The Exchanges

Q What do you think it'll take to bring more capital into the countries you're investing in?

A I think it's just a function of more and more success stories. If you take a step back and look at the more developed emerging markets, be it LATAM or Southeast Asia, and we did a study, and my colleague Alex actually wrote a report on it recently, looking at the early vintages of the venture firms that were investing in them when those markets were in their nascency. Those are some of the highest performing vintages I've seen. There were 10 X, 15 X, 20 X funds, and obviously you have survivorship bias. But once you've validated that opportunity set works, At that point, inevitably, more capital comes in, and we're already seeing that. If you look at a country like Pakistan, they went, on average, for three years, raising twenty million dollars in total for the venture ecosystem, where in twenty-twenty-one, it got to two hundred fifty million dollars. In twenty-twenty-two, it was three hundred million dollars, and you see that growth exponentially once you prove out, and that's basically been the story of nearly every more developed emerging market.

AI assessment note: “I think it's just a function of more and more success stories.”

Q As you use that lens, what are the countries that you came to that fit into those characteristics?

A The first region was Central Asia and the Caucasus, and to put that maybe on a map, it's basically all the countries between China and Europe. Which is a quite a large part of the world, which easily gets ignored because you don't hear about it day to day. And why there? Because the Sturgeon prior to restarted a strategy when I took over day to day management and this did a lot of business in Central Asia. And so we had a pretty good network and infrastructure there. Two, you had just had the IPO of a company called Caspi, which is a fifteen billion dollar business listed in London, a technology business out of Kazakhstan of all places, which had validated that you could build a sizable business there. And so had sprung a lot of entrepreneurs trying to build technology companies across the region, and that basically you had no VCs that were investing there. So we almost had, again, an unfair advantage and a blank canvas to allocate capital and hopefully building out what the technology ecosystem of that region looks like. And then once we started doing that, the other region that became obvious was South Asia ex India. There is basically two countries, Bangladesh and Pakistan. We're combining about four hundred million people. GDP capital actually higher than India. But still, sub-one percent e-commerce penetration, low levels of digital payments, and low levels of BTP software…

AI assessment note: “The first region was Central Asia and the Caucasus”

Q What's the competitive environment like for the deals you're interested in?

A Yeah. So I think at this stage where we are in the countries, one of the criteria is that we purposely don't want too many venture firms to be in there to start with. So you take a country like Bangladesh, hundred and seventy million people, eighth largest smartphone user base in the world. As I said, GDP per capita higher than India. You only have two VCs in the whole country. So by just being focused and dedicated to it, you kind of have an unfair advantage when it comes to sourcing, such that if you are an entrepreneur of company of any quality, we are hopefully a natural partner for you to reach out to, to want to see capital from. That's the competitive environment today, but we then work to bring in more competition counterintuitively because we want more liquidity in these markets. So whether it's from regional investment firms, international investment firms, Half of our job is capital formation, and we take that seriously.

AI assessment note: “You only have two VCs in the whole country.”

Q What are the typical characteristics of a company and technology when you seek to get involved?

A So we never invest in pre-revenue stage businesses. Typically, there are companies that are, at the time of investments, their revenues on the lower end are around half a million dollars, and at the upper end, around ten million dollars. So they've already built up a level of traction where you have data to see what is going on. What we're looking for in terms of opportunities are companies that understand and have the means to build out distribution on scale, but also have a product or service where they can monetize that distribution effectively and more so over time. Now, if you think about the distribution lens, again, outside of telecom operators in these countries, no company has millions of users. And typically in these countries, customer acquisition costs ranges from around five to 10 dollars each, which is very low. So if you wanted to be very simplistic about it, you could say, I'll spend a million dollars and I'll get 200,000 users from it. The question then is, well, what is the business model that you're layering on top of that to extract revenue per user? And we want to invest at the intersection of very good distribution and very good monetization. And so typically that's the intersection of either marketplace models and lending or payments or marketplace models and some of a commerce transaction. So one example I can give you to maybe provide the context as a c…

AI assessment note: “we never invest in pre-revenue stage businesses. Typically, there are companies that are”

Q What did you dream about doing when you were a kid?

A Probably if you were to ask me when I was six years old, it would be to say I wanted to be a rally driver. But probably at the age of 1213, I really liked the idea of independence and self-sufficiency and basically saw business, I guess, or now I can label it entrepreneurial endeavor. I couldn't even call it that then as something I was really passionate about. And if you ask my parents for whatever reason, they really like to visit furniture shops. The immediate thing I would do when I was a kid is go to the office section and sit at the desks. Pretending I was running something. It was a joke. But for some reason, I like the idea of something that entailed an input and as a result of it, an output that you had some influence over.

