Sturgeon Capital: Venture at the Frontier

Hey friends,

Today’s piece is on one of venture capital’s most interesting funds.

Sturgeon Capital is taking on a daunting challenge: to produce venture scale returns in extremely overlooked geographies. The fund invests in markets like Uzbekistan, Kazakhstan, Egypt, and Bangladesh – countries which attract little capital and few professional private market investors.

There are good reasons why VCs traditionally eschew these markets. Political and economic instability can cause havoc and disrupt the work of promising companies. Missing technical infrastructure presents both opportunities and challenges.

Despite these complications, Sturgeon has attacked the problem undaunted. Even more impressively, their approach seems to be working. Two funds in and Sturgeon has produced strong results that not only show the returns that can be generated in frontier markets, but the quality of entrepreneurship that is emerging. In the process, Sturgeon has also made a broader impact, improving local employment and educational opportunities.

To hear about discovering Central Asia’s next big super app and building an elite frontier market venture firm, jump in.

This piece was written as part of The Generalist's partner program. You can read about the ethical guidelines I adhere to in the link above. I always note partnerships transparently, only share my genuine opinion, and commit to working with organizations I consider exceptional. Sturgeon Capital is one of them.

Brought to you by Sturgeon Capital

In my opinion, Sturgeon Capital is one of the world's most unusual and interesting funds. Over the past two years, I have had the pleasure of getting to know the team behind the frontier market fund. I am consistently impressed by their high-caliber thinking, strong convictions, and integrity. Investing in underpenetrated geographies is extremely difficult, but I believe Sturgeon has the ingredients to build a remarkable franchise around that practice.
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To learn more about Sturgeon, you can visit them here. To dig into their thinking and learn about frontier market investing, sign up for their Substack here.

Sturgeon Capital: Venture at the Frontier

Actionable insights

If you only have a few minutes to spare, here's what investors, operators, and founders should know about Sturgeon Capital.

• Underpenetrated markets. Sturgeon Capital invests off the beaten track. The venture firm focuses on high-potential markets with little capital availability, notably in Central Asia, Egypt, Bangladesh, and Pakistan.
• Building a full stack firm. Frontier market startups have limited funding options. Sturgeon is creating an organization capable of addressing the gamut of needs, spanning early-stage venture to private equity. It may one day offer debt and growth equity, too.
• Succeeding and supporting. So far, Sturgeon has logged impressive returns. The fund has driven an IRR north of 70% and secured meaningful stakes in its portfolio companies. Sturgeon’s team takes a hands-on approach, assisting startups with fundraising, M&A, strategy, and partnerships.
• The next Kaspi. The breakout star of Sturgeon’s portfolio is the multifaceted Zood. The super-app operates across four countries, offering e-commerce, fintech, and logistics services. It has grown quickly and efficiently with relatively little venture funding. Sturgeon hopes it will be Central Asia’s next big winner.
• More than money. Sturgeon seeks to make a tangible impact with its investments. Along with tracking job generation and financial inclusion traction, the firm runs a scholarship program supporting exceptional STEM students.

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Venture capital has unlikely roots. Though it is usually associated with modern Silicon Valley, the industry’s earliest incarnation can be found on America’s east coast in the mid-19th century. In Massachusetts, circa 1850, intrepid investors sought high returns in the volatile world of whaling. Though voyages were treacherous and prone to end in ruin, the value of whale fat meant an expedition could yield rich rewards. One fruitful outing could earn as much as $100,000, more than $3.5 million today. Firms emerged to capture the opportunity, leveraging different tactics to maximize their chance of success, investing in tenured crews or focusing on particular patches of ocean.

Seeing these dynamics in contemporary venture capital does not take much imagination. Today’s risk investors employ many of the same high-level strategies, backing experienced founders, efficient teams, and those focused on particular, productive regions.

As the industry has matured, however, these approaches may have lost some of their edge. A venture newcomer looking to invest in the top decile of B2B SaaS companies will face stiff competition. There are plenty of willing backers, and the sea is crowded with well-stocked ships. Even the most fertile grounds may become overhunted.

While frenzied activity churns some waters, Sturgeon Capital backs adventurers headed in a different direction. The $275 million investment firm has succeeded by focusing on geographies most VCs overlook, including Uzbekistan, Bangladesh, Pakistan, and Egypt. Though these countries have several attractive traits and a combined population of more than 500 million, they receive some of the lowest venture funding per capita. Pakistan, for example, receives $1.60 per person in venture funding compared to $30 in neighboring India or $34 in Indonesia. These are exciting, emerging economies, and yet competition is minimal. While executing in developing countries brings challenges, the last decades have seen unicorns emerge from many nations with similar issues. Brazil, India, Indonesia, and Mexico have birthed category-defining companies like Nubank, Flipkart, GoTo, Kavak, and many others. Sturgeon’s bet is that over the coming quarter century, its target geographies will produce their own string of winners that, in turn, positively impact the lives of millions. Because of these dynamics, Sturgeon believes it is targeting “some of the last truly enormous digitally unaddressed markets.” It is an audacious vision of which Massachusetts whaling agents would be proud.

In today’s piece, we’ll discuss:

• Origins. Kiyan Zandiyeh is ideally suited for his current role. Sturgeon’s CIO is an investing prodigy that has modeled his outlook on one of the business world’s greatest thinkers.
• Strategy. Sturgeon is a thoughtfully constructed fund with venture capital and private equity practices. It is chasing a massive opportunity in overlooked markets.
• Case study. Zood demonstrates what excellence can look like in frontier markets. It also reveals how Sturgeon partners with its portfolio.
• Impact. Sturgeon’s target geographies struggle with youth unemployment and financial inclusion. The firm is keen to help address these issues, tracking its impact via its portfolio. Early indications show it is making a difference.

Wishing you a lovely rest of your week! We'll be back on Sunday with a look into one of the world's most talked about funds 👀

Until then,

Mario