Source: readthegeneralist, author: Mario Gabriele
This venture capital firm has successfully focused on areas that most investors dare not get involved. It is positioned to become the dominant force in emerging markets.
actionable insights
If you only have a few minutes, here are what investors, operators and founders should know about Sturgeon Capital.
- is under-penetrated in the market. Sturgeon Capital's investment is not on the regular track. The venture company focuses on high potential markets with insufficient capital supply, especially in Central Asia, Egypt , Bangladesh and Pakistan .
- build a full stack company. Financing options for cutting-edge market startups are limited. Sturgeon is creating an organization that meets a wide range of needs, from early stage venture capital to private equity. It may one day provide debt and growth equity.
- succeeds and supports. So far, Sturgeon has recorded impressive returns. The fund has an internal rate of return of over 70% and has acquired meaningful shares in the companies it invests in. Sturgeon’s team takes a hands-on approach to assisting startups in financing, mergers, strategies and collaborations.
- next Kaspi. The new star in Sturgeon's portfolio is all-rounder Zood. This super app operates in four countries and provides e-commerce, financial technology and logistics services. It grows rapidly and effectively with relatively little venture capital. Sturgeon hopes it will be the next big winner in Central Asia.
- is more than just money. Sturgeon seeks to make a tangible impact through its investments. In addition to tracking the traction of job creation and financial inclusion, the company has launched a scholarship program to support outstanding STEM students.
venture capital industry has extraordinary roots. While it is often associated with modern Silicon Valley , the earliest incarnation of this industry can be found on the East Coast of the United States in the mid-19th century. In Massachusetts , around 1850, brave investors sought high returns in the turbulent whaling world. Although sailing is dangerous and prone to failure, the value of whale fat means that an expedition can produce rich rewards. A productive voyage can earn up to $100,000, more than $3.5 million today. To seize this opportunity, some companies emerged, utilizing different strategies to maximize their chances of success, investing in long-term crew members or focusing on specific sea areas.
It doesn't take much imagination to see these dynamics in contemporary venture capital. Today’s venture investors adopt many of the same high-level strategies to support experienced founders, efficient teams and those focused on specific, productive areas.
However, as the industry matures, these methods may have lost some of their advantages. A risky newcomer looking to invest in the top 10 of B2B SaaS companies will face fierce competition. There are many people willing to support it, and the sea is filled with well-stocked ships. Even the most fertile land can be overhunted.
Sturgeon Capital supports adventurers in different directions when fanatical activity messes up some waters. The $275 million investment company, , has been successful by focusing on geography that most venture capital firms ignore, including Uzbekistan , Bangladesh, Pakistan and Egypt. Although these countries have several attractive features and a total population of more than 500 million, they receive the lowest per capita venture capital fund. For example, Pakistan receives a venture capital of USD 1.6 per person, while neighboring India is USD 30 and Indonesia is USD 34. These are exciting emerging economies, but the competition is small. Although the implementation of in developing countries has brought challenges, unicorn enterprise has emerged in many countries with similar problems over the past few decades. Brazil , India, Indonesia and Mexico have all bred companies like Nubank, Flipkartml10, GoTo, Kavak and many other categories.Sturgeon's bet is that in the next quarter of the century, its target region will produce its own series of winners, which in turn will have a positive impact on the lives of millions of people. Because of these momentums, Sturgeon Capital believes its goal is “some of the last really huge, untreated digital markets.” It's a bold vision that Massachusetts whalers will be proud of.
In today's article, we will discuss:
- origin. Kiyan Zandiyeh is perfect for his current role. Stuttgart 's CIO is an investment prodigy who sets his own point of view by taking one of the greatest thinkers in the business world as an example.
- strategy. Sturgeon is a well-thought-out fund with a practice of venture capital and private equity. It chases a huge opportunity in an overlooked market.
- case study. Zood demonstrates excellence in the cutting-edge market. It also reveals how Sturgeon is working with its portfolio.
- impact. Sturgeon's target region has great difficulties in youth unemployment and financial inclusion. The company is keen to help solve these issues, tracking its impact through its portfolio. Early signs suggest it is making changes.
