Executive Briefing: Warming Up To Start-Up Investing

I had the chance to escape winter in New York to take part in events in Miami in December and Punta del Este in January, all promoting interaction between tech entrepreneurs and early stage investors.

A group of Miami-based investors and institutional partners came together to host the third Americas Venture Capital Conference following Art Basel during the week of December 10, and then I was in Punta del Este for the PuntaTech Meetup, hosted by LAVCA member firm Riverwood Capital and their portfolio company Globant.

New events and activities around start up investing have been proliferating in Latin America over the last few years in tandem with a new generation of venture capital funds. LAVCA has been tracking early stage activity closely over the last two years, and in March 2012 we partnered with Silicon Valley Bank to host a trip to Brazil with US VCs and institutional investors.

The current wave of startup funding was marked by the entrance of US venture capital firms into the Brazilian market, led by first movers Tiger Global, Accel and Redpoint among others in 2009-2010.  After deploying capital in a wide range of internet and ecommerce startups in a relatively short period of time, it appears that those early investors slowed their pace of investment in 2012 and are in ‘wait and see’ mode with their current portfolios.

But 2012 was a good year for the development of the startup ecosystem in Latin America, and a number of factors point to the evolution of a sustainable long-term shift in which the region will produce more entrepreneurs, and those entrepreneurs will have greater access to angel, seed and venture capital funding.

Two of the most important local players in the region were busy in 2012 – Monashees in Brazil raised a new fund, and Kazsek Ventures made 13 investments in new and existing portfolio companies.  Redpoint eVentures also staffed a local office in Brazil and raised a Brazil dedicated fund. Outside of Brazil there is a small but solid group of institutional VC funds in Chile and in Mexico.

Equally important is the emergence of professionally staffed and managed accelerators, notably NXTP Labs in Buenos Aires and 21212 in Rio. Both NXTP and 21212 are raising seed funds so that they can provide financing and act as a bridge to later stage investors.

In 2012 500 Startups expanded from Brazil into Mexico, and the Wayra accelerator program initiated by Spain’s Telefonica hosted a number of Demo Days across the region. Endeavor, which led the charge in championing entrepreneurs in Latin America over a decade ago, has been actively collaborating with all of the relative newcomers to this space.

At the same time, Latin America’s business class, family offices and high net worth individuals have become more aware of entrepreneurial activity in their countries and are backing startups as angel investors.  Even more so than in the US, the “friends and family” network is critical to accessing capital in Latin America, particularly outside Brazil.

On LAVCA’s trip to Medellin in November 2012 we met with local family and angel groups including Bavaria and Antioquia to talk about their role in backing Colombian startups.  But our Medellin “Investment Lab” was predictably co-hosted by Colombian groups backed with public funding, Innpulsa and Ruta N in addition to others.

Predictably, because government sponsored programs supporting entrepreneurship, innovation and venture capital have expanded dramatically over the last few years in Brazil, Mexico, Colombia, and Chile.  The effort that has garnered the most global media coverage is Start-Up Chile, which was launched in 2010 with an offer of $40,000 in funding for entrepreneurs willing to decamp to Chile to incubate their startups.  The program has already graduated over 200 entrepreneurs, although the jury is still out on how many of those initiatives will eventually evolve into successful businesses.

But one of the most significant, and perhaps unintended, outcomes of Start-Up Chile to date has been the trend of US, Latin American and even European entrepreneurs taking advantage of the program to jump start a project in Chile for six months, before moving to Brazil, Silicon Valley, or other markets to expand and grow a business.

In fact lately it seems that whether I’m in Miami, Rio, Buenos Aires or Bogota I find graduates of Start-Up Chile. Or for that matter, at Punta Tech in Punta del Este, where Silicon Valley Bank awarded the winner of a LatAm startup competition: 4Vets, an online B2B supplier of veterinary products for pet shops, veterinary clinics and animal hospitals in Brazil. The company was launched by two Wharton MBAs, one a Peruvian entrepreneur and I-banker with a track record in Brazil, and the other an American veterinarian and entrepreneur. Both now live in Sao Paulo, after their stint in Start-Up Chile.