Drivers for Increased Interest in Fund Investing and Direct Investing in EM VC

2 September 2015

Nikunj Jinsi, Global Head, Venture Capital
International Finance Corporation (IFC)

IFC has been increasingly focused on VC, as we see more and more opportunities to help accelerate the deployment of new technologies in emerging markets. Over the past 15 years, IFC has invested almost US$1 billion in more than 75 direct VC transactions and in a dozen VC fund managers, and we only see these numbers growing in the future. We started out focusing on IT services and energy and resource efficiency opportunities, mostly in China and India. Today, several factors have contributed to our increasing focus on VC, including:

We see enormous opportunities created by the digital revolution and distributed business models in our focus sectors of health care, education, consumer internet and resource efficiency, across the geographies we cover, including Asia, Latin America, Africa, Eastern Europe and the Middle East.
We believe that to solve pressing problems in developing markets, we need to complement homegrown solutions with technologies deployed in developed markets. We see the increased desire and demand for businesses in developed markets to engage in technology transfer and to do so with a partner who deeply understands the developing markets.
By supporting businesses at an early stage in their life cycle, we aim to foster growth of innovation ecosystems in emerging markets.

When we look at our markets, we are struck by the vast imbalance in resources, where the most sought after resources tend to cluster in the tier one or two cities and are out of reach for those in the fourth and fifth tier cities. No patient should have to travel across states in India to get to a hospital in Mumbai, only to be seen for ten minutes with no further capacity from the healthcare workers for follow-up. We are searching for solutions that shift this resource imbalance and bring efficiency into the system so that services and goods are within reach for those on the periphery.

Another reason we are excited about emerging markets is the potential for technology transfer from developed markets to make immediate and lasting impact. The time it takes for new technology to permeate global markets is being compressed, and we see our role to further catalyze the development for emerging markets.

Lastly, we are excited about emerging markets because there is no “one size fits all,” and this challenges us to always be on the look-out to identify the technologies and business models that suit a particular market versus another.

In many respects we evaluate VC managers the way regular LPs do: proven teams, which look at right-sized and scalable markets. However, in addition, we look for the manager’s ability to complement what IFC is unable to do on the direct side, by either having a strong presence in new and attractive geographies, where our VC team does not have direct presence, or best-of-breed managers who have a special sector focus that complements ours. For example, lately we have been looking at managers with a strong emphasis in digital health and personal diagnostics. All in, we look for partners who we can trust to work with on the ground, generate co-investment opportunities and help us expand our reach to attain our goal in covering all emerging markets and develop appropriate ecosystems for promising new start-ups, as it is clear IFC will not be able to do so on its own.

Research