Origin: The path that few people take
Investing in emerging markets has always been difficult. Drive returns in a political and economic turbulent environment requires skilled management, strong discipline, and the willingness to think in reverse. Sturgeon's leadership embodies these characteristics, most importantly Chief Investment Officer Kiyan Zandiyeh.
between two worlds
Zandiyeh said in our conversation: "The older you are, the more you can put these connections together". Indeed, in hindsight, the investor’s growth seemed to be ready for him to run a fund like Sturgeon.
Zandiyeh was born in the UK and is the son of an immigrant in Iran. His father was sent to study in the UK at the age of 16. Zandiyeh's grandmother saved years to fund the time travel; in return, she asked her son to promise her that he would make a difference in his life. Zandiyeh said: "The arc of my life is the result of this promise." His father thrived in the UK, eventually earning his PhD in mechanical engineering and continuing to advance in an oil and gas company until he took charge.
In many ways, the life of young Zandiyeh also seems to be a product of his father's commitment. The person described by Zandiyeh as "the most productive and disciplined person I have ever met" certainly won't leave his children doing nothing. Since the age of four, Zandiyeh has been taking the karate course to make up for his shyness. At the age of 10, he won a place with the British team. Zandiyeh won the national youth championship for five consecutive years and led the team to win the championship in the World Championship.
With his father's strict management, Zandiyeh also inherited his dual identity. Although he lives in London, he spent the summer in Tehran and was surrounded by his family. During these visits, Zandiyeh begins to notice the differences in life between him and his cousins. Zandiyeh recalls: "Many of them are much smarter than me. But the opportunities I have are incomparable to them. It doesn't seem fair." This awareness sparked Zandiyeh's interest in contributing to the success of developing countries, but it will take him several years to find the transformation method he likes.
new money
When Zandiyeh is not in school or practices karate, he usually reads. His choice of materials is unusual for his age. Zandiyeh started researching investors such as Warren Buffett and Charlie Munger as early as 14 years old. "I began to fall in love with them. They were such unique, interesting characters," he recalled.
Although it is exaggerating to compare any young investor with Omaha's prophets, whether by chance or intentional, Zandiyeh's adolescence and early career had several similar rhythms.Zandiyeh found his own chance when Buffett used his high school years to sell golf and stamps. He explained: "I have a bunch of side jobs." One of them is buying a mask for a few cents on Chinese e-commerce platform iOffer and then selling it for 20 cents in Iran. He quickly expanded the range of arbitrage and began to buy and sell clothes. "I like independent business: when you have an idea, pull resources together and iterate over it."
Soon, the young entrepreneur turned his attention to investment. Zandiyeh registered a brokerage account (using the registration offer to offer new clients £100). "I lost all of this very quickly, but it was a great introduction to the world," he said. Like running his side business, Zandiyeh's favorite thing is the autonomy this practice brings to him. He explained: "I can sit down and read and draw my own conclusions. If I'm right, I'll make money; if I'm wrong, I'll lose it."
Soon, he got a chance to test his judgment on a larger scale. At the age of 17, Zandiyeh decided to set up his own fund: Zandiyeh Investment Partners (ZIP). He wrote a four-page memorandum outlining value-based approaches and interest in special circumstances. Zandiyeh imitates Buffett's charging structure, does not charge management fees, and charges a 25% spread of above the 6% mark.
Zandiyeh said of the fund: "I take it very seriously. I'm so serious about myself". "However, the teenager's nervousness and seriousness attracted investors. Zandiyeh successfully raised seven-figure funds. "Some are novelty that a young child wants to do it," Zandiyeh said. But this experience also proves to me that if you are serious about something, people will sympathize with you and give you a chance. '
's investor confidence paid off. For five years, Zandiyeh drove the rate of return to his hurdle while earning an Imperial College degree. He gathered a group of undervalued global stock names by sticking to the strategy he originally proposed, many of which were hit by abnormalities.
One example is a gold mine in Egypt. The company's stock price plummeted from £1.76 per share to £0.25 per share per year. This cliff-like decline inspired Zandiyeh's curiosity. What happened to the company? And is the market's reaction reasonable or excessive? Zandiyeh explained: "You are pursuing reality." In this case, I'm trying to understand where the problem lies. If the problem is real, I won't touch it. But if it isn't, you may find some problems. "
Zandiyeh stayed until 6 a.m., searching for local news reports, online forums and company financial data. The more he looked, the more he felt that the value of the mining industry was underestimated. Its decline was caused by the cancellation of the seemingly fragile licensing rights, and the current stock trading price is only 0.1 times the book value of . Zandiyeh decided to make a big bet, putting 30% of the ZIP into the company and increasing the leverage .
