The Middle East and Africa are often viewed as a single region by Western investors due to their geographical proximity. However, from an investment perspective, they are two fundamentally different regions. The Middle East centres on capital, with sovereign wealth funds from Saudi Arabia, the UAE, and Qatar managing tens of billions, if not hundreds of billions, of dollars. They actively invest in technology companies worldwide, including in India, Southeast Asia, and Silicon Valley.
In contrast, Africa is a consumer of capital: a continent with the youngest population on the planet and the lowest level of financial services penetration, where every dollar of venture capital investment meets unmet demand. Understanding this distinction is critical for investors seeking to build a balanced portfolio in these markets.
Why is capital flowing into emerging markets?
Venture capital funds traditionally assess markets based on three parameters: the size of the potential audience, the rate of its growth and the cost of entry. Developed markets such as the US and Western Europe have long since passed their peak in terms of accessibility: valuations of early-stage startups are inflated, competition for deals is fierce, and exit multiples are shrinking. In contrast, emerging markets offer a combination the West lacks: a young population, rapid digitalisation, and lower deal entry costs.
The growth factors: The middle class, internet penetration and demographics
These three factors form the foundation of this transition.
The first is the growth of the middle class. In countries such as India, Indonesia, Vietnam, Nigeria and the Gulf states, the number of households with sufficient income to make regular online purchases is growing by millions every year. This population is gaining access for the first time to banking products, e-commerce, food delivery, and subscriptions — precisely the categories in which venture-capital 'unicorns' are emerging.
The second factor is the spread of mobile internet. In many developing regions, populations have skipped the desktop computer stage and moved straight to smartphones. This has created a unique situation in which the infrastructure for digital products has emerged almost simultaneously with the demand from consumers with spending power. It gives startups the scope to scale up rapidly without having to nurture the market for years.
The third factor is demographics. The median age of the population is around 28 in India, just over 17 in Nigeria, and up to 30 in most countries in South-East Asia. This young workforce is both a consumer of digital products and a source of talent for technology companies. By comparison, the median age in Germany or Italy exceeds 45 years – markets with demographic growth potential are simply more attractive to long-term capital in structural terms.
Two more factors, which are often overlooked in superficial analyses, should be added to these three. The first is rapid urbanisation. Every year, millions of people move from villages to second- and third-tier cities, creating new demand for housing, transport, delivery and financial services.
Secondly, there has been an improvement in the quality of local education in engineering and information technology. India and Vietnam produce hundreds of thousands of software engineers every year, reducing the cost of hiring technical teams while improving the quality of products created by local startups.
The combination of a skilled yet low-cost workforce and a domestic market with purchasing power makes these economies attractive to both consumer- and export-oriented technology companies.
The structural shift of 2025–2026: Major investments in fewer companies
Over the past two years, there has been a notable change in the behaviour of funds in emerging markets. Instead of spreading capital across dozens of early-stage startups, major players are focusing their investments on a smaller number of companies that have already proven the viability of their business model. This is a logical consequence of several simultaneous factors.
Compared with similar companies in the US, startups in India, Latin America, and South-East Asia at an equivalent stage of growth are trading at significantly lower revenue multiples. Funds entering the market now are banking on this gap closing as capital markets mature.
The growth of the middle class is shifting from a theoretical trend to a measurable reality, with the unit economics of companies in fintech, e-commerce, and logistics finally demonstrating sustainable profitability at the contribution margin level rather than merely revenue growth.
There has been a technological leap forward: companies in these markets are building products directly on cloud infrastructure, artificial intelligence, and mobile payments, bypassing the stages that Western companies took years to go through. This reduces capital expenditure on scaling up and shortens the time to profitability.
Local champions have emerged — companies that have secured multiple rounds of funding, have proven teams and hold leading positions in their niche within a country or region. It is precisely these companies that attract the bulk of capital, as the risk of a failed product has already been mitigated for them.
Following several years of heightened volatility in Western public markets and a squeeze on valuations in the technology sector, diversification away from the US and EU markets has become a priority for institutional investors. Emerging markets offer uncorrelated returns and access to growth that is no longer available at home.
India: The world’s third-largest startup market
India has firmly established itself in third place in the global rankings for both the number of startups and the volume of venture capital funding, behind only the US and China. The market comprises over a hundred companies valued at more than a billion dollars, and the ecosystem has long since expanded beyond Bangalore to encompass Mumbai, Delhi, Hyderabad and Pune.
A key feature of the Indian market is the depth of domestic demand. Its population of over 1.4 billion and its government's active investment in digital infrastructure through the India Stack programme (unified identification, UPI instant payments and open banking APIs) have created a unique environment for fintech. Fintech remains the country’s largest sector in terms of capital precisely because of this, and payment systems such as UPI process billions of transactions every month.
The second major area is e-commerce and D2C (direct-to-consumer) brands, which are capitalising on the growth of the middle class in smaller cities. Indian investors are also actively funding SaaS companies that target the global market. Indian teams have a strong tradition of software development, and many startups build products from the outset for export to the US and Europe rather than just for the local market.
