Five Ripe Emerging Market Categories in 2024

Jan 25, 2024

A Unique Window of Opportunity

In our recent Predictive Limited Partner update, I was reflecting on what I believe to be a rare window of opportunity in 2024 for venture in emerging markets. I’ll share why, and a few areas I’m particularly interested in, with you below.

On one hand, venture capital activity in emerging markets dropped dramatically in 2023, particularly relative to developed markets.

  • Total funding for Latin American startups in 2023 fell by 60% from 2022 to about $3.1 billion.

  • In Africa, funding fell by 39% in 2023 relative to 2022, with $2.1 billion raised in the first half of the year.

  • The Middle East saw an approximately 30% drop in venture capital funding between H1 2022 and H1 2023.

Why the drop in venture activity?

Global geopolitical tension in 2022, from the war in Ukraine to international sanctions, paired with rising interest rates, led public markets to correct that year.

Add in a series of instability events in the tech ecosystem in early 2023, like Silicon Valley Bank’s collapse, and a ripple effect swept private markets — first growth, then early-stage. Global venture firms like Tiger Global, Insight, Softbank, and Index pulled back sharply, shifting their attention to U.S. and European safe havens, particularly in areas like A.I.

Emerging markets bore the brunt of this venture pullback; the firms that sparked an emerging market frenzy in 2020-21 were hardly present in these regions in 2022-23.

This funding drought forced startups in emerging markets that had raised seed rounds between 2018 and 2021 to recalibrate aggressively towards scalable revenue and healthy unit economics. Those that overspent, like South African WhereIsMyTransport ($27M raised) and Ghanaian Dash ($86M raised), shut down, while heralded growth stage companies like Africa’s Chipper Cash aggressively cut headcount to survive through 2023.

How did emerging market startups evolve?

The funding drought of 2022-23 forced founders to focus on immediate, sustainable value creation.

Founders have had to iterate quickly towards manageable burn rates, healthier margins, and scalable revenue models. Fintechs have diversified their pricing with a shift to recurring SaaS, away from a reliance on transaction commission.

Naturally, a tighter funding belt has also forced a recalibration of personnel. Many companies have cut back on marketing and business development headcount in favor of product-led growth.

In highly-inflationary markets like Latin America and Africa, startups have attempted to buffer themselves from macro risk by moving upstream from less reliable SMB customers to larger enterprises.

While on the surface, it may seem that not much has changed amongst the 2021-22 vintage of startups in emerging markets, under the hood their infrastructure and team compositions look entirely different.

Excitingly, breakout companies are now emerging from this funding drought with healthy revenue growth and scalable business models.

How will 2024 look in these regions?

I expect tempered economic growth in emerging markets in the first half of 2024.

Growth will be modest in Latin America, where GDP is expected to expand by 2.3% in 2024 after 1.9% growth in 2023. Africa’s economy, meanwhile, is expected to grow by 4% in 2024 after a slowdown to 3.3% in 2023. And in the Middle East, the economy is expected to rebound back to 3.4% following a slowdown to 2.2% in 2023.

Global venture firms will also likely remain on the sidelines in these regions through the first half of 2024, with the stability of the U.S. and European startup markets remaining the more attractive option — most will be focused on finding the next wave of AI opportunities, particularly in areas like LLM tooling and industry-specific use cases.

However, while investor attention is directed elsewhere in 2024, a major tailwind in Latin America, African, and the Middle East is being overlooked: business and consumer digitization is accelerating.

Millions of SMBs and consumers will come online this year.

In Africa and the Middle East, internet adoption is expanding fastest, at a rate of about 80 million more people per month between 2023 and 2027, driven by smartphone proliferation, digital payments, and government subsidies. Meanwhile, in Latin American countries like Colombia, digitization rates are spiking — 63% of the Colombian population consistently used the internet in 2023, up from 38% in 2014.

As SMBs and consumers come online in emerging markets, the startups providing critical services for them that successfully made it through 2022-23 are well positioned.

These companies have slimmed down, nailed their core product offerings, and refined their business models. Breakouts are emerging with healthy revenue growth and unit economics at highly attractive valuations.

We’re talking post-PMF businesses at pre-PMF terms.

They’re now raising to aggressively capture market share.

This disconnect between global investor attention and breakout startups building critical digital services in emerging markets presents a uniquely attractive opportunity for early-stage investors.

