#14. Investing in Emerging Markets: the superstars and the questions
The best investment deals in Emerging Markets, the last mile problem in humanitarian aid, and a source for the Brazilian tech scene.
Welcome! Issue #14. of Emerging Markets explorer 🧠covers Emerging Market investments: the most successful investment deals in Emerging Markets, the last mile problem in humanitarian aid, and DealflowBR to read upon the startup ecosystem in Brazil.
If you wonder what Emerging Markets explorer 🧠is, start here.
The best Emerging Market investment deals
By volume and gains, the best investment deals ever made are not just big tech: in Emerging Markets, Chinese companies play a significant role, as well as South African investors.
These successful deal stories are mostly anecdotal and valid today, in 20 years these great deals might be just as vigent or outdated. The things they have in common: big money, coming either from big companies or wealthy individuals, and the luck to be in the right place at the right time.
Without further adieu:
Naspers invested $32M in Tencent for a 46.5% stake in 2001. Nowadays, they own around 30% of Tencent and their investment is worth $235BN, with returns x7800. It is considered the most successful investment deal in the world.
Naspers is a South African technological company in the communications sector, which invests in Internet companies across the world. They have one of the largest Corporate VCs in Africa.
Tencent is a Chinese multinational technology company. Founded by Pony Ma, it is one of the most prominent Chinese companies and the creator of WeChat.
Softbank invested $20M in Alibaba for a 30% stake in 2000. They slowly divested, and nowadays they maintain a share of 26% worth $100BN, with a return of x5000. It is considered the second most successful investment deal in the world.
Softbank is a Japanese communication and Internet-related business, and is also notorious for his investments, such as the Vision Fund. It is one of the most interesting companies I’ve read about recently, stay tuned for a profile.
Alibaba is the Chinese giant ecommerce, finance, and cloud business founded by Jack Ma.
SIG invested $5M in Bytedance in 2012, now it’s worth $15BN for 15% of stake, making it a 3000x return.
Ruby Lu invested $40M in Kuaishou in DCM Ventures. It is now worth $12BN, achieving a x2000 return.
Ruby Lu is a Chinese investor, who founded Atypical Ventures in 2019 after leaving DCM Ventures, and who has had 13 successful exits. She was included in Midas list of Forbes in 2021.
Kuaishou is a short-form video and livestreaming platform in China. It is the direct competitor of Douyin, the Chinese version of TikTok. Kuaishou IPOd in the Hong Kong Stock exchange in February 2021. It broke the record of the largest IPO in the world, taking away the almost world record IPO of Ant Group. It hit a $179BN market cap and had shares increase in value by 300% on the first day.
Failure story: the last mile problem in humanitarian aid
Humanitarian aid is complicated: wealthy people want to donate money to the poor who did not stand the same opportunities. But there is always a question: is it really helping?
Back in 2010, Esther Duflo presented a Ted Talk tackling a part of this issue: the last mile problem. The last mile problem represents aid allocated with good intentions, but not actually helping solve the addressed problems. She encouraged the use of social experiments to fight poverty, with groups implementing aid and control groups to see the actual effects.
She presented 3 experiments:
In Rajstan, they had the problem of diseases and unvaccinated kids dying from them. Thus, there was a lot of money invested in vaccines, but not used effectively due to the last mile problem. Not that families didn’t care: they just missed an incentive to act asap. With the experimental approach, they found out that making camps available and placing small incentives to act families to act asap (such as offering 1kg of lentils), increased vaccination rate x6.
In Kenya, Malaria was a disease killing many people, and humanitarian aid was invested in bednets. However, due to the last mile problem, their distribution and usage were just not being successful. With the experimental approach, they discovered that providing bednets for free incentivized their usage, and increased the likelihood of repurchase after a year.Â
In other developing countries, there was the problem with education: children were uneducated. Humanitarian aid tried to tackle this by funding more schools, teachers, free lunches, etc., but still faced the last mile problem. After Esther’s experiments, what actually worked was deworming the kids in areas with high infection rates (x28 attendance rate), and talking to the families about the benefits of education, increasing scholarization x40.
Smart uses of humanitarian aid are not the end of poverty: as Esther stated, poverty is invisible, huge and confusing. Perhaps smarter aid allocations can represent a first step.
Esther Duflo, alongside Abhijit Banerjee and Michael Kremer, was awarded a Nobel prize of Economics in 2019, for their experimental approach to alleviating global poverty. She was the youngest person to receive this award, and the second woman.
Source recommendation: DealFlowBR
DealFlowBR is a bi-weekly newsletter covering the technological scene in Brazil and beyond.
It is written by Guilherme Lima, who works at the VC Astella Investimentos. They invest in Seed and Series A startups in Brazil.
DealFlowBR includes bi-weekly musings on Brazilian VC, tech and startups: the performance of Brazilian Tech companies, Brazilian IPOs and Brazilian unicorn profiles; along with relevant news of the technology industry worldwide.
Additionally, Guilherme created a map of 140+ Brazilian startup investors, with the goal to foster the local ecosystem.
You can read DealFlowBR here: https://dealflow.substack.com/