Why B2B in emerging markets makes sense

By Idil Azizoğlu and Basar Yenidunya

The Realistic Optimist is a paid newsletter covering the globalized startup scene.

It is read by people at Endeavor, Sturgeon Capital, Quona Capital and more.

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Biographies

Idil Azizoğlu and Basar Yenidunya are both venture capitalists at 212, a VC backing growth-stage tech companies across Turkey, CEE, MENA and the diaspora.

212 focuses on B2B startups. Emerging markets (EMs) are exciting because of their young populations, increasing smartphone penetration, growing economies… Doesn’t B2B avoid these tailwinds?

B2C startups in EMs may generate buzz and tangible user growth, but financial returns are tough to come by. To generate them, one has to deeply localize their product, which makes scaling cross-border expensive.

Buying power in emerging markets is lower than in developed ones and companies are subject to macroeconomic risks they don’t control. Currency depreciation, present across many EMs, is a good example. A drop in local currency can evaporate a startup’s $ valuation overnight.

If EM B2C startups want to make decent money, they have to expand to “richer” markets where competition is better funded. This is challenging. Getir, a Turkish food-delivery unicorn, pulling out of its European markets is a case in point. 

Obviously, we aren’t saying a successful B2C play in EMs is impossible. Trendyol, an e-commerce site, is valued at $16.4B despite its large Turkish customer base. It’s just difficult to do given the limited margins you can expect to earn. 

We take a different stance. If we want our portfolio companies to commend higher valuations and larger exits, they need to sell to wealthier customers, in stronger currencies. Enter B2B. 

What advantages do EM B2B startups have?