Gary Urteaga, Co-Founder of movie information and ticket sale portal Cinepapaya, spoke with LAVCA about the company’s beginnings in Peru and the biggest opportunities and challenges for creating and growing a business in Latin America.
LAVCA: Please summarize your business. Where are you headquartered and where else do you have operations? How did the company get started and what factors contributed to its initial success?
Urteaga: In 2011, we incubated CinePapaya in Holosens, our company specialized in the development of IT projects, through an innovation grant to develop a video streaming technology. As a tool to register users as potential customers of the video streaming service, we launched Papaya.pe with information on movie synopsis and theatrical showtimes. We won various Startup competitions with Papaya.pe including Intel Challenge Latin America, Wayra, and Startup Chile. In 2012, we incorporated CinePapaya.com in Peru as a spinoff startup but pivoting from video streaming to the sale of movie tickets online and through mobile devices. CinePapaya is available in Peru, Chile, Colombia, Bolivia, Ecuador and Mexico, planning expansion into the rest of Latin America including Brazil, and Hispanic markets in the United States.
LAVCA: What is the talent pool like in Latin America? Are there certain roles that are easier to hire for than others? Why?
Urteaga: Every job position is hard to hire, particularly when trying to build an A-team of passionate, skilled, experienced and talented people. But considering that CinePapaya is very focused on technology and innovation, recruiting engineers and developers is not easy. These technical professionals already face a huge demand from local large and medium sized companies, and moreover, the really good ones are brain drained abroad. For example, Yahoo recruited the Peruvian engineer that developed our App for Apple iOS iPhone, and he is now working in their mobile team in Silicon Valley. Top talent in Latin America usually travels abroad for graduate studies, and then gets recruited by top companies overseas. Also local labor laws are not startup friendly, making the hiring processes extremely difficult and expensive.
LAVCA: Is mobile a significant channel for your company? How do you plan to leverage it as a part of Cinepapaya’s growth?
Urteaga: In May 2012, we partnered with Microsoft and Nokia for the development of our Papaya APP for Windows Phone and with LG electronics to develop the APP for SmartTVs. We concurrently developed our smartphone APPs for Apple iOS and Google Android. By year-end of 2012 we had gross revenues from ticket sales of about USD 30,000 of which almost 95% were from web transactions. We closed 2013 with USD 750,000 in gross revenues with just over 20% mobile sales. By September of 2014, we have already generated USD 1.5MM in gross revenues and almost 65% of all sales are mobile. The trend is very clear, so we invest in R&D, design and innovation for the continuous updates of our mobile APPs to keep improving our user experience.
LAVCA: What financing have you received thus far? From whom and at what point? What resources have you used in your search for financing?
Urteaga: In April of 2012, we received USD 40,000 in equity-free seed capital from Startup Chile. In May of 2012 we incorporated CinePapaya in Peru with an investment of USD 50,000 from Wayra and the co-investment of 2 angel investors with a ticket of USD 25,000 each, at a post-money valuation of USD 500,000. In November of 2012, we raised USD 50,000 from Silicon Valley’s 500 Startups through a convertible note. We closed a USD 500,000 round in May of 2013 with a Peruvian investor, Wayra and our angels at a post-money valuation of USD 2.5MM. In January 2014, we did an extended seed round for USD 200,000, which included USD 100,000 from 500 Startup and 100,000 from all our investors, raising our post-money valuation to USD 2.7MM. In September 2014, we have closed a round that raises CinePapaya post-money valuation to USD 7 MM with an industry leader for development of mobile content and commerce platforms in Latin America and backed by a media conglomerate that is an active investor-acquirer of tech companies in emerging markets around the world. The investor will announce the deal in the coming days.
LAVCA: How did you interact with investors early on? Was your exposure to international and local investors mostly via pitch meetings and demo days or did you have one on one meetings (if so how were these introductions facilitated)?