It paid off. The company turned losses into profits and the share price rose to £1.80 per share. This proved to Zandiyeh that it is possible to make money in emerging markets.
Learn from Doom
Zandiyeh decided to turn off ZIP after graduation from college. He has made "quite a lot of money" from performance fees and serves investors well. Next, he wants to improve his skills.
He chose an accomplished mentor - Nouriel Dr. Roubini. The economist worked as an academic for most of his career and advised International Monetary Fund , World Bank , Fed and several presidential administrations. Roubini was perhaps known for foreseeing the global financial crisis , which earned him the nickname "Doctor Doom". In recent years, he has been a strong critic of cryptocurrencies.
At the time, Roubini ran a research company of the same name, Roubini Global Economics (RGE). For two years, Zandiyeh worked as an analyst, investigating opportunities in emerging markets.As part of the study, Zandiyeh examines the brief history of investment in modern cutting-edge markets. This practice occurred in the early 1990s, as financiers like Bill Browder purchased entities that emerged from the former Soviet Union. These companies often don’t know the true value of their assets, which means they can be purchased cheaply. As opportunities became clearer, foreign capital flowed into Russia, driving prices up. "These investors are actually preparing for future liquidity," Zandiyeh explained.
The success of investors like Browder has led many to believe that similar rules of the game can be enforced elsewhere. The fund has been tried in Africa, Asia and Central Europe; for a time, Mongolia was seen as a new hot area. But in almost all cases, the expected secondary capital flow never comes, which means the position is struggling. Most efforts end up with nothing. "What people don't realize is that what's happening in Russia is due to a very unique series of situations," Zandiyeh said.
An exception is Abraaj Group. At the time, Abraaj was considered a stunning success: a multi-billion dollar fund driving strong returns in emerging regions. In 2002, Abraaj was founded for US$116 million, and its assets under management grew to US$14 billion. He owned limited partners such as the Gates Foundation , and boasted an annual return of 17%. In 2018, the company disintegrated as management apparently abused its capital. Reflecting on the investment situation in cutting-edge markets, Zandiyeh pointed out that “funds either cannot generate returns or fail from a governance perspective.”
At Roubini’s company, Zandiyeh used his experience to create a complex model for emerging market investment, which in turn laid the foundation for ETF. But Zandiyeh's eyes went beyond the world of public stocks.
takes over the power
After leaving RGE, Zandiyeh began to build a new store. However, unlike Zandiyeh's investment partnership, he intends to focus on the private market; Zandiyeh intends to support technology companies rather than picking companies in the mining industry or commodity . His research under Roubini helped him determine the method.
Unlike other industries, technology does not necessarily develop linearly. Instead, they can make a country "jump forward" and skip outdated systems. For example, M-PESA has brought mobile remittances to sub-Saharan Africa before its users have bank accounts or smartphones.
This favorable dynamic means that technology can impact emerging markets and potentially help create large enterprises. However, private equity and venture capital are hardly present in these countries. Innovation investment depends on the government. "They are the main resource allocators in these markets, but they don't know how to deal with the technology," Zandiyeh pointed out. If Zandiyeh is able to choose the right country and identify a strong tech-savvy founder, he believes in the opportunity to create a cutting-edge market fund with outstanding performance.
He got help from a friend. While Zandiyeh is seeking to create a new company, Clement Capello is also seeking to step down from his company. Capello has spent nearly a decade investing in emerging market entities and is ready to pursue new efforts. In Zandiyeh, he saw an impressive revolutionary manager hoping to make his mark in a similar geographical area. In 2018, Zandiyeh took over Sturgeon Capital, bringing new funding and new approaches. Perhaps no surprise, he focused his initial efforts on a country he was familiar with - Iran.
That year, the administration of President Obama lifted sanctions on the country, increasing the possibility of economic development. Zandiyeh spent 50% of the time in Tehran, meeting entrepreneurs and investing. Online car dealer Khodro45 is one of them.
Sturgeon was impressed by the CEO of Khodro45 and invested $500,000 in the company. Over time, Zandiyeh's investment continued to increase, reaching $2 million. Khodro45's earliest rounds valued the company at $2.1 million. It turns out that this is a good idea.Today, the platform has a GMV that exceeds that number by an order of magnitude. As the CEO of Khodro45 said, Zandiyeh is an important supporter. "There were a few times I wanted to give up, but Zandiyeh helped me stick with it," he said. In addition to emotional support, Zandiyeh also helped bring capital into the company and act as a useful external strategist.