Five Ripe Areas of Opportunity

Given this window in 2024 to capture overlooked value in emerging markets at highly attractive valuations, I’ll walk you through five areas of opportunity I’m keen on.

Let’s jump in:

1. Consumer remittance solutions distributed B2B2C

The remittance market is entering an inflection point, with several tailwinds now unlocking a window of opportunity for a category-defining startup to emerge.

Favorable Macro Tailwinds →

At a macro level, remittance tailwinds — particularly in Latin America — continue to accelerate as remittence inflows into LatAm grew by 8% in 2023. Mexico was the second largest recipient of remittance payments globally in 2023 at $67 billion, behind India at $125 billion.

This remittance growth in Mexico is being driven by a strong U.S. labor market, particularly in sectors like construction, along with higher wages.

Incumbent Solutions Aren’t Cutting It →

Meanwhile, existing methods of remittance payments, from traditional bank transfers to cross-border payment platforms like Wise, FIS , or Paypal remain either:

  • Too time intensive with multiple day to week long delays

  • Too costly with a 1.5% - 5% transaction commission

  • Functionality-limited in immediate spending utility for the remittance recipient, across daily necessities like food, utilities, gas, or healthcare

There have been several startup entrants in the remittance market in Latin America over recent years, including Global66 ($20M+ raised), which have reduced steps to sending funds internationally and enabled consumers to hold their balances in foreign currencies like the U.S. dollar.

And there have also been forays into digital wallets launched by governments, like El Salvador, which rolled out a national bitcoin wallet called Chivo in 2021 to reduce fees on over $6 billion in remittances sent annually to the country.

However, these solutions have been unable to capture meaningful market share due to technological inefficiencies, security issues, and fragmented banking ecosystems, which have impeded expansion. Although around half of Salvadorans downloaded Chivo initially, over 60% of those have since stopped using it due to tech issues.

“Don’t even talk to me about Chivo. It’s not secure, so I’m not going near it.” - Carolina Reyes, a merchant in El Palmarcito, El Salvador

Simply put, despite growing demand, it’s been extremely difficult to launch a winning remittance platform across multiple countries in Latin America and Africa due to tech & performance issues and lack of a connected banking infrastructure.

However, there are now viable solutions filling both of these gaps.

Web3 is Unlocking Performance & Cost-Efficiency →

Technologies like programmatic digital wallets and stablecoins are becoming performant and cost-efficient enough to incorporate into remittance products.

Companies like Circle have unlocked innovative ways to send money internationally via frictionless on-ramps into stablecoins like USDC — pegged to the US dollar — with programmable wallets that can be embedded seamlessly into consumer UIs.

Circle is one of the world’s leading programmable wallet providers

Furthermore, previously prohibitive gas fees to execute blockchain transactions can now be offset fully by remittance products, mitigating fees for the end user. And smart contracts can now be developed to securely execute transactions, such as those requiring two or more participants to sign-off.

The result? Instant, cost-free, and highly-secure international transactions.

Connected Banking Infrastructure is Now Maturing, Unlocking Faster Regional Expansion →

Companies like Pomelo, Dock, or Pismo that provide infrastructure for fintechs to launch services in multiple Latin American countries within days have matured over the past several years.

These companies enable vertical applications, such as a novel remittance product, to scale across Latin America while remaining fully compliant with local regulations and connected in real-time to local banks.

More specifically, companies like Pomelo securely integrate local payment rails, like the Pix in Brazil and Dinero Móvil in Mexico, with financial institutions and compliance rails.

Integrating these endpoints together with connected API infrastructure, and Pomelo provides a comprehensive platform for a new wave of startups to launch fintech services in each region in a matter of days rather than months to years.

This connected infrastructure is a key unlock for a remittance unicorn to emerge.

I believe a remittance category leader in Latin America will exhibit a few key characteristics:

  • They will leverage best-in-class programmatic wallet and stablecoin technologies

  • They will provide post remittance utility for the consumer to pay for essential goods, utilities, healthcare, and entertainment

  • They will be distributed primarily by multinational brands rather than direct to consumer marketing

I believe a winner in this category will likely be a B2B2C company, partnering with brands to distribute their solution to their consumers at the point of sale.

Interesting companies to track in this category include Xapo Bank, Stable, and Kura.

2. DeFi infrastructure for the enterprise

High inflation rates and currency volatility in emerging markets like Latin America and Africa have severely impeded financial stability for enterprises in recent years.

