Introducing Alumni Ventures’ Emerging Markets Fund
March 24, 2021 | Ashley Brindamour
This blog kicks off Alumni Ventures’ new Emerging Markets Fund (EMF). The fund builds investors a portfolio of ~20-30 promising, venture-backed companies from emerging markets in the U.S. and internationally. It’s a chance to further diversify your portfolio, seeking opportunities in rapidly growing regions where there are outsized opportunities.
To introduce you to the fund, we interviewed Alumni Ventures’ CEO and Founder Michael Collins.
First, can you define what an emerging market is?
Mike Collins: In VC, emerging markets are regions or countries where entrepreneurship and venture investing are taking off. We think that COVID has accelerated a movement we’d already been seeing — that we’re undergoing a great “dispersion” of talent, capital, and innovation. In the U.S., we’re seeing a great number of tech startups being started and funded in new places like Austin or Miami, attracting VC money. Internally, we think we are just at the beginning of an entrepreneurship “golden age.” Abroad or in the U.S., all these markets have the potential for great teams, ideas, and money to come together and create real value.
What’s your thesis for investing in these markets?
The last 50 years have largely been the story of innovation in a few U.S. hubs: Silicon Valley, New York City, and Boston. We believe the next 50 years will be a story of dispersion in the U.S. and across the globe. Capital, technology, and talent will be much more widely spread.
I think these emerging markets are interesting investment opportunities for many reasons.
- As I noted, emerging markets are regions where there is a marked increase in great companies being formed — and that can offer more opportunities for attractive returns.
- Startups in emerging markets often “leapfrog” technologies, skipping expensive infrastructure builds to grow more quickly through cheaper technological solutions. A classic example is the use of cellphones in emerging nations, leapfrogging the landlines many developed nations have invested in.
- Emerging markets can be a valuation play, offering a chance to invest in promising ventures at better prices than in markets where venture is more concentrated.
- Alumni Ventures is a big believer in venture portfolio diversification. Investing in new markets is another way to diversify our portfolios, helping reduce risks due to a downturn in any single economy.
What will a fund investor’s portfolio look like?
The Emerging Markets Fund (EMF) invests in ventures from an emerging U.S. or international market. We’ll build a portfolio of about 20-30 deals that are diversified not only by geography, but also by sector, stage, and lead investor. We anticipate about 50% of our portfolio companies will be from an emerging U.S. market, with the other half coming from international markets. We define a company as international if it’s headquartered outside the U.S. or if their core market is international.
How are EMF deals sourced and selected?
Every Emerging Markets deal is one that is already being invested in by one of our actively managed funds. It has to pass all our vetting and approval processes. Only then do we apply the additional layer of diligence and determine whether it fits the Emerging Markets Fund thesis. We also keep portfolio diversification (sector, stage, lead investor) in mind as we select deals for this fund.
Can you give examples of the type of deals that the fund might invest in?
Actually, I can tell you about two deals that are already in the portfolio: Lang.ai and 12Traits.
Lang.ai (Madrid) is an AI tool for support teams that automates time-consuming tasks like tagging, prioritizing, routing, etc. The tool makes it a lot quicker for employers to find and use free-text data, making customer support, sales, and more easier. We participated in a Seed round led by Village Global (LPs such as Jeff Bezos, Bill Gates, Reid Hoffman, Mark Zuckerberg). The company is headquartered in Spain and has two U.S. offices.
12Traits (Berlin) is an innovative analytics platform that’s using AI and deep psychological assessment to uncover customer insights and then make them actionable. They’re initially applying their audience analytics to the gaming industry to help developers better understand, engage, and monetize their customers. Their bottom-line results are really impressive — with a 400% average ROI for customers. We participated in a Series A, co-led by Finnish and British venture firms. The company has offices in California and Germany.
What special advantages does Alumni Ventures bring to building this fund?
Alumni Ventures is particularly well suited to creating the Emerging Markets Fund. First, we’re one of the world’s most active investors — in fact, the most active early stage investor according to 2020 Pitch Book numbers. That gives us a lot of investment opportunities to choose from for the EMF, including some follow-on investments from among our ~600 portfolio companies.
Alumni Ventures is also strictly a co-investor. We invest alongside other established venture firms who have expertise in the sector and/or region — including international firms. While we perform our own due diligence, this gives us a leg up in vetting companies since these firms have already approved the investment.
If a company in the EMF portfolio is doing well, might the fund invest in a follow-on round?
Yes, and in fact we reserve ~20% of the fund for follow-ons.