Sturgeon's second bet on the market is Azki, an insurance technology startup. Like Khodro45, Zandiyeh was impressed by the company’s founder and savvy business model, investing a total of $1 million. Once again, this is a sharp bet, and Azki is developing rapidly. Today, its annual recurring revenue is expected to reach $30 million and hold 90% of the market share. Perhaps the most striking thing about
Khodro45 and Azki are their ability to maintain growth in adverse circumstances. In 2018, President Trump restored sanctions on Iran, a move that prompted a devaluation of the currency by 80%. According to Zandiyeh, the two businesses still managed to more than double the growth each year even as the Riyal shrinks. This proves to Zandiyeh that emerging market companies with a large capacity to meet the market, sound model and strong founding teams have the potential to withstand extreme volatility. This lesson is of critical significance to Sturgeon's next chapter.
But since Iran is not open to foreign investment, the fund will have to look for winners elsewhere.
Expand the mission
The same year Sturgeon left Iran, Zandiyeh met Alex Brownton. After earning a master's degree in development studies and working in Shanghai, Brandon established an investor career. He began working for Cambridge Associates, one of the world's largest limited partners, a seat that gives him the opportunity to reach elite fund managers in various asset classes. After working in Cambridge for a few years, he moved to Columbus Point and started building the London business of this growth stock fund from scratch. While working in Columbus, a mutual friend introduced Brandon to Zandiyeh.
Blanton said of Zandiyeh: "He has a real halo". I have attended many conferences at Cambridge and knew I had found a winner. The couple's shared interest in international development and investment has made them quickly friends and inevitably partners.
Zandiyeh, Brownton and then investment analyst Robin Butler began to develop new strategies for Sturgeon. Sturgeon's team analyzes geographic areas along a series of dimensions to guide their exploration. In addition to relatively obvious high-level figures such as population size, GDP and GDP per capita , the fund also studied factors such as smartphone penetration rate, Internet availability, average education level, population dynamics and per capita risk capital funds.
Through this analysis, Sturgeon identified a new set of targeted geographical areas. Central Asia, Bangladesh, Pakistan and Egypt. While none of them can be considered a consensus option, Central Asia is probably the most anomaly. "No one has talked about this area. But we have Kaspi". As we analyzed in our previous article, this Kazakh company is not just a technology company, it performs many functions of a country. Sturgeon particularly emphasized that Uzbekistan is a region full of opportunities.
After deciding its strategy, Sturgeon set out to raise $25 million. It will eventually close at the peak of the fear of the new crown epidemic in 2020. "It takes a huge commitment to raise funds for Uzbekistan during the COVID-19 pandemic. It's not a small matter to say the least," Branton explained. "For a little over a decade, Zandiyeh went from buying and selling stocks in his bedroom to running a risk company that reflects his interests, expertise and personal stories. Its performance so far shows that Zandiyeh will have the opportunity to make it his lifelong career.
Strategy and Model: Future-oriented construction
For a fund that has only been modernized for four years, Sturgeon has an impressive list of achievements.It found an overlooked set of opportunities, designed a novel structure that gathered leading talent to fully support its entrepreneurs and achieved strong results.
Opportunities
We have outlined some of the motivations Sturgeon Capital is looking for in the cutting-edge markets, but it is worth an overview of the opportunities more clearly. Although many factors affect the focus of the fund, there are three factors worth emphasizing:
- Population Size
- Scope of digital opportunities
- Capital supply level
Sturgeon's core market has more than 500 million people. Taking into account the surrounding areas, this number has risen to more than 1 billion. Pakistan itself has a population of more than 220 million, while Bangladesh has a population of more than 160 million. This scale is very important. To succeed, a company must have a large enough market, and a population of this size means that a business with proper guidance should not be difficult to grow to a large enough scale to achieve risk returns (usually not needing to expand beyond its home country).
A large population is not enough in itself. There must be considerable digital opportunities to make a country an interesting risk market. Through detailed research and triangulation with existing research, Sturgeon has gained an understanding of the scale of opportunity in its region. As of 2022, the target market's annual digital revenue is US$108 billion and is expected to grow to US$290 billion by 2030, with an annual compound growth rate of 13.14%.