AI assessment note: “when I was six years old, it would be to say I wanted to be a rally driver”

Q Which two people have had the biggest impact on your professional life?

A If I was to pick three, if it's okay, just to be fair to them, I think I have to mention Clemente Capella, which was the original founder of Sturgeon. I mean, he, for whatever reason, Took me in at 25 and almost gave me a blank canvas to take the business that he had worked on for almost a decade and say, do what you think is right with it and give me the complete freedom and trust to do it. Just have immense level of gratitude for him for doing that. Second probably would be Michael, the founder of Zootpay, which I briefly discussed. And more recently, a gentleman that has joined us actually as one of the partners that I mentioned, a gentleman called Lardo Gujinidza. So he was the CEO of a bank in Georgia, the country, Bank of Georgia. When it was going through significant reforms and took a thirty million dollar bank and built the largest bank in the country in the space of a handful of years and took it to an IPO of a plus billion dollars in London, was then prime minister of the country for a while because he was a pure technocrat and ran the country as if it was a business and was just incredible doing so. And then since then has been a lifelong investor and operator in financial services across emerging markets. For me, he's someone that Has the widest aperture of business knowledge that I've ever come across. Has a very rigorous and rational thought process to how to thi…

AI assessment note: “I have to mention Clemente Capella, which was the original founder of Sturgeon.”

Q What are some of the risks that you encounter investing in these businesses?

A I think to a large extent, the risks you see in these markets are not too dissimilar from the risks you would be if you were investing in any other market. As in the highest factor that would lead to losing capital is not making the correct assumptions on the economic model of the business. Not truly understanding how much capital that business needs to be able to scale, making a bad bet on the management that's running it. So they're all the same types of risks. The one that is a bit more acute in these markets is, as I said, you do not have a deep pool of funding available. And so if it is a business model that just so happens to need a little bit more capital to get to the size that it can, you need to make sure that you have a pool of co-investors with you that have the balance sheet and the wherewithal. To continue to co-invest alongside you to de-risk that downstream funding which the company may need.

AI assessment note: “The one that is a bit more acute in these markets is... you do not have a deep pool”

Q As you started operating that business, what are some of the things that came up that you didn't expect along the way?

A In businesses where you have to obtain some sort of regulatory license, the bureaucratic process gets funky and interesting. I never realized how important stamps are, so you have to have a stamp for everything. The bureaucratic process is a bit arduous in terms of time, but at the same time, it's pretty easy to navigate once you have the process to do it. That's certainly interesting. One of the elements of this business is that you have to hire what are called junior loan officers. So effectively hiring individuals straight out of university and teaching them how to go into the market to obtain data from these offline businesses to be able to understand how to credit on the right because you don't have a centralized credit bureau. Now the training process is all good and well, but then you have local nuances. So for example, obviously being a Muslim country, We hire females straight out of university, and oftentimes you would find their parents coming in to check if this place is a real place, what sort of environment it is, is it safe for them to work in, et cetera. So you have these local nuances that, if anything, make the whole thing a bit more interesting and enjoyable.

AI assessment note: “I never realized how important stamps are, so you have to have a stamp”

Q Are there opportunities in the public markets in the countries that you're investing in privately?

A Yes, there are. So increasingly what you're seeing is that going back to that point of the government recognizing that building the technology ecosystem is important. What you see is that the stock market's starting to make it easier for companies, for example, to be able to IPO even at a much earlier stage. Not necessarily that that's the right thing to do, but what you then do see happening is that more and more technology companies appearing on their public markets, and if not failing that, once they get to a certain size, appearing on public markets internationally. And the main reason for that is if you take who is on the other side of that trade, Public equity, emerging market managers that typically have not had the most attractive investment universe available to them to invest in because larger they've been these old industrial businesses or previously state-owned businesses that were normally cheap, but extremely cyclical at best. And so there's a lot of capital or balance sheet that's willing to underwrite IPOs of these sort of companies once again, they earn the right to it and they're large enough to do so.

AI assessment note: “Yes, there are. So increasingly what you're seeing is”

Q Why don't you take me all the way back to your family background and how you first got interested in investing?

A Yes, I guess a bit of an esoteric one. Born in the UK, but originally Iranian. My father moved before the revolution to study. I was a mechanical engineer and ended up running, being an executive in an oil and gas company here. But that effectively meant we grew up in the British countryside with a lot of time on my hands and having a relatively Both productive and disciplined father, you didn't really feel comfortable not doing much, so you're always trying to be engaged in something. I was lucky to come across books of pretty great people and investors that inspired me or set role models for me, where I think the combination of that productivity, discipline, and reading about people that had been entrepreneurs or been good investors got me intrigued in the subject so much that it's what I wanted to spend a lot of my time doing. And so that really was what got me into investing.

