VC in Latam: How It Started, How It Is Going

By Lucia Montalvo, Vice President Salkantay Ventures

We recently had the privilege of hosting two pioneers of VC investing in the region: Susan Segal and Patrick McGinnis; the two worked together at Chase Capital Partners, where Susan was the Head of the Latin America Group back in the early 2000’s, investing in the first wave of technology companies in the region. The conversation, moderated by Salkantay’s Managing Partner Luis Arbulú, centered around the inception of the industry and key learnings for this new wave of investments.

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Here are some highlights of this very interesting exchange:

Stemming from the initial boom of the internet in the region, the first wave of tech companies in Latin America sought to democratize access to information. These started out by replicating proven models in the US and other developed markets, adapting them to the regional nuances: for example, Starmedia emulated Yahoo and Mercado Libre, Ebay (although the former is much more than that today!).

Some of these founders went on to scale their companies and later exit them, acquiring precious liquidity that would allow them to invest in other startups and lay the foundations for a new generation of innovators. A great example of this is Hernán Kazah, co-founder of Mercado Libre, who went on to found Kaszek, which has backed 91 companies since 2011 and become a leading investor in the region.

20 years later, a lot has changed and the ecosystem is more mature and diverse, though pressing challenges remain. The widespread internet penetration is allowing tech companies to empower people with access to buy online, access education, healthcare, financial services, among other critical products and services. The Covid-19 pandemic was a huge disruptor and helped accelerate the rate of adoption of these technologies, nonetheless, there is still a significant percentage of the population without access to the internet. Additionally, while the diversity of founders that are building companies has significantly increased (in terms of gender, race, country of origin, etc.), this has not been the case for those who are actually accessing critical funding for growth, who are still, to a large extent, straight, white males from the usual suspect universities. Finally, brain drain was and still is one of the greatest tragedies of the industry, as top talent continues to emigrate to the US and other markets, seeking better opportunities and the stability they lack in their home countries.

Over the years the region has developed a whole ecosystem of support, including a plethora of venture funds, incubators, accelerators, among other actors which have contributed to the creation and scale up of more and better startups. Endeavor was highlighted in the conversation as one of the pioneers and current leaders in terms of ecosystem development. Also, the role of angel investors has been key, particularly that of those who have gone the full cycle, from entrepreneurs to investors, such as Hernan Kazah or Alex Torrenegra.

Some exciting trends that are expected to shape the future of the industry are:

The democratization of access to job opportunities via remote work, which well leverage Latin American talent to continue building great companies; regional talent that has gained expertise investing in Silicon Valley or globally who are bringing that expertise back to the region (shout out to our very own Luis Arbulú!); and finally the rise of ambitious entrepreneurs who are going beyond adapting foreign models to local conditions to develop true innovation. A great example of this is Auth0, the Argentine identity management platform and unicorn, that was recently acquired by Okta, for c. $6.5B. Some areas highlighted as other sources for potential innovation were biotech and agtech, where the region has a competitive advantage.

Lastly, some words of wisdom shared by Susan and Patrick on how to be a better investor:

  • Investors need to be committed to the region: they should invest alongside funds that will continue to support entrepreneurs throughout cycles, that will not be spooked by political or macro noise.
  • Some of the best deals are done during times of uncertainty: Incumbents tend to retrench, opening up opportunities for startups; unicorns like Globant, Mercado Libre, etc. grew during periods when investors were fleeing Argentina.
  • Avoid the FOMO: investors need to be rigorous in their evaluations and pay the right prices. Overpaying is not good for returns or the business in general.
  • Know what they will bring to the table: investors should spend time on those companies that match their theses and avoid being attracted to “shiny objects”. Invest where they can bring value to the business and the entrepreneur, to help the company get to the next level.

In case you are interested, here is the recording of the event.

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