Sturgeon Capital
Achieve this rapid growth will depend on the companies that appear to fill the gap. In these markets, many technological infrastructure and services have not yet been established. Sturgeon focuses on four areas: loans, financial technology infrastructure, B2B SaaS and market platforms.
The last variable is capital availability. Sturgeon is not played in markets like India, Brazil or China. While these countries have a large population and a large-scale digital economy, they also have a stronger investment ecosystem. Compared with Pakistan's per capita USD 1.6 or Uzbekistan's USD 0.2 USD VC funding per capita is USD 30, Brazil is USD 47 and China is USD 74.6.
Sturgeon Capital
This lack of capital has both disadvantages and benefits. On the one hand, relatively few investors can support a company, especially when its size is expanded. For companies that focus on the seed stage, such as Sturgeon, this brings risks. Companies need to move towards self-sufficiency, or attract investors from a larger market. The advantage is the lack of competition. Those on the table can effectively see 100% of new startups, which is impossible in more mature markets such as the United States or China. One result is that valuation is favorable, making up for the potential lower upside potential for cutting-edge market companies. Paulo Bilezikijian, chief information officer of , an family office in Sturgeon, pointed out that this is part of the appeal of investing in cutting-edge markets such as Uzbekistan. "It starts at a low point, and if you don't make too many mistakes, things will get better."
When you combine these three aspects, the attractiveness of a market will become very obvious. Bangladesh is a good example. It is the eighth most populous country in the world and has a very favorable demographic. The median age is 28 years old, and 62% of the population is under 35 years old. Given the 115 million mobile Internet users, making it the ninth largest mobile market by population, this is clearly a digital opportunity. However, in the past five years, only $401 million has been invested in risk ecosystems. Neighboring India received $38.5 billion in investment in 2021 alone.
Of course, there are obvious risks in investing in cutting-edge markets. There is a reason why Kiyan Zandiyeh has discovered so many failed funds under Roubini's research. Political and economic turmoil tends to complicate business, just like in Iran. While this instability can temper startups into indestructible, capital-efficient organizations, it also limits growth.
talent supply is also a problem. The CEO of Khodro45 stressed that his company faces continuous “talking”.Many skilled people look for opportunities outside their home country, making it difficult for employees to retain. “We have always faced the challenge of hiring,” they said.
Finally, the shadow of corruption is never far away. Investors, founders and other stakeholders may all succumb to the temptation of money. For those who try to act fairly, this temptation complicates the process. Honest founders and investors may see unscrupulous rent-seekers and gatekeepers thwart progress.
Ultimately, any investment has its drawbacks, and investing in untapped areas is not suitable for the faint of heart. Paul Bilezigian pointed out: "The increased risk of entering the frontier market must be proven by the rewards. So far, Sturgeon has shown a focus on opportunities, an awareness of traps, and the ability to navigate between the two."
structure
Alex Branton explained: "We want to build Sturgeon into a weapon for the companies we support." The key to this ambition is the goal of developing Sturgeon into a comprehensive financial provider covering early stage financing, growth capital, private equity and debt. "There are some institutions that offer a portion of it, but they often take a year to commit to a deal. No one provides full capital at an extremely high level," Branton added.
Today, Sturgeon covers two foundations: early stages of funding and private equity. It is best known for its risk practice. As mentioned earlier, Sturgeon's first official fund, Sturgeon Emerging Opportunity I or "SEO I", was $25 million, and the fundraising ended in 2020. Before that, Kiyan Zandiyeh had deployed millions to Iran bets such as Khodro45 and Azki. These early-stage investments have performed well so far, providing 3 times the rate of return (MOIC) of investment capital with an internal rate of return of about 37%.
It is dangerous to judge the year of any venture capital in just two years. But judging from the current situation, SEO I looks more promising. So far, Sturgeon has delivered 2.1 times the MOIC with an internal rate of return of 73.4%, while deploying 90%. It has built a relatively concentrated portfolio with only 16 names. In many cases, it has accumulated a considerable share of the companies it supports – sometimes more than 25%. The company is also not afraid to double-invest its winners; more than one-third of funds enter a company. Meanwhile, Sturgeon refused to sell many of its promising positions to other investors. The company intends to continue this high-opportunity investment practice in its upcoming $50 million fund, SEO II.
