nvesting in emerging markets comes with its own unique challenges,

but the rewards can be well worth the extra effort. 've lived in 11
countries and visited a few dozen more as an investment professional.
After seeing a couple thousand investment proposals, meeting many
entrepreneurs, and trying not to contract malaria, 've found 10 key
takeaways to keep in mind when investing in startups in exotic locales:
1. Diversify - Startups are risky. And startups in emerging markets
are even riskier. t is crucial to diversify by investing in multiple
startups, targeting different industries, in different countries.
2. Entrepreneurs must be reaIistic - n emerging markets, as in
developed markets, the entrepreneur is the one who will make or
break your investment: he needs grit and drive, no matter what
country his startup is in. But in emerging markets, an entrepreneur
also needs to navigate through thick government bureaucracies,
where motives can be mysterious and transparency is absent. He
must know - or figure out - how to work with the government and
public officials to defend his, and your, assets.
3. Entrepreneurs need connections - When you evaluate an
entrepreneur in an emerging market, ask who he knows. Personal
connections to powerful people could mean the difference between
success and failure (more so than in the developed world). But tread
carefully, because such relationships are often more complex than
they first appear.
4. Everything is smaIIer than in the US - Emerging markets tend
to be small and self-contained. A country's languages and laws can
limit your target addressable market. n addition, it's hard to find good
staff and talent. And while raising capital is tough in all countries, bear
in mind that your pool of possible investors shrinks dramatically when
you start your pitch with "So there's this great investment opportunity
in Nigeria.
5. Don't overpay - Valuation still matters, and it should be lower
than in developed countries, because the risk is higher and because
future investors will demand reasonable valuations.
6. Expect even Iess Iiquidity than usuaI - nvestors are a fickle
lot, so when it comes time to get your money out, your company's
country may be out of favor. This is especially true when elections are
coming up (ndonesia), the commodity cycle is down (Mongolia), or
there is civil unrest (Thailand). When you invest in emerging markets,
don't expect an exit for years to come.
7. Keep the IegaI stuff in deveIoped countries as much as
possibIe - Sometimes you can invest in a US-domiciled company that
does business in the emerging market, perhaps as a holdco structure,
rather than a company domiciled in the emerging market itself. Why
should you prefer the US company? Because you cannot rely on the
rule-of-law in many emerging markets. One friend in an emerging
market told me he videotapes all his contracts while they are being
signed, to increase their enforceability (and he hires private
investigators as necessary... that also helps with enforcing contracts!).
8. Sometimes business modeIs transIate weII from the US to
emerging markets - And sometimes they don't. Most often, 've
found they just need a little tweaking, like one of my startups that does
mobile money: they have to explain to all their new customers that you
don't go to your country's central bank to pick up your money transfer,
because there is, in fact, a difference between the central bank and a
commercial bank.