Over the past two years, India has seen an improvement in the quality of deals rather than just their quantity. Funds are becoming more selective, the proportion of late-stage rounds is increasing, and several major IPOs by Indian tech companies on national stock exchanges have confirmed that investors can indeed realise liquidity.
The role of the regulatory environment is particularly noteworthy. The Indian securities regulator has consistently streamlined the process for technology companies to list on the stock exchange. Notably, they have introduced specific rules for companies that are loss-making at the time of their IPO, but which have high growth potential. This reduces Indian startups’ reliance on US or Singaporean stock exchanges alone, while also enabling venture capital funds to plan their exit strategies within a timeframe that local institutional investors can understand.
Alongside a deep pool of engineering talent and a growing culture of serial entrepreneurship — where founders who have already built and sold a company are now launching their second or third venture at a significantly faster pace — India is evolving into a self-sustaining ecosystem that requires less and less external capital.
South-East Asia: A surge in late-stage funding and new ‘unicorns’
With a combined population of over 600 million people and one of the world’s fastest-growing mobile internet penetration rates, Indonesia, Vietnam, the Philippines, Malaysia and Thailand make up a region with significant potential for startups. However, the region is characterised by fragmentation, with each country having its own language, regulatory environment and consumer habits. Consequently, successful startups either build multi-country platforms from the outset or establish a strong foothold in one large country before scaling up further.
Recent quarters have shown a clear surge in late-stage funding. While a few years ago the bulk of capital went into seed and early rounds, funds are now focusing their investments on companies that have passed Series B and are demonstrating sustainable unit economics. This is a natural consequence of the ecosystem maturing: the first generation of startups has either exited the market or become regional leaders.
Super apps — platforms that combine taxi services, food delivery, payments and financial services within a single app — remain the dominant model in the region. At the same time, the e-commerce segment is growing, bolstered by social commerce via messaging apps and streaming platforms where users can purchase goods while watching video content.
While the emergence of new 'unicorns' in the region has slowed compared to the 2021 peak, the calibre of companies achieving this status is now noticeably higher. These companies are entering the market with genuine profitability or a clear path to it, rather than relying solely on revenue growth driven by subsidised prices.
The regional fragmentation mentioned above remains the main challenge and, at the same time, a source of opportunities for investors. A company that dominates in Indonesia often faces a completely different set of rules in Vietnam, ranging from foreign investment regulations to the specifics of payment infrastructure and consumer behaviour.
This means that successful regional expansion requires more than just capital; it demands deep local partnerships in each new country. Investors in South-East Asia are increasingly evaluating founding teams on their ability not only to build a product but also to recruit and delegate authority to local teams in each country where they operate. This has become one of the key selection criteria at the Series B stage and beyond.
Latin America (LATAM): A year of preparing for liquidity
Brazil, Mexico, Colombia and Argentina remain the main venture capital hubs in the region, with Mexico set to benefit particularly from the trend of relocating production and logistics chains closer to the US.
The keyword for the region in 2025–2026 is 'preparation'. After the rapid growth of 2019–2021 and the subsequent correction, the LATAM ecosystem spent several years consolidating. Companies cut costs, focused on profitability, and established the corporate governance structures necessary for going public. This preparatory work is nearing completion, and investors anticipate a wave of liquidity events, such as IPOs and strategic acquisitions, over the coming quarters.
Fintech remains the region’s most mature sector, driven by historically low penetration of traditional banking services and high demand for small-business lending. Logistics and e-commerce continue to attract capital, buoyed by growth in cross-border trade among Mexico, the US, and the rest of the region. AgTech (agricultural technology) is emerging as a distinct and increasingly prominent sector, given Brazil's and Argentina's roles as leading global exporters of agricultural produce.
The region’s macroeconomic backdrop also provides further reasons to invest. Brazil and Mexico — Latin America’s two largest economies — underwent a cycle of interest rate rises earlier and more decisively than most developed countries.
A reduction in the cost of capital in the local market traditionally leads to a revival of venture capital activity over the following few quarters. Furthermore, the growth in foreign direct investment in Mexican manufacturing is creating secondary demand for industrial and logistics technology solutions – a segment that was virtually non-existent as a separate investment category in the region just a few years ago.
Which sectors dominate the VC landscape in emerging markets?
Despite regional differences, several sectors consistently feature as priority areas for investment across all four regions.
Fintech remains the leader virtually everywhere. The low penetration of traditional banking services, combined with the widespread adoption of smartphones, has created significant untapped demand for digital payments, lending, insurance and savings. This is most clearly demonstrated in India, Nigeria, Brazil and the Gulf states.
The second major sector is e-commerce and logistics, as growth in digital payments automatically creates a need for the delivery of physical goods. The logistics infrastructure in many of these countries has historically been weak, creating opportunities for new players.
Artificial intelligence and automation are the newest and fastest-growing sectors. Companies in emerging markets are applying off-the-shelf language models to localised products, such as multilingual customer support and the automation of small business accounting, and doing so more quickly than mature corporations in the West.
