Bright, new horizons: Central Asian startups beckon

FINTECH, IT, startups, and venture capital are hardly what come to mind when one mentions Central Asia. Comprising Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan, the region is more often associated with its history - traders of the Silk Road, the defunct Soviet Union, and the peoples' previously nomadic way of life. If the association goes further, then modern day tourism is usually where the conversation ends.

Beneath the quiet though, insiders watch the region's startups intently. Despite the overall low penetration rate across Central Asia, it is heartening to note that, according to World Bank data, the Internet access rate of Kazakhstan and Uzbekistan averages out at around 80 per cent.

This rate is higher than some European countries and has enabled the rise of young, ambitious businesses in the region. They are helmed by aggressively driven founders who lead highly competent teams comprising, but not limited to, IT architects and developers. Because these startups lack adequate access to global venture capital compared not only to developed markets, but also developing South-east Asian economies, they are not valued nearly as high either. But there is a silver lining. Their high-quality tech-proficient human capital and lower valuations present a shining opportunity for investors seeking new horizons.

Increasingly, thanks to Kaspi, a Kazakhstani payment systems and e-commerce leader that was the first to attain unicorn status in Central Asia and serves 8 million users as of mid-2020, Central Asia venture capital and its resulting success stories are gaining interest and traction.

Central Asia startups are just as eager to scale abroad, and South-east Asia has been a popular destination well able to help incubate business ideas and models due to structural and cultural similarities and familiarities.

Affluent economies and expanding enterprises in South-east Asia also need new destinations for investment and exportation, and Central Asia being a relatively under-explored frontier for either purpose means a fresh and exciting array of opportunities. There is a sizeable number of digital trade services, e-commerce and fintech startups growing in the region that might be of great interest to South-east Asian investors. Further, Central Asia's young and emerging middle class promises abundant commercial potential in but 5 years.

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Because of these gaps and how each bridges them for the other, the synergies between Central Asia and South-east Asia could mean favourable outcomes for businesses and investors that choose to join hands. Singapore's Quest Ventures is one that has ventured to pursue the opportunities.

In tandem with Kazakhstan's state-owned QazTech Ventures, the 2 funds established an early-stage accelerator programme to foster a new generation of startup founders, propel them to succeed in their respective Central Asia markets, and eventually scale to South-east Asia. Launched in 2020, the Kazakhstan Digital Accelerator (KDA) has already produced multiple batches of brilliant young companies, among which are finalists already receiving investments.

Beyond KDA, Quest Ventures and QazTech Ventures also witnessed a success case in Clockster, a Singapore-incorporated Kazakhstani startup that raised US$750,000 in a round led by Quest Ventures in 2020. Clockster, a portfolio company of mine in which I had lead-invested in the previous seed round, has since successfully entered Indonesia and in 2021 raised a round from 500 Global.

COMPELLING SOLUTIONS FOR THE WORLD

The partnership between Quest Ventures and QazTech Ventures is proving to be instrumental to the advancement and growth of the budding venture capital market in Central Asia and, in particular, Kazakhstan.

As the techies of Kazakhs and Central Asia celebrated Kaspi's initial public offering success in the London Stock Exchange (LSE) in late 2020, another Kazakhstani entity, a business-to-business (B2B) inventory and logistics management and payment platform called Smart Satu, was striking a deal with British fund Sturgeon Capital. It would become the first Kazakhstani project that Sturgeon Capital funds, after the former had obtained US$6.8 million in private investment.

Aided by the fresh injection from an institutional fund, Smart Satu has continued to dedicate most of it to further R&D and expansion into countries dense with mom-and-pop businesses that would greatly benefit from improved infrastructure, cloud inventory, and integrated payment gateways, to name a few key features of Smart Satu.

To date, Smart Satu has seen a grand total of over 1,800,000 orders in Kazakhstan and Russia alone, and a turnover of over US$52 million since Jan 1, 2017. In the same time frame, Smart Satu has served nearly 12,000 merchants in Kazakhstan and Russia, and opened a company in Turkey. It is in the process of setting up shop in neighbouring Ukraine. In partnership with Visa, Smart Satu also became the world's first B2B e-commerce payment gateway. Closer to Asia, Smart Satu piqued the interests of Visa in Singapore, Dubai, Ukraine, and Turkey, and the 2 corporations are deep in discussion about partnerships with local banks, with the hope of providing 60-day interest-free corporate credit cards to small to medium merchants who come on board.

For Europe, Smart Satu has an integrated system built in Kazakhstan that is ready for plug-and-play abroad. This system has been endorsed by Metro, a leading international player in wholesale trade.

Metro is now on board the system in Kazakhstan, enabling the firms to reach and transact with small mom-and-pop businesses with greater convenience, sans additional costs. Metro will be able to efficiently employ this system wherever they have a presence, mainly Bulgaria, Germany, India, and Turkey. Beyond these, Smart Satu is in talks with potential partners in the US and UK to establish a presence there via pilot projects.

To investors and venture capital fund managers, I urge you to look to Central Asia for some of the world's most rapidly emerging tech startups armed with compelling solutions for the world. Propelled by state-funded nationwide digitalisation schemes such as the Digital Kazakhstan and Digital Uzbekistan 2030 strategy, they could just be the bright, new horizons you seek.

• The writer is a Kazakh native who manages Paladigm Capital, a boutique asset management company based in Singapore, and Tesla Capital, an early stage impact VC. Besides being angel investor in Smart Satu and lead investor (seed round) in Clockster, he is a mentor and guest judge at KDA, the leading accelerator in Central Asia.