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Why foreign investors should consider Kazakhstan’s startups and venture capital funds

21.08.2024

Why foreign investors should consider Kazakhstan’s startups and venture capital funds

Kazakhstan is quickly becoming a hotspot for venture capital, offering foreign investors strong growth potential and easy access to Central Asian markets. In this article, an expert from MOST Ventures shared the key advantages of investing in Kazakhstani startups.


Aigul Assylbekova, Investment Analyst, @mostventures

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At MOST Ventures, we’ve seen firsthand the increasing attractiveness of Kazakhstan as a destination for venture capital and startup investments. Our successful partnership with a Turkish fund to establish our second fund is a prime example of the cross-border collaborations that are becoming more common in the region. This partnership not only underscores Kazakhstan's appeal to foreign investors but also highlights the potential of Central Asia as a hub for innovation and growth.

Moreover, the recent visits by Azerbaijani and Turkish funds to Almaty highlight the growing interest in Kazakhstan's startups. These interactions are more than just symbolic: they represent the tangible connections and opportunities that are emerging in our ecosystem. These international players are not merely visiting; they are actively engaging with our startups, exploring investment opportunities, and fostering regional cooperation.

Kazakhstan is rapidly gaining attention as a destination for venture capital and startup investments. With its strategic location, robust economic growth, and a burgeoning startup ecosystem, Kazakhstan offers unique advantages that appeal to forward-looking investors.

Scaling startups and expanding portfolios


The number of startups in our portfolio is steadily increasing, reflecting the overall momentum in Kazakhstan’s startup scene. These startups are not just growing in number but are also progressing through various stages of development, demonstrating the robustness of our ecosystem. We are seeing more and more Seed-Series A startups in the region, which was not the case two years ago.

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Kazakhstan represents one of the most promising avenues for generating exceptional returns in venture capital, particularly at the intersection of early-stage investing and emerging managers. For foreign investors, the country offers a strategic combination of high-growth potential, attractive valuations, government support, and regional access. By focusing on startups in their nascent stages, partnering with driven and innovative managers, and exploring opportunities in this rapidly developing market, foreign investors can position themselves to capture significant value. In a world where traditional markets may be increasingly saturated and correlated, Kazakhstan offers a strategic edge that can lead to substantial long-term gains.

Strategic location and market access


Kazakhstan's geographic location offers investors unparalleled access to neighboring markets in Central Asia and China. Kazakhstan leads Central Asia in economic growth and FDI, and generates roughly 60 percent of the region’s GDP. This, combined with its efforts to diversify an economy traditionally reliant on natural resources, creates fertile ground for innovation and entrepreneurship.

A growing economy with high growth potential


Kazakhstan has been experiencing steady economic growth. The GDP growth rate was around 4.4% in 2023, and the country aims to diversify its economy away from oil dependence. The government's push towards economic diversification is opening up new avenues for growth, particularly in the technology and innovation sectors. The country’s nascent startup ecosystem offers foreign investors the chance to engage with early-stage companies that hold significant growth potential.

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Despite banks dominating the fintech market, the number of fintech startups continues to grow and mature. From only 50+ fintech startups in 2018, the number of fintechs increased 4x to over 200 in 2024. The IT sector in Kazakhstan is expanding, with over 1200 registered IT companies. The government is investing in technology parks and startups to boost the sector. Last year, IT exports grew five times and amounted to $334 million, including $153 million by Astana Hub participants. This is an indicator that our digital products are competitive in the international arena. By investing in Kazakhstan's venture capital firms, foreign investors can gain early access to these promising opportunities, which may not be accessible through traditional investment channels.

Government support and a favorable investment climate


The Kazakh government has made significant strides in creating a favorable investment climate, particularly for foreign investors. Legal reforms aimed at improving the business environment, protecting investor rights, and promoting foreign direct investment have been implemented. The establishment of the Astana International Financial Centre, which operates under an independent legal framework based on English common law, is a testament to Kazakhstan's commitment to attracting international capital. Additionally, various incentives, such as tax breaks and subsidies, have been introduced to further entice foreign investors.

Underserved markets


Investing at the early stages of a startup's lifecycle in Kazakhstan presents exceptional return potential. Historically, the best-performing venture capital portfolios are those that engage with startups during their formative stages, and Kazakhstan is no exception. The country’s startup ecosystem is still in its early phases, allowing foreign investors to capitalize on the growth of innovative companies with significant upside potential.

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For foreign investors, early-stage investments in Kazakhstan are particularly attractive due to the long-term nature of these investments. Unlike later-stage investments that may be more closely tied to current market conditions, early-stage ventures are insulated from short-term market fluctuations. This is especially relevant in Kazakhstan, where startups are positioning themselves for exit opportunities that may occur 8-10 years down the line. The country’s emerging market dynamics, combined with the potential for exponential growth in sectors like fintech, agritech, and renewable energy, make early-stage investing a particularly strategic move.

Moreover, early-stage venture capital in Kazakhstan can outpace various risks, including economic instability and currency volatility, which are common concerns for foreign investors in emerging markets. The sheer growth potential of startups in their initial phases often overshadows these risks, leading to significant value creation over time. For foreign investors seeking high-growth opportunities, Kazakhstan offers a fertile ground for innovation and business expansion.

The role of emerging managers


Emerging managers — those new to the venture capital scene — have consistently been among the top performers in the asset class. In fact, 72% of the top returning firms globally are emerging managers. These individuals and teams bring fresh perspectives, differentiated investment theses, and an unparalleled level of drive and hustle.

For foreign investors, partnering with emerging managers offers access to niche markets and innovative deal flow that may not be available to more established firms. These managers are deeply integrated into the local ecosystem and have unique insights into the opportunities and challenges within the market. Their determination to build their reputations often leads to a relentless focus on optimizing for outsized returns, making them ideal partners for foreign investors looking to capitalize on Kazakhstan’s growth potential.

The opportunity in Kazakhstan as an emerging market


Kazakhstan, as a key player in Central Asia, offers foreign investors a vast source of non-consensus opportunities — the kind of returns that come from taking a contrarian approach in underexplored regions. Over the coming decades, Kazakhstan is expected to become one of the most lucrative areas for venture capital investment in the region.

For foreign investors, Kazakhstan’s combination of rapid economic growth, increasing technological adoption, and an expanding middle class creates fertile ground for startups to thrive. The government’s initiatives, such as the “Digital Kazakhstan” program and the Astana International Financial Centre, further enhance the country’s attractiveness by providing a supportive legal and regulatory framework specifically designed to accommodate and protect foreign investments. These factors make Kazakhstan a strategically advantageous location for those looking to diversify their portfolios with high-growth emerging market assets.

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