Sturgeon's private equity investment practice is newer, although it draws on the experience of the team, partner Aljion Ravshanov was once in charge of UzOman Capital, one of the largest private equity investment vehicles in Central Asia. Sturgeon's efforts began in 2021, when the company won a commission from a large oil and gas enterprise to invest $250 million in the Kazakhstan ecosystem. The oil giant is a major player in the country, contributing an average of 6.3% of GDP over the past decade. As part of the mission, Sturgeon’s mission is to invest in companies that create positive impact, especially those that create jobs. Sturgeon has hired an experienced local team to support the new initiative, ensuring its risk team can stay focused. Although its venture fund may be relatively small by U.S. standards, its comprehensive financial strength is $275 million. This helps it introduces risk partners that have established and exited the company in the target verticals of Sturgeon in the cutting-edge markets.
Over time, it is not difficult to imagine how the Sturgeon company's structure will develop. Once it further demonstrates the success of its approach, the growth fund may prove to be particularly impactful. The ability to write eight-digit checks to companies will allow many entrepreneurs to scale more actively and compete regionally or globally.
support
Almost every venture capitalist seeks support for the companies they invest in. The dynamics of cutting-edge markets mean that Sturgeon has to do it more by himself than most people.Fundraising, recruitment and strategy can all be particularly complex in an underdeveloped environment.
This obviously works. The company's entrepreneurs have an NPS of 90, which is an impressive number. This success stems in large part from Sturgeon’s ability to balance local expertise with global scope. The fund has field team members in Uzbekistan, Kazakhstan and Pakistan, and is headquartered in London. It is actively recruiting staff in Bangladesh and Egypt. The positioning of
allows Sturgeon to benefit from the advantages of both worlds. It has a strong national and regional network that spans technology, traditional commerce, investment and government. When a startup needs to seek regulatory approval, find partners or increase investment, Sturgeon knows who to talk to and how to optimize for success. Due to its regional focus, the fund plays a role in involving geographical expansion. For example, we will discuss Zood in more detail, using Sturgeon to launch in Pakistan. "In a week, we were able to meet everyone. There are many people investing in Pakistan, but few people spend so much time there."
Usually, cross-border cooperation occurs in Sturgeon's portfolio. "Our advantage is that by investing in multiple markets, we see similar companies at different stages, in different environments. We can share these experiences throughout the portfolio and build partnerships." Earlier this summer, Sturgeon linked Pakistani logistics company Trukkr to Uzbekistan's e-commerce infrastructure company Zip24. Both sides are helping each other break into their respective markets. "We love helping this cross-combination pollination happen," Butler said.
Although Sturgeon cannot succeed without a deep local foundation, its global scope is also crucial. Zandiyeh's team starts from its London headquarters to stay in touch with more mature risk environments in Europe and the United States. In recent years, Sequoia, Tiger and Benchmark have operated in the target areas of Sturgeon. If the fund's judgment of opportunities is correct, other funds will follow suit. If this happens, Sturgeon will be in a good position to connect its portfolio with further investments.
Case Study: Zood
Sturgeon has successfully created a promising portfolio of companies. However, the undisputed breakthrough is Zood. Launched in 2019, the financial technology and e-commerce platform has become increasingly bigger and bigger like a snowball, becoming a major player in Central Asia and beyond. According to CEO Michael Khoi, its goal is to build a digital lending platform for 300 million unserved users and 5 million merchants.
To better understand the kind of companies Sturgeon supports, and the potential of regional players, it is worth a deep dive into Zood's story.
product
Zood is a comprehensive ecosystem. At its core, it is a digital lending platform for the e-commerce market. It provides a variety of lending services. Zood can be divided into three main business lines:
- e-commerce
- financial technology
- electronic logistics
Zood started with its e-commerce market. Its shopping app features similar to Amazon or Mercado Libre, providing consumers with a convenient place to buy a wide range of items, from clothing to electronics to furniture. Today, "ZoodMall" has more than 6 million products from 30,000 merchants. It is the number one shopping app in Uzbekistan and Jordan, with the former's GMV growing by 15% per month. Given the current penetration of e-commerce in target markets such as Uzbekistan, Iraq, Pakistan and Jordan, this platform has an extraordinary opportunity to scale up. In the first three markets, the penetration rate is below 2%; in Jordan, this is 8%.
