2023 Impact report
Sep 9, 2024
Sturgeon Capital is a London-headquartered, emerging market investment firm, focused on the leading technology companies in countries that are early in their path to digitalisation.
We partner with businesses run by talented founders and management teams, offering products or services which solve unserved, acute pain points for large addressable markets.
In doing so, we aim to create enduring value, maximising both financial return for our partners and meaningful impact in the markets we operate in.
Letter from Leadership
Across global markets, 2023 was about survival for many companies, as the VC market froze over amid global macroeconomic and geopolitical instability. The era of free money and the seemingly unending gusher of venture liquidity that went with it has ended, and this left many companies high and dry as the tide went out.
While being heavily skewed towards the US and developed markets, this graph from Carta gives a sense of the scale and impact of this funding crunch.
2023 was not such a bad year for Sturgeon’s portfolio. Of the 18 portfolio companies in SEO I, the majority are emerging from 2023 with cash in the bank, forward momentum, and less competition. We believe this primarily results from investing in lower burn business models and at valuations that have not hindered bridge funding when needed. However, our companies have not been immune from the funding morass. Medznmore shut down in 2023, and two others are entering 2024 in a weakened state in search of a strategic exit.
To be more specific about why we are optimistic about our portfolio:
| 1 | Despite a (far) tighter funding environment combined with macroeconomic and geopolitical headwinds, several of our companies successfully raised funding in 2023. These were primarily bridge rounds, including PeopleForce, GoZayaan, Trukkr, Finmap, Billz, and Arzon Apteka. With capital in the bank, these companies are well placed to grow in 2024, when we expect funding opportunities for the highest-quality companies to increase while lower-quality ones continue to whither. |
| 2 | Oasis, Abhi and Zood showed their ability to tap into debt markets. Oasis raised from international debt providers while reaching operating profitability at the Uzbek level, a prerequisite for larger debt lines. Abhi became the first FinTech in Pakistan to issue PKR Sukuk bonds, with the first issuance twice oversubscribed and a successful second issuance already undertaken. In Uzbekistan, Zood raised debt funding from a sovereign-backed fund as well as from private lenders. This ability to tap into both international and local debt markets is crucial for scaling any FinTech lending startup, and the increased readiness of local players to provide this financing is inspiring others to follow suit. |
| 3 | Despite significant currency instability (10% devaluation in Uzbekistan, 23% in Pakistan, and 5% in Bangladesh), portfolio companies have been able to continue growing revenues on average more than 90% year over year in dollar terms. In addition, five companies are already profitable. Standout performers include Oasis, Datacultr, and Trukkr, which grew revenues 9.9x, 3.7x, and 2.7x year over year in 2023, respectively. |
| 4 | In the case of Zip24, we demonstrated the importance and power of our multimarket presence to engineer a merger and turnaround for the company. The end result is that, through the hard work of Saad on the ground in Pakistan and Alijon in Uzbekistan, Zip24 is merging with a Pakistani business, Neem.pro, and finalising a fresh equity fundraise. We were involved in every step of this process, from first introductions to negotiating merger terms and supporting fundraising. |
At both the portfolio and broader market level, we see signs that the secular trend of digital adoption in our markets is picking up pace. Exits such as Payme and the high-profile IPO of Kaspi serve to raise awareness of and validate the potential for Central Asia and emerging frontier tech ecosystems. We have already seen the impact of this locally, with four new early-stage venture funds launching in Kazakhstan, three in Uzbekistan, one in Georgia and one in Azerbaijan over the last 12-18 months. The next stage will be greater inflows of international capital, which to date has been limited to a couple of companies, including some of our portfolio names like Zood and Payze. In February 2024, we had our annual investor trip in Georgia with 15 international VCs attending, among other investors, something that we hope will play a part in attracting more capital to the region.
In this environment of accelerating digital adoption and rationalised valuations we are excited to launch our new fund, Sturgeon Emerging Opportunities II (SEO II). While the formal first close took place in Q1 2024, we started investing from a warehousing vehicle in 2023. The fund had made 5 investments by year end in Shikho, Farel, Cargon, Shajgoj and Oasis Microcredit, with another two deals closing in Q1 2024 in Klipy and DealCart. We built out the depth and breadth of the team during 2023, adding several domain experts as venture partners. This includes Lado Gurgenidze and Amit Kumar to support our FinTech and Marketplace investments respectively, Waiz Rahim in Bangladesh, McKinley Richards as an impact venture partner, and Kinga Stanislawska as an independent IC member. We also kicked off Swift Launch in Uzbekistan, a new approach to startup incubation tailored to emerging markets and aiming to grow the top of the funnel for later stage investment vehicles.
The heady days of 2020-21 venture capital excess are long behind us, and the threats of macroeconomic and geopolitical instability are real and tangible. Despite this, for those startups unencumbered by excessive valuations and with profitable unit economics, we believe that now is a good time to be building and consolidating market share in our markets. Macro headwinds serve as tailwinds for technology adoption, making the promise of greater efficiency more appealing to potential users and customers. Less VC funding reduces the competition for players in the market who can raise their funds, thereby reducing their costs of doing business and customer acquisition. Rapid adoption and revenue growth mitigate the impact of currency instability, as we have seen in the SEO I portfolio.
Despite headwinds and challenges for both investors and founders, the impact our investments have on the societies and economies they operate in is becoming clearer and more extensive. We have thought and felt from when we first started investing that our portfolio companies spur job creation, financial and digital inclusion, economic development, and this fourth iteration of the annual impact report is just part of our ongoing efforts to quantify, understand and present this internally and externally. Near the end of 2023, McKinley Richards joined us to revamp and improve our impact measurement and management framework, and this report is a demonstration of the excellent work she has done so far. While there is a lot more that we want to and can do, we are excited to present the highlights of our journey, including the milestones achieved by our extraordinary founders, and to unveil our plans for 2024.
Yours faithfully,
