Chicago, IL, March 3, 2006 – More than 30 venture capital and private equity (VC/PE) fund managers from Latin America and the Caribbean have joined a new –and exclusive— network administered by the Latin American Venture Capital Association (LAVCA).
The common factor?
Each fund manager has received backing from the Multilateral Investment Fund (MIF) of the Inter-American Development Bank (IDB), one of the strongest supporters of the region’s venture capital industry.
The members of the MIF Venture Capital (VC) Development Network, launched in December 2004 at MIF initiative, recently contributed surveys profiling company activities. The private survey results reveal a network of predominantly small, locally-based VCs committed to professional standards and perhaps poised to become the region’s next big players.
MIF VC Network members, like the nations in which they operate, are diverse in both size and stage. Brazilian members CRP, Stratus, Rio Bravo, FIR Capital, Decisão Gestão Financeira and Mercatto, for example, well represent their nation’s booming VC/PE culture.
Other network members, like Caribbean Development Capital, Ltd., and Dynamic Equity in Trinidad and Prosperitas Capital Partners in Uruguay, stand fewer in representing their nations’ fledgling industries.
Despite geographic differences each network member has faced similar problems affecting VC/PE in the region – too few exit opportunities, shallow capital markets, and policymakers under-educated on the industry, for example – and therefore all have reason to applaud the MIF’s far-reaching support.
“MIF can use a proactive or a reactive approach in looking for fund managers and deals in Latin America and the Caribbean,” said MIF Senior Investment Officer Susana Garcia-Robles. “We’re proactive in countries where VC is less developed. We tend to be the anchor investor for funds, requesting proposals with our focus already defined, and later on analyzing them, helping the manager fundraise with other co-investors, etc.”
“In countries where VC is more developed, like Brazil, proposals come to us and we look at them in a consortium of investors, jointly ranking which ones are the best, and deciding which funds will make it to the next step of due diligence, which ones we’ll take for approval,” she continued.
In administering the MIF VC Network, LAVCA is charged with bridging differently sized VC/PE firms to build an engaged community for information sharing and positive change.
“In Latin America and the Caribbean we’ve begun to see healthy improvements in both performance and regulatory reform. The two are related,” said LAVCA Research Director Ramona DeNies, who serves as network coordinator. “What has been accomplished in the region is partly the result of consensus-building, advocacy and increasing transparency.”
“As highly professional, committed fund managers hand-picked by the MIF, members of this network can and do create great visibility for the industry.” Ms. DeNies continued.
SMALL FUNDS, BIG IMPACT?
Ranging in size between less than $5MM under management to well over $30MM, the funds managed by MIF VC Network members espouse a wide range of investing philosophies targeting different industries and company stages.
For some network members, the social impact of funds under management is a central goal. The FE Latin American Clean Energy Services Fund, headed by Fernando Rivas, focuses on issues of sustainability by investing equity in power generation, renewables and energy efficiency.
Network member Fondo EcoEmpresas, S.A., a $5.2 million dollar fund established to provide financing to environmentally and socially responsible businesses in Latin America and the Caribbean, pursues its mission by making investments in sustainable agriculture, non-timber forest products, sustainable forestry, and ecotourism.
Other funds are dedicated to financing underserved actors of the economy. Fondo Guanajuato provides financial alternatives to small and medium enterprises in Mexico who do not have access to the Banking Sector. The almost completely divested Profund, managed by Costa Rica’s Omtrix, was raised to invest in microfinance institutions across the continent.
The network members surveyed employ an average of 521 people through just over 7 portfolio companies per fund under management. Over one third of survey respondents are currently fundraising.
“There are many success stories in this network,” said Ms. DeNies. “We have Brazil’s FIR Capital, with its sale of Akwan to Google, the recent first close of CRP’s 6th fund, and serious momentum in Central America with Aureos’s new Central America Growth Fund and E + Co.’s CAREC facility.”
Independently of their investing focus, network members are surmounting a variety of challenges in order to achieve success and positively impact the economies of Latin America and the Caribbean.
AN OPEN NETWORK
According to network member Christopher Bosler, managing partner of Chilean fund manager Negocios Regionales, “the two biggest challenges facing the industry are finding attractive investment opportunities where managers and VCs can speak the same language and understand the venture investing process, and increasing the depth of capital markets to improve exit opportunities.”
While Negocios Regionales has been an active investor for more than 5 years, the lack of exit opportunities still plays a role in its investment process. Mr. Bosler says that the firm studies “possible exit mechanisms before we commit to investing, and we expect to have line of sight to alternatives that will allow us to sell our position profitably from the very beginning.”
As fund managers active in the region increasingly adopt a comprehensive approach to investing, many are finding ways to achieve healthy returns.
Mr. Bosler attributed Negocios Regionales’ realized annual returns of 29% in the sale of its first exited investment, a mining services company, to this long-term planning.
“Having gone through this process will help improve the outlook to optimize future sales,” said Mr. Bosler.
But with regulatory hold-ups, the relative newness of Latin America’s VC/PE industry and the perceived volatility of regional politics, even the most cautiously aware fund managers aren’t guaranteed a smooth ride.
According to Ms. Garcia-Robles, the best way network members can combat the challenges they face to achieve success is to bring more stories like Mr. Bosler’s to the table.
“LAVCA continues to provide value added in fundraising efforts and sharing industry information,” said Ms. Garcia-Robles, “but fund managers must find ways to work together and help LAVCA disseminate information on the region’s best deals and opportunities.”