital Prosperity Fund to target the growing middle class in emerging economies, in which the increasing proliferation of online access is set to lead to significant potential for the transfer of business models already being popularised in developed nations, according to Pat Burtis, a partner at Amadeus.
The Digital Prosperity Fund will target startups in a range of emerging markets, investing between $7m and $12m over the life of an individual company. South Africa-based telecommunications company MTN is the cornerstone investor, having provided $75m in July 2013.
“We had our first close last year on $75m,” Burtis said. “We see MTN as a great partner for us. They began in South Africa and have been extremely entrepreneurial across Africa and the Middle East. Given their history of rolling out new products and services in developing markets, they were interested in getting some visibility in, and access to interesting technologies and business models outside of Africa, as well as those within Africa. So we were very keen to have them as a partner in the fund.”
The fund made its first investment late last month, contributing to a $9m early-stage round raised by Bidu, the Brazil-based owner of an online price comparison service for insurance. A large factor in Amadeus’ formation of the fund is a rapidly growing middle class spreading in emerging economies across the world, which provides a ready audience for online services.
“The fund is targeting companies serving the emerging middle classes globally, so Africa, Latin America, Middle East and Asia, and specifically technology companies in traditional T&T sectors in the sense of mobile, internet services and digital media,” Burtis said.
“We did a fair amount of research on this before launching the fund. We picked 19 countries, and if you aggregate the population and income of the middle class and top quintile in those 19 emerging markets, you have a population of 300 million people with a GDP per capita of $20,000.
“This is not the bottom of the pyramid, it is essentially the same economic force as Europe 10 years ago if you look at the numbers.”
Another important part is the proliferation of internet and mobile technology in those markets, bringing ever larger numbers of people online and allowing them to engage with online services for the first time.
The enhanced flexibility offered by the cloud also means that companies can be set up more easily in these countries, allowing for the transfer of models such as Bidu’s price comparison service to new markets where they can be disruptive.
“The ‘cloudification’ of so many things means that you can now start a business cost-effectively and efficiently almost anywhere,” Burtis explained. “You can have storage, computing power, development capabilities anywhere in the world and this means that it doesn’t really matter where you are when you’re starting a company.
“We looked at these three factors and said there are actually the seeds of some very exciting technology and business models that can lead to some really great companies in these markets. In the case of some, like Brazil, you have existing large industries like the insurance market where the internet has not been a factor yet, so we like that dynamic where you can come in and augment an existing industry with a new channel.”
– Photo of Pat Burtis courtesy of Amadeus Capital Partners