Alexey Komarov

May 2, 2019

If you had invested in Amazon when it went public, each $18 share would now be worth more than $1,900. That’s a return of over 10,000%. And no, there’s not an extra zero in there.

In the late 90s and early 2000s, the Internet was kind of like the wild west and in some regions, it is still like this. Millionaires were made overnight, and it wasn’t hard to find opportunities. Fast forward to 2019 and the online space is becoming more competitive every year. There are still countless opportunities to invest in digital assets in the US, but this post will focus on investing in developing nations. There is an increased risk when doing this compared to the USA, but this might be of interest to certain buyers.

Cautious investors have traditionally been scared off by stereotypes fueled by rumors of unstable legislation, high levels of corruption, and shadow schemes in these regions. But if you know what to look for and do your due diligence, you can potentially acquire a ready-made business that’s making healthy profits.

Online Business in Eastern European Countries

Eastern Europe has earned its reputation for being one of the best places to build a startup. It has lower costs, tremendous intellectual talent and capabilities, and high-speed Internet. Russian internet companies like Yandex and Mailru are now multibillion-dollar enterprises rivaling Google and Facebook in their respective markets.

Local talent is plentiful, and several startups are actively looking to be acquired. Many people are familiar with the origin stories of WhatsApp and MSQRD, two companies which were founded by Ukrainian and Belarusian teams and later acquired by Facebook.

Russian speaking coders are known internationally for their creativity and ingenuity. If you’re business-savvy and looking to acquire an online store, service or mobile application, then this market can no longer be ignored. Facebook is actively scouting talent in the area, so why not beat them to the punch?

 

Low Multipliers

One of the key financial advantages of buying a ready-made Internet business in developing countries is low multipliers. For example, the multiplier for a two-year information website in Russia is 12 to 18. A website with a similar format and payback period would have a multiplier of 24 in the US. This means you can acquire a profitable business in Eastern Europe at a fraction of the cost that you could in the US.

 

Why Internet Businesses Are Cheap in Developing Countries

Taxes

Taxes and employment benefits can be a significant business expense, especially in more developed areas where the cost of living is high, and there’s a lot of increased costs for healthcare, vacation, and pensions. Savvy entrepreneurs can reduce costs by outsourcing to these developing nations. It might take a bit more time and effort to screen good applicants, but there is good value in hiring international staff.

Laws

Developing countries often seek to attract foreign investors. However, the countries of the former Soviet Union have faced credibility problems due to issues with dividend payments to shareholders and inconsistent legislation.

Because doing business in developing countries is perceived as more difficult and risky, there’s not as much demand to purchase these companies (yet). Therefore, prices are currently low, and profitable enterprises can be acquired at a bargain.

 

Low Prices and Wild Markets Provide a Chance to Make Money

Benefits of online businesses in developing countries

While these variables can initially make online businesses look risky and unattractive at first glance, they often serve as camouflage for wealth-making opportunities.

In addition to the low cost of acquisition, here are five more reasons why you should consider this type of investment:

  1. No territorial restrictions. Business is global, especially Internet-based businesses, so it doesn’t really matter where the owner lives. You can manage affairs from anywhere in the world. Traveling to Russia or Kazakhstan is an option, not a requirement.
  2. Owners already receive part of the proceeds in foreign currency. Some businesses in former USSR countries exchange in dollars and euros for two reasons:
    1. The national currency is unstable.
    2. They work with customers from the U.S. and Europe, which is convenient for the new owner. There are lower risks and fees for currency exchange.
  3. Low competition. Many niches have less competition than their English counterparts, which means a higher chance to succeed, dominate, and even take over competitors’ businesses.
  4. Employees are cheaper. Salary expectations of engineers, sales, and marketing employees from Belarus and Russia are two to three times lower than European and American workers. This allows you to reduce expenses and earn a higher profit margin.
  5. New markets. If you are savvy to the global marketplace, these niche sites can be easily expanded to serve other geographic locales, not just Eastern Europe.

If you are interested in learning more, IT Business Broker, can find a ready-made online business in developing countries for you and will help you make a deal.


Author

Alexey Komarov is a managing partner in IT Business Broker – Russian and SIC market’s professional internet business brokerage company focusing on deals with e-commerce, SAAS, content and mobile apps businesses. Founders of ITBB are experienced specialists on Russian internet and venture markets.

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