Success as an angel investor depends heavily on one’s ability to source and analyze the top startups within industries of interest. Top angels are often ex-entrepreneurs that receive their deal flow through their connections in the local ecosystem. However, finding deal flow on one’s own, especially in an emerging market like Latin America, can be tricky.
Latin America’s startup ecosystem may be younger than its US counterpart, but there is no lack of startups in the region. Some databases put the number of startups across the region, from Mexico to Argentina, above 20,000. However, more startups doesn’t necessarily correlate to better deals. Along with industry expertise and the necessary disposable capital, a would-be angel investor needs to know where to look for the brightest and best startup teams to add to his or her portfolio.
Why invest as an angel in the Latin American market?
In the US, startups have almost unlimited access to capital through angels, funds, and accelerators. The best startups in Silicon Valley or New York get snatched up by hyper-connected angels before they consider bringing a newcomer into their Cap Table. Furthermore, to invest in the US, one needs to be an “accredited investor” with over US$1M in assets or US$200K in yearly income.
In Latin America, capital is much more limited, and tends to come with more restrictions. Angel investors might be seen as a welcome alternative to government money if they can offer better terms, a strong network, and industry experience. In many countries, like Chile, there are no restrictions on who can invest directly into a startup, meaning angels can get started investing as little as US$1K+ to test out the market.
Since startup valuations in Latin America tend to be considerably lower than in the US, it may also be easier for angels to get a foot in the door at an early-stage startup in Guadalajara or Bogota than in Silicon Valley. If these startups do eventually exit, the return multiple could be much higher if the investment was made at a very early stage.
Where to look for startup deal flow in Latin America
For an angel investor who is just getting started, there are several options for sourcing early-stage startups across Latin America. These sources include:
- Accelerator Demo Days
Latin America has dozens of startup accelerators and incubators that help entrepreneurs develop and test the first versions of their product. Start-Up Chile, 500 Startups, Parallel 18, IncuBAte, and others offer one or two demo days a year where their best startups can pitch their products to local stakeholders. These startups have already passed through a first test – being selected to pitch – and the event gives investors an opportunity to meet entrepreneurs directly and establish a first contact.
- US Databases
Platforms from the US for managing startups and investment, like Crunchbase and AngelList, have a fairly strong registry of Latin American startups. Crunchbase has over 4,500 startups registered in the region and allows users to filter by industry, age, region, and investment round to help narrow the search. However, delving into one of these sites cold without prior experience can be intimidating and neither is specialized in Latin American startups.
- Tech News Sources
Any angel investor stay up to date on current trends in their local market to help inform investment decisions. By following Latin American startup news sources like LAVCA, LatAm List, and The Sociable, as well as blogs by local VCs and entrepreneurs, angel investors can track which startups are growing, receiving investment, and entering accelerator programs in their country. However, these sources only share the biggest deals, which might be out of reach for most angels. It may also be challenging to contact the startup to set up the investment opportunity in the first place.
- Early-stage fund portfolios
Most angel investors invest in startups during their early stages, before institutional investors join the round. However, very early-stage companies that have received a small investment may accept outside backers in a later bridge round. Angels should scan the portfolios of early-stage firms like NXTP Labs, Firstrock Capital, or Magma Partners to find a filtered group of startups that might be looking for follow-on funding.
- Equity crowdfunding platforms and angel networks
It can be intimidating to source and pursue investment deals on one’s own, even as an experienced investor. Crowdfunding platforms, or networks of angel investors, help manage the investment from the relationship with the startup to the legal documentation. Top platforms will only share opportunities that have been reviewed by an internal team and chosen by a lead investor who does a further due diligence on the deal. Not only does this method reduce the risk of choosing to enter a deal alone, but it also simplifies the logistical portion of the investment, since these platforms handle the processes of negotiation, legal paperwork, and accounting. While AngelList is active in Latin America, local platforms like Eqseed, Arkfund, and Founderlist tend to have a better grasp of early-stage deals in their ecosystems.
Angel networks can provide the same deal flow and opportunities for co-investment with other angels, but might not handle the messy bureaucracy of investing. Angel networks can be a great option for active investors who want to be involved in the ecosystem, but it can come at a cost. Most angel networks charge a yearly fee for membership and access to deal flow; crowdfunding platforms do not.
Angel investors play a crucial role in providing startups with the first capital they need to grow, or supporting smaller funds during early rounds. However, finding those opportunities as a new angel can be tricky, especially in emerging markets like Latin America where the startup community tends to be more fragmented. This situation also presents an opportunity; in regions with less capital available, wise angel investors have the chance to get in on incredible deals early, with lower valuations and less competition than in the US. With thousands of startups vying for success across the Latin American ecosystem, angel investors are entering the market at just the right time to capitalize on the region’s future unicorns. It’s just a question of knowing where to look.