Businesses in these regions are in dire need for solutions to retain and enhance the value of their treasury funds. Decentralized finance (DeFi) that leverages existing, foundational Web3 infrastructure offers an answer.

In Latin American countries like Argentina and Venezuela, for instance, inflation has hit record numbers in recent years. In 2023, Argentina saw its annual inflation rate hit 211.4%, the country’s highest number since the early 1990s. Meanwhile, Venezuela’s annual inflation rate dropped slightly to 190%. putting it at number two in the world behind Argentina.

To put this in context, milk costs about $4 in Venezuela at the moment, roughly equivalent to the country’s minimum public sector monthly wage.

Meanwhile, Africa has also seen rising inflation across the continent.

In Nigeria, for example, consumer inflation rose to a 27 year high in January of 2024, hitting 28.92%, driven by a shortage of dollars and a sharp drop in oil inflows — oil accounts for 90% of Nigeria’s export economy.

For businesses in Nigeria — particularly SMBs — this has meant a steep reduction in revenue and treasury value.

Stablecoin Onramps for the Enterprise are Maturing →

Over the past few years, companies like Yellow Card ($56M raised) have emerged to provide simplified onramps into stablecoins like USDC for African businesses. Yellow Card recently partnered with Coinbase to enable Coinbase users in over 20 African countries to buy USDC from their Coinbase wallet and send it through WhatsApp.

With faster, more cost efficient USDC payments unlocked with Coinbase’s recently launched Layer 2 network in Base, which is fully EVM-compatible, Yellow Card is reducing barriers of entry to high-volume USDC transactions for enterprises across Africa.

Another stablecoin entrant in Africa is Ivorypay, backed by Web3 unicorn Alchemy, which aims to enable African SMBs to get paid in stablecoins by customers via a simple Point of Sale checkout integration.

In Latin America, companies like Ripio ($94M+ raised) and Jeeves ($360M+ raised) have been making headway in commercializing stablecoin onramps, wallets, and exchanges for businesses, packaging end-to-end crypto management for businesses into comprehensive platforms.

DeFi is Now Emerging as a Blue Ocean Opportunity →

As foundational Web3 infrastructure goes mainstream in emerging markets, I believe there is now an untapped opportunity for DeFi above these foundations.

Centralized crypto exchanges have been strongly favored in markets like Latin America to date, relative to decentralized exchanges and other DeFi solutions.

In Venezuela, for example, 92.5% of crypto exchange volume has occurred on CEXs, with just 5.6% occurring on DEXs; far below the global average of 44% on DEXs.

Why the discrepancy between CEX and DEX adoption in EM?

I attributed the discrepancy to foundational financial instability and a lack of educational awareness about DeFi.

While DeFi — via popular DEXs like Uniswap or Balancer — has seen strong adoption in stable economies like the United States and Europe, where trading and passive income solutions are in high demand, the adoption of crypto solutions in markets like Latin America and Africa to date have been primarily driven by an immediate demand for storing & retaining value to combat inflation.

Emerging markets have thus far been prioritizing Web3 use cases for value stability rather than value creation.

However, as stablecoin on-ramps, off-ramps, and crypto wallets for the enterprise mature in 2024 in these regions, promoting treasury stability, I predict a demand for DEXs and yield-bearing protocols will emerge.

A startup to watch in this category is Exactly, which has raised $5M to date from firms like Kaszek to provide a decentralized protocol that unlocks fixed interest rates for lenders. Exactly’s larger goal is to closed the gap between DeFi and Latin America’s leading financial institutions.

I expect DeFi winners in emerging markets will partner with foundational stablecoin infrastructure providers like Bitso to distribute quickly across multiple regions.

3. AI-enhanced service providers for SMBs coming online

As mentioned earlier, SMBs are digitizing at a rapid rate in emerging markets. This will unlock a major opportunity in 2024 for modern service providers designed specifically for digital business workflows.

In Africa, for instance, businesses have been coming online at a blistering pace. In fact, Mastercard recently found that 93% of SMBs in sub-saharan Africa have digitized at least one facet of their business.

Over $500M has been raised by African B2B commerce startups like Wasoko, Alerzo, and Sabi to digitize SMBs. 90% of that funding amount came between 2020 and 2021.

These companies have focused on digitizing top of funnel workflows, including point of sale payments.

