In this episode, host Sunny Ray talks with Michel Friedman of Reflect Ventures about investing in the unglamorous plumbing of emerging economies. Friedman explains why the firm backs startups in supply chain, distribution, logistics and fintech, using trucking on demand in places like Kenya, Pakistan, Brazil and Georgia as a prime example. He shares how being stuck in China during the pandemic led him and his partners to start running syndicates, and how falling platform costs helped the effort grow toward a full venture firm. He describes why the team avoided metaverse, NFT and crypto hype, offers a skeptical view of Bitcoin, and discusses where stablecoins may hold value. Friedman also covers what he looks for in founders, how deals find the firm, and why a wave of local IPOs in Africa and big exits like Kareem's sale to Uber could change how investors see these regions. He closes with how founders and accredited investors can reach him.
Michel Friedman of Reflect Ventures explains why boring trucking and fintech plumbing in emerging markets beats chasing hyped sectors.
What problem is Reflect Ventures solving?
We invest in startups in emerging markets across supply chain, distribution, logistics and fintech. A good example is trucking on demand, where we have invested in Kenya, Mozambique, Pakistan, Turkey, Brazil and Georgia, the country. Moving goods is hard there, with border officials, poor roads and no return loads, so making it efficient helps trade happen.
How did you end up running syndicates?
I was in China working for a state owned enterprise, helping them go public in Singapore, when the pandemic shut travel down. With time on my hands, I talked to friends and we began running syndicates. Syndicate as a service platforms were appearing, costs fell to maybe $5,000 to start, and the second and third syndicates were much easier than the first.
Why focus on supply chain and fintech instead of the sectors everyone else chases?
If I just invest in what everyone else does, why should anyone give me their money? My partners and I have lived and worked in emerging markets, with deep experience in supply chain, distribution and logistics. These countries are capital starved, and we saw metaverse companies getting $50 million valuations pre-revenue, which we did not want any part of.
What is your view on Bitcoin and stablecoins?
I think the fundamental value of Bitcoin is zero, since it does not deliver value like a stock or have sovereign backing like the dollar. But markets can stay irrational longer than I can stay solvent, so I will not bet against it. Stablecoins have real value for now, though much of it comes from deliberate friction in international transfers that could be removed.
What did you learn about the investors you work with?
If an investor tells you he is very confident he can always pick winners, you do not want his money. Nobody is that good. In early stage venture, if 20% of your companies do well, that is already a great record. Someone who thinks he cannot lose gets upset when he inevitably does.
What kind of founder should reach out to Reflect Ventures?
We are not investing in ideas. You need revenue and some traction, and you must know your industry deeply. The gasoline discounting founder in Brazil owns a small chain of gas stations, and a pharmaceutical distribution founder in Bangladesh has his own small pharma factory. You also have to be truly committed, because running a startup is hard.
What is shifting in emerging markets investing that people have not noticed?
Local IPOs are becoming real exits. Fawry, a fintech, listed in Egypt at a valuation of 900 million and investors got their money out. Dangote went public in Lagos and plans to list its Ethiopian subsidiary in Addis Ababa. Going public locally was not something people used to think about, and it opens these companies to local investors.
What would turn a portfolio company into a proof point for the region?
You need a big exit, and those have happened. Kareem started in Pakistan as a rideshare company, expanded across North Africa and the GCC, and sold to Uber for 3.1 billion. It changed the Pakistan startup ecosystem almost overnight. People who used to put money only into property started trying to become angel investors, and new startups followed.
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