Zood and Statista
According to the gameplay of other e-commerce companies, Zood uses its huge consumer base to expand to financial technology products. It starts with the Buy First Pay Later (BNPL) service, providing shoppers with the ability to amortize their purchase costs, available on ZoodMall, third-party websites and offline.Although common in the Western market, BNPL does not actually exist in the target country of Zood. Since most of Zood’s customers have no credit scores or observable financial history, the company can only underwrite these loans through data collected by its platform. It looks at online behavior to determine which clients are capable of repaying the BNPL proposal. Zood has issued more than 350,000 loans, adding to its data advantages. Less than 5% of people defaulted on the contract.
Based on this, Zood has established a more important loan business. To assist in large-scale procurement, the company has established a network of partner banks in the countries it serves. When a customer needs to buy something bigger than a new shirt or a pair of headphones, Zood sends a request to a partner agency through its API. It is able to offer loans up to $500 immediately.
Zood
Zood's final loan product is for e-commerce merchants and those willing to transfer to the Internet. Suppliers use the “ZoodSME” inventory financing solution to support their growth or alleviate cash flow problems. Zood provides up to $30,000 in funding and uses merchant inventory as collateral. The result is a short-term, low-risk loan product.
This service is connected to Zood's last business unit: electronic logistics. The company has developed a powerful solution including warehousing, fulfillment centers, smart lockers and delivery. Zood itself does not need to manage all these tasks. Instead, it has built a group of partners that synchronizes between them. The result is an effective product that enables merchants to simplify e-commerce sales. It also benefits Zood, allowing the company to optimize its risk management, thanks to data collected throughout the transaction process, from merchant procurement to customer delivery.
In addition to three core business lines, Zood has also established a series of additional products to help the company operate more cohesively. Fraud detection, proprietary credit scores, debt management, virtual cards and point-of-sale solutions contribute to Zood's operations. It is easy to imagine how these products become the basis for new or existing business lines.
Financial Traction
It is difficult to succeed in one cutting-edge market, while development in four markets is amazing. We mentioned some of Zood's traction above, but it's also worth digging into its financial situation. Since its domestic operation in 2019, Zood's business volume and revenue have grown at an astonishing rate.
The total payment volume (TPV) processed by the company was $2.4 million in the first year; two years later, it has grown to $48.5 million, an increase of more than 20 times. Zood estimates that its TPV will exceed $100 million in 2022. Its average yield is 15%, and some markets have significantly higher yields than this number.
Impressively, Zood accomplished this with relatively little money. So far, the company has raised only $48 million. The result of this relative scarcity is that Zood has established a resilient business with a solid foundation. Paulo Bilezikijian, one of Sturgeon's LPs, stressed that this is one of the company's strengths. "This is a story type that I really like. Zood doesn't rely on continuous financing. It has real fundamentals," he said. In fact, the company achieved profitability on an adjusted basis in 2021; it has a vision to achieve net profit in the near and medium term.
In many ways, Zood is operating the ideal cutting-edge market game manual. As Kiyan Zandiyeh explains, many companies from similar environments have flourished following a common model. First, they accumulate distribution; then, over time, they increase services to improve LTV and profitability. Companies like Nubank, Mercado Libre, Rappi, Tokopedia and many Rocket Internet inventions have implemented this strategy. Zood may one day be as famous as these giants. One of the obvious advantages of
working with Sturgeon
Zood is its leadership. Zandiyeh describes Khoi as "one of the most capable people I have ever met in my life". Robin Butler gave a similar review, describing Zood's CEO as "an amazing operator and executor. He's ruthless."
So it seems to be believed that Zood would have succeeded without Sturgeon's assistance. But we have reason to think that Zandiyeh and the company have streamlined the growth of startups. When I talked to Khoi, he highlighted the many ways Sturgeon supports the company.
He said: "I talk to Kiyan every week, and he and the team are experts in emerging markets." However, Khoi stressed that Sturgeon's investments are far beyond his expertise. He noted that the company played a key role in bringing in new investors and building connections throughout its portfolio. As mentioned earlier, it guides Zood’s geographical expansion and helps define benchmarks based on its extensive regional knowledge.