Cleantech and the energy transition are also gaining momentum, particularly in the Middle East, where sovereign wealth funds are actively diversifying the economy away from oil revenues towards renewable energy and hydrogen technologies. In Africa, decentralised solar grids are addressing the problem of an unreliable electricity supply.
Finally, HealthTech and EdTech are stable, albeit less high-profile, sectors, underpinned by a shortage of high-quality healthcare and educational infrastructure in regions with young, growing populations.
Another notable trend is that the boundaries between these sectors are becoming increasingly blurred. For example, fintech companies are adding logistics services, e-commerce platforms are launching their own credit products, and energy solution providers are integrating payment systems for instalment payments.
When analysing companies in emerging markets, investors are increasingly assessing a team's ability to build an ecosystem of related services around a single user base, rather than the merits of an individual product. It is precisely this approach that determines whether a company will become a regional leader or remain a niche player.
How to invest in VC funds in emerging markets
Direct deals and local syndicates
Participating in direct deals through angel syndicates or local co-investment platforms is the most direct, but also the riskiest, route. This approach requires in-depth knowledge of the specific market, access to high-quality deal flow, and the ability to conduct independent due diligence. This method is better suited to investors with a local presence, on-the-ground partners, or significant venture capital experience, as information asymmetry in these markets is greater than in the US or Europe.
Regional venture capital funds and funds of funds
The most common way to achieve diversification is to invest in regional venture capital funds that specialise in India, South-East Asia, Latin America or Africa. Alternatively, you can invest in funds of funds that allocate capital across several leading local general partners (GPs). This approach reduces the risk of concentration in a single company or country, providing access to teams with local expertise and networks. However, it may involve double the level of fees.
When selecting a specific fund, three factors are worth paying attention to: the management team’s experience in that region specifically (rather than general venture capital experience in the US or Europe); the size and age of the fund (younger, first- or second-generation funds often demonstrate higher returns but also carry higher risk due to a lack of proven track record); and the presence of local partners in each country.
The minimum investment threshold for such funds is usually $100,000 for accredited investors, although some feeder fund platforms lower this to tens of thousands of dollars.
Joint investments with sovereign wealth funds and DFIs
Co-investment arrangements with such organisations are becoming increasingly popular. Examples include Saudi Arabia’s PIF, the UAE’s Mubadala, the World Bank’s IFC and the UK’s British International Investment. These organisations often open up joint investment opportunities for private capital alongside their own big cheques, providing access to institutional-scale deals with an additional layer of due diligence.
For a private investor, the advantage of this format lies not only in access to large-scale deals but also in the effective transfer of due diligence risk to a team with the necessary resources and mandate to carry it out to the highest standard.
Sovereign wealth funds and DFIs typically invest at later stages, when a company already has a proven business model. Therefore, statistically, the co-investment format carries a lower risk of total capital loss than direct participation in early-stage rounds. However, the downside is lower potential returns, as entry occurs at higher valuations. There is also a limited number of slots for private co-investors, access to which usually requires an existing relationship with the deal arranger.
Public instruments and ETFs
For investors seeking exposure to emerging markets without direct venture capital risk or a long illiquidity horizon, public alternatives exist, such as exchange-traded funds (ETFs) tracking technology companies in India, Southeast Asia, and beyond. There are also shares in public holding companies that invest in private technology assets in the region.
This approach sacrifices the potentially higher returns of private investment rounds in favour of liquidity and transparency. It often serves as a sensible starting point for investors who are just beginning to explore this asset class before moving on to less liquid instruments.
Among the specific categories of public investment instruments, three types are worth distinguishing between. The first consists of broad emerging-market index ETFs, which offer a comprehensive view of a country's or region's entire economy, rather than focusing solely on the technology sector. While they are suitable for basic diversification, they dilute the focus on venture growth by including other sectors, such as commodities or banking.
The second type consists of highly specialised technology ETFs that focus particularly on the digital economies. These ETFs more accurately reflect the dynamics of the venture capital market, but are also subject to higher volatility.
The third type comprises shares in public holding companies, such as large investment groups from Hong Kong or Singapore, which have historically built up portfolios of private technology assets across Asia. These provide indirect yet often underestimated access to assets that would be virtually impossible for a private investor to obtain by any other means.
Emerging markets are no longer a niche investment for funds seeking something different — they have become a structural component of the global venture capital portfolio. India is consolidating its position as the world’s third-largest start-up market. Meanwhile, Southeast Asia is maturing with high-quality late-stage deals, Latin America is preparing for a wave of liquidity, and the Middle East and Africa are evolving into independent hubs of capital and technological innovation.
For investors building a 5–10-year portfolio, ignoring these markets would mean voluntarily turning down one of the most powerful sources of growth over the next decade. The key task is to choose an investment vehicle that matches your time horizon, risk appetite, and access to high-quality local expertise. It is the combination of these three factors — rather than simply entering the market — that ultimately determines the outcome of your investments.