A similar digital transformation of SMBs has been occurring in Latin America, with 83% of LatAm’s over 10 million SMBs now actively investing in digitization.

On the fintech side, companies like Nubank (NU, $42BN market cap), Latin America’s leading neobank, and others like Clara ($408M raised), Jeeves ($368M raised), Pomelo ($103M raised), and Pismo ($118M raised, acquired by Visa) have been pioneering SMB payment on and off ramps.

Meanwhile, companies like Melonn ($25M raised) have focused on digitizing e-commerce fulfillment and back office operations.

The TAM for SMB digitization in Latin America is still enormous; Cisco found that only 24% of SMBs across LatAm are in advanced digitization stages, and only 4% are fully digitally native.

There is a Massive Opportunity to Service Businesses Coming Online →

As SMB digitization accelerates, I see a major opportunity in 2024 for a new wave of emerging startups to service digital SMBs with AI-enhanced software solutions in areas like:

  • Business insurance

  • Fraud detection & prevention

  • Accounting & tax

  • Legal

  • Healthcare & benefits

  • Cybersecurity & digital identity

SMBs coming online have a fundamentally new set of systems and workflows, from filing taxes to managing insurance risks and providing employee benefits. Each of these workflows presents an opportunity for a new, category-defining startup.

For example, a company to keep an eye on is Latú Seguros ($7M raised), providing seamless business insurance for digital businesses across Latin America. A more established comparable to Latú in the U.S. is Vouch Insurance ($160M raised).

Latú offers a variety of insurance services like cyber insurance tailored uniquely to digital businesses across Latin America.

Another to watch is Momentu ($2.5M+ raised), a fast growing startup providing a corporate mental healthcare platform for many of Latin America’s leading tech companies like Rappi and Clara. A comparable in the U.S. is Spring Health ($2.5BN valuation), which soared after partnering with leading benefits providers to distribute their mental health benefits solution nationwide.

And in Nigeria, Dojah (YC S22) is an emerging player in SMB user authentication and identity management, servicing many fast growing fintechs scaling across Africa like Moni with a comprehensive suite of verification & compliance functionality.

I expect that category-defining companies in these service areas will likely leverage LLMs for highly personalized and conversational experiences.

4. E-commerce personalization & loyalty

As businesses and consumers come online in emerging markets in 2024, barriers of entry to e-commerce will drop substantially. With growing financial stability accelerated via technologies like Web3, consumer purchasing power will accelerate.

These tailwinds will begin to catalyze an e-commerce renaissance in regions like Latin America and Africa.

The B2C market in Latin America is expected to surpass $7.5 trillion by 2030; the continent currently has over 300 million digital buyers (out of a total population of 652 million), and this number is expected to grow by over 20% by 2027. In particular, Brazil and Mexico are expected to be at the forefront of LatAM e-commerce, with projected CAGRs of 77.2% and 68.2% respectively.

E-commerce incumbents in Latin America like Mercado Libre (MELI, $89BN market cap) and Rappi ($5.2BN valuation) are positioned to thrive.

Meanwhile, in Africa, e-commerce penetration is expected to surpass 500 million individuals by 2025, at a CAGR of 17%. Much of this growth will come from mobile, which contributes to 70%+ of e-commerce traffic in Africa today.

With a continent-wide population of 1.4 billion people today, expected to grow to 2.5 billion people by 2050, it’s hard to fathom how massive the African e-commerce market will be in coming years. E-commerce incumbent Jumia (JMIA), the ‘Amazon of Africa’, now sits at a $302M market cap after falling from a peak of over $6BN in 2021. Jumia’s stock price has taken a hit as Africa’s economy has corrected in recent years, cratering from a $6BN market cap to $302M.

While a rebound in Africa’s e-commerce market will likely take several years, the outlook for early e-commerce movers like Jumia is bright.

New Opportunities for Personalized E-commerce & Loyalty Rewards →

However, I believe we’re now entering an exciting window of opportunity for early-stage startups closing the gap between incumbent e-commerce platforms and real-time consumer preferences.

We’ll likely see category leaders emerge in these areas:

  • Convenience & accessibility

  • Hyperlocal services

  • Loyalty

  • Engagement analytics

Following similar trends in the U.S. and Europe, where a layer of personalization and loyalty emerged above platforms like Amazon, Uber, and Shopify in the 2010s and minted several new unicorns, I expect a similar phenomenon to occur in emerging markets.

