AAA What 500 Startups sees in emerging ecosystems

What 500 Startups sees in emerging ecosystems

500 Startups was the most active global venture capital firm of 2019 and the second most active global VC firm in 2020. With more than 2,400 portfolio companies in over 75 countries, the company works with 5,000-plus founders. The following three pages identify the hot regions and deals it is seeing in emerging markets:

Latin America

Although still fairly nascent, CVC is evolving in Latin America, led by Brazil, where signs point to continued momentum. 500 saw a significant increase in regional venture activity over the past year, propelled by Brazil.

E-commerce is accelerating, another positive indicator for the ecosystem, while exits have picked up in Brazil too, with a crowded IPO pipeline recently. That is all driving interest, with large corporates not wanting to miss the boat.

Brazil is producing sizeable deals with CVCs firmly in the mix. São Paulo neobank Nubank kicked off 2021 by raising a $400m series G round, bringing its total funding to $1.5bn and making it one of Latin America’s most valuable financial institutions. Chinese tech giant Tencent returned to participate in the round after having previously invested sizeable tickets. In September 2020 Brazilian digital bank Neon Pagamentos raised a $300m series C with participation from Paypal Ventures and Spain’s BBVA through Propel Venture Partners.

A significant amount of CVC interest in Brazil has come from global companies in recent years through the Corporate Venture in Brasil event series arranged by Global Corporate Venturing and Apex-Brasil. Brands such as Intel, Cisco, Microsoft, Qualcomm, Monsanto and BASF have all been active in the local ecosystem. One notable player is Spanish telecom Telefónica, which has long been active in Brazil through its Wayra accelerator programme and in 2020 invested in São Paulo’s Redpoint eVentures to access local startups.

Overall, it has taken time for Brazilian brands to embrace CVC, with exceptions such as Embraer. But key players are getting into the game. That includes oil giant Petrobras, the bank Itaú, brewing company Ambev and cosmetics company Natura, among others.

Outside Brazil, the CVC landscape is still fragmented in Latin America, but there are promising signs. In Mexico, bakery goods maker Bimbo created a venture arm in 2017 and cement maker Cemex launched a CVC arm in Spain, while in Argentina there is CVC activity coming from energy firm YPF and online marketplace Mercado Libre.

Spain’s Telefónica is making a wider impact too. Last year, its accelerator Wayra announced it would shift to become a CVC fund in Spanish-speaking Latin America that targets medium-sized tech companies.

Mexico produced a significant startup deal linked to CVC in early 2021, with online supermarket Jüsto, and 500 portfolio company, raising a $65m series A round. That is the largest series A raised in Latin America in the past decade, according to Techcrunch. It followed multiple seed rounds in 2020 with participation from corporates including Bimbo Ventures and the CVC for Mexican beverages producer Femsa.

ProntMed (500 Startups portfolio company in Brazil), an electronic health record company, received an investment from Fleury
and Sabin.

Conekta (500 portfolio company in Mexico), an online payment platform for banks and financial institutions, raised capital from Femsa Comercio, among others.

Monsanto Growth Ventures made an investment in Grao Direto, a mobile-based grain marketplace.

Southeast Asia

China, Japan and Korea dominate APAC’s corporate venture capital (CVC) landscape, but Southeast Asia offers plenty of appeal with a large and diverse population, a growing talent pool, solid underlying economies and advancing infrastructure. Looking ahead, 500 Startups expects Japanese CVCs should increase activity in Southeast Asia, joining local corporate players in a region where new CVCs are concentrated around telecommunications, financial services and real estate.

Southeast Asian markets have each produced local CVC leaders. In Singapore there is Singtel Innov8, while Malaysia has Sunway Ventures, Indonesia has Sinar Mas Digital Ventures and in Thailand there is Siam Commercial Bank’s Digital Ventures, among others. The Philippines recently saw a key development: in late 2020 the conglomerate Ayala Corporation closed a $180m technology innovation fund, creating a CVC vehicle rivaled regionally only by Singtel Innov8. The fund’s first investment went to Transcelestial, a Singapore space tech startup and 500 Startups portfolio company.

As demonstrated by Singapore’s recently unveiled Corporate Venture Launchpad  announced through its 2021 budget – 500 Startups is seeing a rise in corporates trying to cultivate internal innovation and entrepreneurial talent through intrapreneurship training while also bridging the skill and talent gap by tapping outside sources.

Regionally, there is continuing demand for corporate-sponsored accelerator programs and startup sourcing initiatives to help build a pipeline and access the latest technologies. One way 500 Startups has heped is by powering an accelerator for Malaysian energy company Petronas.

For local accelerators, 500 Startups is now going beyond a standard curriculum-centric program by designing and helping partners focus more on well-scoped, time-boxed, proof-of-concept projects. With an eye on CVC due diligence, this programme design facilitates the assessment and validation of a startup’s technology and use case for CVCs.

Middle East and North Africa (MENA)

MENA’s CVC landscape is nascent compared with Southeast Asia or Latin America, but Saudi Arabia serves increasingly as a regional activity hub. Major corporations embraced CVC over the last decade, headlined by oil giant Saudi Aramco. It has since amassed a global portfolio of more than 40 companies. Other key players pursuing CVC include Saudi Telecom and industrial giant Sabic.

Media conglomerate Middle East Broadcasting Center has a strategic partnership with leading regional streaming service Anghami.

MENA’s tech ecosystem saw a major milestone in 2019, when Uber acquired local ride-hailing platform Careem for $3.1bn. That also proved a notable development for regional CVC, as Saudi Telecom’s venture arm was one of Careem’s early investors.

Signs point to further potential for CVC in Saudi Arabia, which has a fast emerging startup and technology ecosystem featuring several notably active corporate investors. Those include Riyadh’s Raed Ventures, a CVC established by conglomerate Almajdouie Holding, and Dammam’s Vision Ventures, which is attached to ICT company Sahara Net. Both have been busy recently, with Raed, for example, funding rising tech local companies Swvl, Bayzat, Trukker and Foodics (the latter two are 500 portfolio companies).

Dubai is a global business hub, and we expect the United Arab Emirates to gradually generate CVC activity. One example is CE-Ventures, a CVC created by conglomerate Crescent Enterprises. Its portfolio today lists holdings in Didi Chuxing, Nerdwallet and Cohesity.

Outside the Gulf, Jordan-headquartered Arab Bank—one of the region’s largest financial institutions—has a fintech-focused CVC arm. Called AB Ventures, it has invested in seven companies.

Zain, a major Kuwaiti telecom, runs an accelerator for domestic early-stage tech startups. It is on its sixth programme.