Perhaps most notably, Sturgeon has equipped Zood with a custom team for a whole month. The team's mission is to assist Zood's M&A strategy to advise on three acquisitions in Uzbekistan and Pakistan. "No other venture capital firms do that. They act like entrepreneurs. The aid they provide is very high."
impact: more than money
Sturgeon Capital pursues more than just financial returns. While seeking special returns, it also recognizes that it has the potential to have a real impact in the country in which it operates. To maximize this goal, Sturgeon sets itself two high-level goals: to improve employment, especially for young people, and to promote financial inclusion. It has made progress in both areas.
job creation
Sturgeon operates in countries with young populations. In some countries, up to 70% of the population is under the age of 35. This is in stark contrast to aging countries like the United States and Japan, which face the problem of scarcity of workers in the future.
However, while having a young population may be beneficial, finding employment for them is often tricky. Sturgeon’s influence director Robin Butler pointed out that young people have twice the unemployment rate. Even so, opportunities exist. "If you can create jobs for the new generation, you can build the economy of the future," he said.
Sturgeon has set a series of goals for itself to achieve this. The first goal is to have its investment from SEO I indirectly support 500,000 jobs. It also works to increase the proportion of female founders and employees (both in very low proportions). In fact, Sturgeon has thoroughly studied this difference, organizing a study on the issue, interviewing forty startups and forty venture companies.
As of the second quarter of 22, Sturgeon's portfolio company directly employs more than 2,100 people, 60% of whom are under the age of 30. Almost $28 million has been paid. 30% of the total number of employees is women, which is an amazing number for the target area. Sturgeon hopes the results of its research will enable it to provide women-oriented advice to its portfolio.
Indirectly, portfolio companies support 50,000 businesses, which employ 360,000 more people – 72% of Sturgeon’s target.
Financial Inclusion
As mentioned in the Zood case study, the opportunity to access financial services in the target area is limited. It is difficult for consumers and companies to obtain basic products like credit. Sturgeon hopes the startups it supports will allow more people to enter the financial system. Sturgeon tracks the amount of loans and the number of loans in its portfolio to measure its impact.
So far, in 2022, Sturgeon has issued or contributed 2.3 million loans, totaling $267 million. Most recipients are first-time borrowers with little or no chance to obtain other loans. An additional indicator drawn by Sturgeon is R&D expenditure. The company hopes that the startups it supports can invest in innovation and bring more benefits to the local market. In 2021, the portfolio company invested $3.8 million in R&D. This number looks to rise this year, with $3.3 million invested.
Robin Butler said of his work: "You really feel that the businesses you are investing in, and if they succeed, they will really change the lives of millions of people."
Sturgeon Foundation
Sturgeon recognizes that some problems cannot be solved through investment. The fund has established an independent charity, the Sturgeon Foundation, to further expand its impact. The entity hopes to provide scholarships to tens of thousands of students in Central Asia, Pakistan and Egypt.
For several years, Sturgeon has been running an informal version of this project. In 2020, Zandiyeh and his team contacted local universities to ask which of them the most talented STEM students have trouble affording their education costs. Those recommended students receive financial help and contact portfolio companies for internships and eventually get full-time jobs. "It's not entirely altruism. We know that if the country has a strong talent pool, it will help our company. But we also believe in the opportunity to create something very, very cool that can affect thousands of people."
Earlier this year, Sturgeon decided to formalize the effort. It has convened a board of directors, including World Bank experts, university deans and business leaders. This group will be responsible for providing advice and guidance to the Sturgeon Foundation. The entity will be funded by part of the management fees of Sturgeon Capital. 50% of the funds are explicitly reserved for female students.
A fund's LP is particularly impressed by this approach. With expertise in emerging markets, Rizwan Rahim knows how much impact this move can have. For Rahim, Sturgeon’s scholarship program reveals some of the basic characteristics of the team. "These people are very humane. They are always talking about job creation. They are obviously driven by positive impact on society."
For some people, the venture capital we know is coming to an end. In an article published last year, Slow Ventures founder Sam Lessin believes that with deeper understanding of software investment, it has lost its characteristics that define the risk industry. "What we currently call venture capital is rapidly becoming just ordinary globalization, highly competitive and reasonable low-profit finance," he said.
cannot make such criticisms about Sturgeon Capital. Like the whaling agents in Massachusetts, the company has begun heading towards the horizon. Zandiyeh's funds have accepted geographical risks and choose to invest in markets that other investors hardly consider. It does so by believing that the bonus is worth the risk and knowing that success will bring financial rewards and real impact.
