Micro VCs to Invest Internationally in 2019, Latin America Overlooked

A new report details that a majority of micro VC limited partners and general partners are expecting to make international investment in 2019, but virtually no attention is being paid to Latin America.

Experts say that although this may mitigate risk, it could prevent investors from taking advantage of massive opportunities in the region. The survey, carried out by the Silicon Valley Bank, found that two thirds of LPs and GPs, surveyed at the sixth annual Micro VC Summit, said they are looking to invest abroad in 2019.

Investors were asked which regions they would consider investing in that they hadn’t explored before, with 23% saying Asia, 18% saying Canada and 13% choosing Europe.

For US regions, 18% said they were looking at the Midwest and Southern California, 13% said the Northwest and 12% chose the East Coast.

Jim Marshall, Head of SVB’s Emerging Manager Practice, and a keynote speaker at Nexus 2018, said: “We also expect more VCs to look internationally for new investment opportunities. Many tell us they are exploring regions in which they have never invested previously. They are in search of new talent and lower startup operational costs, notably in Asia and Canada.”

Why not Latin America?

Pedro Varas, the co-founder and CEO of Founderlist, understands why LPs and GPs are still focused on more developed markets that closely resemble their home market.

“This move may mitigate risk, but it also distracts these investors from massive opportunities in emerging markets like Latin America,” he said.

“While Latin America remains at the periphery of these investors’ focus, there is still an opportunity for early actors to invest in the ecosystem and receive significant returns when LPs and GPs begin to pay attention to Latin America.”

Varas believes that language is still a major barrier for international investors looking at the region, since the survey’s data shows that investors are mostly focused on English-speaking markets in Europe, Canada and Asia.

“As an emerging market, we still have a lot of work to do to change the perception that international investors have of Latin America,” said Varas.

He added: “The key to changing that perception is in generating more success stories in our local ecosystem: more exits, more investors receiving 10x-20x returns, and more founders becoming angel investors and giving back to the region.”

Varas underlined that investors who enter the Latin American ecosystem early will benefit as these startups mature over the coming years and provide large returns for LPs that invested at lower valuations.

“These deals are already happening; Latin American startups raised more capital in the past two months than in all of 2017. Latin American startups are being acquired by corporations in the US and China,” he said.

“The Latin American ecosystem is undergoing rapid changes and I would not be surprised to see Latin America as a target market for LPs and GPs in the coming years.”

The new China?

Craig Edelman is a founding partner at Polymath Ventures, an organization that creates businesses from scratch.

He believes that there has been a dramatic increase in investment in the region over the last two years.

There was a doubling of investment into Latin America between 2016 and 2017, and this is set to double yet again in 2018, according to Edelman.

“I think you are seeing people really starting to pay attention to Latin America,” he said. He did say that pioneering firms will be the ones to see the real potential in the market.

Edelman believes Latin America is in the very early stages of what he thinks will be the next China.

He  said: “We believe we are seeing China 10-15 years ago when it just started to take off and we actually have Chinese investors in our portfolio who have come visited us and said exactly the same thing. It is the reason they are looking outside of China to invest elsewhere.”

Why should foreign investors get involved with the region?

Firstly, Edelman believes that Latin America is excellent for investing in and you can build companies that can scale across borders.

“You can build models that don’t just exist in one particular country. Because the regional integration is so great you should view it as a consumer entity like the US,” he said.

Secondly, there has been a drastic increase in digital connectivity, which will rival the US and China in the next few years.

Lastly, it is the right time to get involved in the region. “There’s a large opportunity to benefit from massive growth in the economy,” he said.