Here are a few comparables in the U.S., to put this opportunity in context:

  • Sprout Social (SPT, $3.6BN market cap) was founded in 2010 to provide real-time e-commerce analytics for leading consumer brands.

  • Ibotta ($1BN valuation) was founded in 2011 to unlock cash back rewards on e-commerce purchases.

  • Dosh ($90M raised, acquired by Cardlytics) was founded in 2016 to provide cash back for consumer experiences and utilities, from shopping to dining and gas.

  • Snackpass ($96M raised), was founded in 2017 to provide a social commerce layer above restaurant point of sale systems.

  • Lolli ($28M raised) was founded in 2018 to offer crypto rewards for online shoppers — Lolli has partnered with leading e-commerce marketplaces like Amazon, Walmart, and Sephora to provide a percentage of a shopper’s purchase back to them in crypto.

The Latin American loyalty market is expected to grow by 13.2% annually between 2022 and 2026 to $11 billion.

Given the mobile-first nature of markets like Latin America and Africa, there will be an exciting opportunity for first movers with mobile-native e-commerce apps like Sumer ($10M raised) to offer integrated loyalty and analytics solutions.

I also expect meaningful opportunities for M&A, where incumbent e-commerce platforms like Mercado Libre, Rappi, or Jumia will purchase startups that provide complementary social commerce, loyalty, and analytics solutions.

It would benefit startups tackling this category to build close relationships with e-commerce incumbents from the start, in order to establish valuable distribution and M&A moats.

5. Digital home financing and servicing solutions

Last but not least, I’m confident that proptech is overlooked in emerging markets at the moment.

Areas of particular opportunity in 2024 include property financing in Africa and property management and servicing in Latin America and the Middle East.

With rate hikes occurring globally in the past two years, the proptech market has received substantially less confidence from investors. Global venture funding for proptech dropped 42% in 2023, and was down to nearly one-third of 2021 volume.

Proptechs in the U.S. have largely struggled.

Home financing pioneer Better.com (BETR), founded in 2016 to unlock online home financing in the U.S., cratered from a $7.7 billion private market valuation in 2021 to a now $440M market cap after going public via SPAC in mid 2023.

Veev, a homebuilding startup valued at over $1B in 2022, shut down in late 2023. And of course, WeWork filed for bankruptcy in Q4 of 2023 as well.

Proptech Tailwinds are Accelerating in Emerging Markets →

Meanwhile, proptech has been a different story in markets like the UAE, where a surge of demand for higher end properties has propelled home financing companies like Huspy ($47M+ raised) to record breaking months of volume in 2023. This growth has coincided with soaring property prices in the region; Dubai witnessed the largest jump in prices in the world through 2023, eclipsing cities like Miami and Paris.

As buyers purchase homes in the UAE, there is a now emerging opportunity for property management and maintenance solutions. Upstarts like Keyper ($6.5M raised) and Silkhaus ($7.8M raised) are two to keep an eye on in this realm.

In Latin America, there have been several breakouts in the homebuying space over the past few years like Habi in Colombia ($550M raised) and Loft in Brazil ($888M raised), with the vast majority of proptechs (225 companies of about 350 total) located in Brazil.

Similar to the UAE, I believe there is an interesting window of opportunity in Latin America for emerging startups focused on home renovation, management and servicing, including in areas such as IoT and augmented reality.

There are also emerging opportunities in areas such as property investment in Latin America — check out comparables like Yieldstreet ($730M raised, acquired Cadre in 2023) and Roofstock ($365M raised) in the U.S.

Meanwhile in Africa, which has lagged several years behind Latin America in financial connectivity, there is an enormous proptech market opportunity on the horizon. Currently, about 30% of remittances into Nigeria and Ghana are funneled into real estate. Demand for home buying is clearly there, and will accelerate with greater consumer financial stability.

The primary area of friction for homebuying in Africa at the moment is a lack of access to personal credit for the consumer.

However, as a wave of fintechs like Moni address this credit data gap in the coming years, empowering merchants and consumers to build and verify their credit, I believe there is a tremendous opportunity for a “Better.com for Africa” to emerge, unlocking frictionless home financing for hundreds of millions of African consumers.

One early entrant into that market is Seso, which leverages blockchain technologies to drive trust and transparency in the homebuying process in Nigeria and Ghana.

I’m optimistic that a category-defining startup in this market has the potential to be born in 2024.