Emerging markets, exponential returns for VCs

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Hello reader,

I have a friend who freelances for a couple of US-based firms. He’s pretty well-off, at least by our standards. When I asked him how he manages such a comfortable lifestyle, he said, “Earn in dollars, spend in rupees.”

This is the reality for thousands of freelancers in Pakistan, India, and Bangladesh, countries with depreciating currencies and a wealth of soft talent.

The same goes for exporters to the US or other Western countries. Production costs are low, but the selling prices are high. Sometimes, governments even devalue their own currency to keep the country’s businesses profitable.

But there’s a catch. To grow further, these markets need investments, and investors need profits. In developing countries with unstable currencies, investments can be risky.

If investors put money into the market, they have to beat inflation and currency depreciation to make a profit. The latter is what today’s premium story focuses on – how do VC firms deal with rapidly depreciating currencies when investing in emerging markets?

Today we look at:

• VCs’ guide to beat currency depreciation
• Snowflake acquiring Reka
• Other newsy highlights such as Tesla building a data center in China and Mito Health joining YC

Premium summary

Can savvy VCs outsmart currency depreciation in emerging markets?

Image credit: Timmy Loen

Emerging markets have long struggled to gain investors’ trust due to many factors, one of which being the fast depreciation of their currencies. However, by investing in high-growth tech startups early on, VC firms can capitalize on the strong economic growth and tech optimism in these regions, generating returns that outpace currency depreciation.

• Venture edge: Venture capital’s high-risk, high-reward model is well-suited to emerging markets. While several factors can inhibit growth, investments in rapidly expanding sectors can achieve returns that outstrip both currency depreciation and traditional investment options in these regions.
• Prime path: Successful VC investment in emerging markets hinges on identifying “primed markets.” These refer to markets where macro conditions can give rise to tech startups that can dominate their respective local verticals.
• Investor evolution: Emerging markets are attracting diverse investors, including tech-savvy heirs of local conglomerates and large institutional investors seeking to shake up their portfolios. These markets also have a unique founder landscape, with a blend of foreign-educated founders with startup expertise and locally trained founders with deep market knowledge.

Read more: How VCs can beat currency depreciation

Snowflake contemplates billion-dollar scoop of SG-based AI startup

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