Urteaga: Being active in the regional startup ecosystem with the support of organizations like Startup Chile, Wayra, 500 Startups, Global Entrepreneurship Week, Startup Nations, YouNoodle, Startup Weekend and Founder Institute, among others, has been the key for increasing our reach to potential partners. We were also able to meet and network in person with potential investors and partners through our participation in Startup Competitions, Demo Days and other entrepreneurship and innovation events. We have been really proactive approaching investors and industry leaders directly at these events, sharing our pitch deck and summary one-pager with metrics, and following up by emails, conference calls, and meetings whenever possible.
LAVCA: How have you/do you plan to use the financing? In general, how do you plan to grow the business? Do you have plans to expand internationally? What is your strategy?
Urteaga: Our funding has paid for the recruitment and retention of talent for the development of our back-end technologies, our front end applications for web, mobile devices, SmartTVs; our production of content, management of social media and customer service in Peru, Chile and Colombia. Our overhead costs have been relatively low, however, our legal and accounting expenses have been increasing as our sales and investment rounds have been increasing too. With our new round of investment, we plan to double in size our talent pool, not only hiring more technical professionals, but also a sales and business development team to grow internationally. We are going to move to a larger office where will implement a collaborative open workspace with access to free food and amenities for our team. We are assigning a budget for marketing and advertising for 2015. Until now, most of our growth has been organic online, and offline, through active public relations activities with movie theatres, movie distributors and with the entrepreneurship, startups, innovation and e-commerce communities.
LAVCA: How do you interact with your investors and what strategic and practical benefits have they brought to the table for Cinepapaya? How do the benefits differ from international investors vs. local ones?
Urteaga: We have permanent access to our investors and sometimes we reach out to them for advice and feedback before we take specific strategic decisions. Our investors also provide a great flow of ideas and suggestions for improvement of our operations and service to exploring various business opportunities. We hold quarterly board meetings where we review the status of the company, progress made and milestones achieved, and our strategy and plans into the future. As CinePapaya continues to grow and expand internationally, we expect that our foreign investors will increase in importance for us to leverage their know-how, contacts, insights and expertise in other markets, as well as their understanding of the business and commercial culture in other countries.
LAVCA: How have you leveraged your relationships in Silicon Valley?
We have been fortunate to develop a great network of contacts and friends in Silicon Valley who have helped us understand some of the features and characteristics of successful entrepreneurs, tech companies and startups. These people have helped us not only for inspiration and ideas for innovation, but also in terms of best practices and contacts to more actors in the ecosystem, including entrepreneurs, experts, advisors, mentors, specialized lawyers and investors. In July 2014, we did an investor road show in Silicon Valley where we met very important venture capital funds with a previous investment track record in the entertainment industry and/or in Latin America. We had great feedback from all our meetings, and strong interest to follow up with CinePapaya as our traction and metrics show expansion in more countries in Latin America, particularly Brazil and Mexico. In 2013-2014, we were the only startup selected as a global partner by Harvard University’s Business School Global Field Program, having Harvard MBA Students working for 3 months on a team project for CinePapaya from Cambridge and completing the project with a 1-week field trip and final report in our offices in Lima, Peru. We are honored to be selected a global partner again for 2014-2015.
LAVCA: In your experience, what are the biggest opportunities and challenges for creating and growing a business in Latin America?
Urteaga: I see that the greatest challenges are related to the bureaucracy of doing business, tax burdens, and legal frameworks, and the prevalence of corruption, criminality, theft, fraud and low security levels in general. However, the emerging economies in Latin America offer great opportunities for innovative businesses, particularly as the middle class and purchasing power increases with more bancarization, credit and debit card penetration, Internet access via web and their smartphones, and a decrease in the aversion to e-commerce and online or mobile transactions. The initial wave of tech startups copycat and tropicalize proven models in developed economies; but overtime, more innovation will be emerging from Latin America, and exporting all over the world. I strongly believe that the wealth of Peru is not in the gold mines, but in the minds of the Peruvian entrepreneurs and innovators, and this applies to the whole region in general, as we evolve from resource based to knowledge based economies.