Quona’s Investors Back Fintech in Emerging Markets for Impact

“If you’re smart, now is the time to double down on emerging markets,” says Monica Brand Engel, co-founder of Quona Capital, of growing anxiety at a time of macroeconomic uncertainty and market volatility. “These people and these markets are very important to us, and that’s not going to change.”

It’s a sentiment Quona’s investors seem to share. The emerging markets-focused venture capital firm today announced that it has raised $332 million for its Fund III – well ahead of its original goal of $250 million – and three-quarters of its original investors have participated in this latest round. The closing of Quona’s third fund means it has now raised more than $745 million to support its investment mission.

This mission is built around Quona’s focus on impact investing – the desire to deliver tangible social good as well as outsized financial returns through the businesses it supports. “We strongly believe that financial services are the arm through which you can drive dramatic change, both at the macro level and for individual households,” says Brand Engel.

To this end, Quona invests in fintech companies whose products and services promote financial inclusion. Through technologies such as mobile connectivity and cloud computing, these businesses give consumers access to financial services that were previously beyond their reach – from banking to savings, investments and insurance.

Quona certainly has the data to make a strong case that the 65 businesses they’ve invested in so far are having an impact. Portfolio companies across a dozen or so emerging markets have employed 23,000 people, 35% of whom are women, served 30 million retail customers, 77% of whom were previously underserved, funded $2.4 billion in loans and enabled disbursements of $12.3 billion dollars.

Commercially, these businesses have also been successful. Together, they have generated $836 million in revenue. Quona describes the first two funds’ results as top quartile for comparable vehicles, and Brand Engel cites loss ratios that are well below the industry average. Fintechs provide a natural route to exits for investors, she points out.

Quona is now looking for more of the same from Fund III, which will follow its predecessors in putting fintech for inclusion at the heart of its investment case as it deploys the new capital raised.

This does not mean that the new fund is a copycat. One nuance is that it is likely to have a wider geographical spread than its predecessors, with many more markets now throwing up opportunities. India and Brazil, which have been mainstays in Quona’s portfolios to date, are still important, says Brand Engel, but other countries also look exciting. She points to an increasing number of opportunities in markets such as Mexico and Indonesia, as well as an increased focus on Africa, and especially Egypt and Kenya.

The universe of fintech companies is also expanding, which will mean the new fund’s investment approach is evolving. A good example is that Quona is now particularly interested in embedded finance – businesses that offer financial services to support a broader value proposition. Enabling retailers to offer credit at the point of sale is one such topic.

The other difference with this new fund, Brand Engel adds, is that it taps into a wider range of Quona partners, with more locally-based experts feeding ideas into the deal pool. “We have people in several markets and not just the biggest emerging markets,” adds Brand Engel. “They speak the local language and they have been there for years; in many cases our partners were born in these markets.”

It is a point of competitive advantage that Quona believes is particularly crucial in today’s market environment. Although the appetite for emerging markets – and that of investors – remains strong, there is no doubt that risk is increasing. It requires greater experience and expertise on the ground to navigate the uncertainty.

Brand Engel expects the loss percentages to rise in the months and years ahead, although she claims that the scale of the returns delivered by the funds’ winners will more than compensate for this. But she also points out that the fund is managed with a certain degree of conservatism. “We usually invest in entrepreneurs with a proven track record, and often in business models that have worked well in one market but are now being tried elsewhere,” she says.

In this sense, the fund effectively bets on a company’s ability to execute a particular strategy, concept or technology, rather than betting on a completely new idea. And the flip side of increased market anxiety is that Quona may face less competition for the best potential additions to the portfolio.