Key Takeaways from an Investor Conference focused on Emerging Markets

I recently had the privilege to attend and interact with a number of limited partners and investors focused on emerging markets. Although the turnout was not as much as I expected it to be, the conference drew a lot of professionals with an interest in emerging markets.

Key takeaways from one of the sessions led by Cambridge Associates:

  1. Since 2000, in Developing Asia within EM (includes India), private markets have beaten public markets by a good margin
  2. Emerging markets performance on a 10 year Net IRR basis has been marginally better than developed markets
  3. India venture has demonstrated good IRR performance compared to some of the other markets, but has been similar to other emerging markets in terms of impact of currency fluctuations

This seems great news! If at all someone is looking to take exposure in the alternative asset class, then India it should be!

During my discussions with various limited partners and investors during the networking sessions, I figured that quite a few of them have a very limited understanding on the India venture capital market. The perceptions and understanding carried are many a time based on an overhang of discussions with private equity players (which is a different stage/segment altogether) and what is available on public media. But I think I do see their point of view.

For a very robust startup ecosystem to be developed, the capital flow right from a seed stage up to public markets is essential. In India, I guess while there is a lot of seed stage capital that is building up for tech companies, support at growth stages is limited to a select few investors. The large pool of private equity players swear by the profitability based business models whereas the venture capitalists swear by solid unit economics based business models that can scale exponentially, but loss-making to start with.

The public markets are even more stringent in looking for profitable businesses that have a steady history of generating profits. This is extremely essential for investor protection and helping build a stable economy which is growing on the basis of sound businesses. The public markets in US / China seem to operate very differently in being able to appreciate the rapid growth businesses - I need to take a deep-dive to understand this way better.

I guess my key takeaway is that while numbers seem to show that emerging markets are performing better and private markets are attractive, the overall ecosystem will require smart capital available across the entire funnel (from seed to public) to be a formidable sector with sustained value creation for investors, entrepreneurs, job seekers, service providers alike.

Until then, it is really all about those select few investors (I do believe am part of one such amazing team) and entrepreneurs who are on a mission to create differentiated value for their consumers / customers with sound business fundamentals to generate equity value for all stakeholders. The trick is in identifying and partnering with those select investors / entrepreneurs and unlock value in the long term.

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