Founded in 2011, WeHostels is a Latin American startup that offers mobile apps for young travelers. Early in its life, the firm’s founders received some investment help from an Argentinean accelerator fund. Six months later, they raised $1.3 million and moved to New York, where they continue to grow steadily. But this article is in fact not about WeHostels but about that Argentinean fund: NXTP Labs.
Led by co-founder Gonzalo Costa, NXTP Labs has a record of backing winners in recent years. He tells us here what he looks for in a startup firm, and why Argentina and a few other Latin American countries are dominating the tech entrepreneurship scene.
NXTP Labs has been around for less than two years, but is the only Latin American member of the Global Accelerator Network, an association of over 50 similar startup accelerator funds. The focus, as Costa puts it, is on scalability. “It’s never been so easy to start a tech company,” he says. “If you have an idea and a bit of capital, you can build a business.” NXTP Labs provides that seed capital, usually by being the first to reach a new company or business idea. The large venture capital funds usually only arrive a few stages later.
We asked Costa how he selects a firm to invest in. He gave us three non-negotiable criteria:
- The management team: “We look for teams that have execution capability,” says Costa. “These are serial entrepreneurs who have started other projects before, and have proven talent.” Only if the team is solid can NXTP have enough confidence to get involved.
- A scalable business model: Costa invests only in ventures that have international potential. “We don’t care where in Latin America the company is coming from, as long as the business model could be expanded globally, or at least regionally.”
- Commitment: NXTP refuses to invest in teams or founders that are not working full time on their product or idea.
Apart from these criteria, NTP Labs leans toward a few types of products in choosing worthy startup firms. “We like mobile a lot,” says Costa. “Especially in Latin America, it’s very feasible to become a relevant player in the mobile arena.” Of a startup batch of 16 firms chosen by NXTP in 2012, most had a strong mobile or app platform component to their products. The fund is also very interested in gaming and e-commerce products. The focus is mainly on business-to-consumer (B2C) companies, but business-to-business (B2B) firms have been backed by NXTP before. Many of these products can easily take the market model that has worked in the US or other countries, and replicate it in Latin America. There’s a lot of “low-hanging fruit” as Costa says.
What’s in the Gift Bag?
So what exactly does NXTP Labs provide the firms it chooses? In terms of the investment structure, the founders get $25,000 in seed capital in exchange for a small equity stake in the company (usually between 2 and 10%). NXTP might invest more at a later point, as additional funds are secured from other investors.
Besides the startup resources, the founders are coached extensively by advisors from NXTP, who meet with them on a regular basis. They are helped and guided to create the first version of their product or service, and gain their first customers – all the right moves that will attract more investors.
“But most important is our network of mentors around the world,” says Costa. “Most of the relevant internet players in Latin America are investors in our fund, and this is one of our biggest assets. There’s a lot of experience they can offer our founders.” Each company selected by NXTP is assigned a lead mentor, who meets with them every week or two, and provides strategic guidance.
Growing LatAm Hubs
One of the reasons NXTP Labs is based in Buenos Aires is the high opinion Costa has of the Argentine entrepreneurial scene. “There’s a very strong ecosystem in Argentina, with lots of young people who are inspired and want to create something” he says. “There are also many entrepreneurs who have been around since the early 2000’s. Many of them are success stories who are willing to give back as angel investors, and also provide advice and expertise to younger startups.”
From which other countries is he seeing tech innovation coming? Particularly Chile and Colombia, where there is a huge amount of funds flowing into entrepreneurship, especially from the governmental side in Chile. And in Ecuador, Costa sees new companies being born almost everywhere. As for Mexico, “it’s a huge market, but in terms of tech startups, just hasn’t exploded yet. I’m not sure why.”
The larger markets in Latin America are noticing the surge in tech innovation however. “Ten years ago, startup companies here would dream of being acquired by large US firms,” says Costa. “But increasingly we’re seeing the acquisitions coming from Latin American countries themselves, particularly Mexico and Brazil.”