Most emerging markets are significantly underserved -- this has two implications that I'm drawn to:
From a social standpoint, businesses contribute to society in many ways. From tax revenue and employment opportunities to new products, corporations provide a useful vector of social change. In the context of emerging markets, the impact of that change is often far more intense (versus that in developed countries). People need jobs everywhere, but the impact of a well-paying job on the life of the average job seeker in Lahore (Pakistan) is quite different from that in San Francisco (US). I'm drawn to the impact that scaling businesses can have in emerging markets.
Second, due to the underserved nature of EMs, there is a strong and growing latent demand for various offerings that do not yet exist. A lot of these offerings have a proven product-market fit and a validated economic model. In the early years of introducing such offerings to the market, demand significantly exceeds supply, resulting in outsized returns on capital invested (ROIC). Commercially, I believe that emerging markets offer opportunities that may not exist in developed economies.
In the below post, I've highlighted opportunities that I'm actively thinking about. I'd love to chat with you in case you're working on any of the below:
- Missing Infrastructure -- I'm particularly excited about infrastructure projects that, by virtue of being first-of-its-kind in a given geography, have potential to deliver FCF (Free Cash Flow) that meets the following conditions: (a) offer 100% ROIC (return on invested capital) within 12-18 months of launch, and (b) have potential to exceed $10m+/year in annual revenue in the long-term terminal state. Due to the underserved nature of emerging markets, I believe there is major latent demand for various types of infrastructure that does not yet exist, creating a unique opportunity for projects that deliver high returns early on.
- Transformative Marketplaces -- In the context of underserved emerging markets, consumer marketplaces have potential to transform entire industries. I'm particularly curious about consumer marketplaces that offer: (a) a low-risk path to operating profitability through early drivers of capital efficiency, (b) potential to exceed $1b+ in annualized revenue across no more than 2-3 geographies.
- Private Equity -- In emerging markets, there are numerous small and medium businesses (SMBs) that have potential to scale across geographies. These SMBs tend to have an incredibly strong product-market fit, high customer retention, and ROIC that is 2-3x of that of other successful small businesses. Oftentimes, the management teams do not have the desire and/or skill set to scale the business at an enterprise level. With the right investment and enterprise strategy, many of these businesses can be scaled into multinational companies that deliver high ROIC over a 5-10 year timeframe.
- Software Services -- For quite some time, software has been driving major shifts in how organizations operate (see here). With low overheads in emerging markets, and with the right team that can build operational excellence early on, I believe there is a unique opportunity for a software development firm to get behind the right business development strategy. Specifically, the right strategy would focus on building software for large companies that are facing a major transformation within their industry that requires them to excel in select technologies. A great example of this is Afiniti -- the team realized that call center software across the world required key adaptations and then started building that for large-scale companies.
I'm also curious about corporate structures that can create a multi-purpose platform to target the above set of opportunities (within the umbrella of a single group of companies). I'd love to hear from those who are working on ideas that are directly linked to the above -- I can be reached at gul@apollo-group.io.
Last updated: October, 2022