AI assessment note: “reading about people that had been entrepreneurs or been good investors got me intrigued”

Q When you're sourcing deals, do you start with your industry focus and then try to find entrepreneurs? Or at times, are you more focused on who the entrepreneur is within your industry verticals?

A I would say it's a two-step process. When you look at these countries again, because so much is offline and typically because the government has been the largest allocator of capital and resources, inefficiency is just high in many large different areas, whether it's e-commerce, whether it's in logistics, payments. So the opportunity set is actually quite clear. Now there's the second layer question of what is the business model tackling that opportunity set? Is it economic? Does it have barriers to entry? So on and so forth. But once you've passed those two layers, it only works if you have a founder and a management team. That really have the wherewithal to execute. And so what we like to say that we're doing is at the time of investment, the stage is really what we're truly underwriting is execution risk of the management team being able to capture the opportunity set that is at hand. And it's not a question of if that opportunity set exists, it's just how they go about executing it. Our view is that we can manage execution risk much more proactively than if we were trying to manage any other risks, such as does the business model even make sense?

AI assessment note: “I would say it's a two-step process. When you look at these countries”

Q You started your journey in investing enamored with the public markets and the breadth of opportunities and Have evolved into this, in the scheme of things, narrow, interesting niche in some countries many others don't invest in. What have you learned across the two disciplines?

A I think what unifies them is, I mean, this concept of compounding, which is still the most amazing thing, and the lens of which I always looked at it is, what is an area where I believe that as a firm we could have an unfair advantage, where we could compound capital at a pretty high rate, and Truly understand why and how we're doing so. Why and how we're doing so is, is I think the most important part of it is there's a hundred different ways you could be generating returns. I think you have to be very clear about why does that opportunity set exist for you? And why is it that you are uniquely able to execute on it over an extended period of time? And that translates both to the public market side and to the private side. The thing that I've come to appreciate by being an operator is That I think public market investors lose a bit is the variance in outcomes being a function of the quality of execution of management. And that there's very wide variance in that quality of execution. And that when you come across someone that is a masterful executioner operating in a very large market of attractive economic dynamics. Those are typically the best situations that you want to be in because it means you can compound capital at a very high rate of return over a very long period of time.

AI assessment note: “That I think public market investors lose a bit is the variance in outcomes”

Q So as you came out of school, what was your first real job?

A I didn't really have a real job, so to speak. I was managing this fund, and by the time I'd given the return of capital, I've just done performance fees alone. I'd done relatively okay that I wasn't in that urge that a lot of the other students were to find the graduate scheme. I was really intrigued by emerging markets as an asset class for a number of reasons. One, because I spent a lot of time, obviously, being originally Iranian, I would spend every summer there. You would just see, obviously, individuals that are as able, or if not more able than you are, you would see a very resilient private sector, and so you would objectively think that there's a lot of opportunities there, but when you then looked at firms that were investing in emerging markets, there were very few and far between that actually had had a good long-term track record. So I became kind of intellectually curious as to understand why that was. And so the first real place I went to work actually with Nouriel Roubini. At the time he had a firm called Roubini Global Economics and effectively ended up leading their emerging market research and strategy. They had created a product. It was almost a data platform where they were sucking in all the public available data in every country in the world to give them outputs on aggregate that could then inform From a data perspective, what is actually going on in the …

AI assessment note: “And so the first real place I went to work actually with Nouriel Roubini.”

Q What are other misperceptions that you find about the markets you're investing in?

A Well, clearly, if you were a follower of during emerging markets over the past 2030 years, which is the life cycle of it, you've seen a lot of people get their fingers burned, and so you just develop a pretty firm heuristic to say, no, I'm good, I like investing in the US and Europe. But I think that underestimates Truly what is happening from a technology perspective in these countries and the speed with which so many different things will compound. So if you just think about, as I said, the median age is 28 and that's a generation that's growing up with equal access to information and knowledge the way me and you have for a very long period of time. And that youth is very hungry. The speed at which they're learning is exponential layer on top of that. The distribution dynamics that I said are innate in technology companies and high levels of existing and efficiency. In what a relatively large economy, I think just the sheer enterprise value creation that will come from technology companies in these countries will be immense.

AI assessment note: “underestimates Truly what is happening from a technology perspective in these countries”