Telefonica Bets Big on LatAm Startups with New VC Fund Network

By Narayan Ammachchi

Spanish telecom giant Telefonica is setting up a network of venture capital funds to support technology start-ups in several Latin American countries. The telecom operator said it has agreed to make an initial investment of EUR68 million ($85.4 million) into the funds, financing projects across the region. The program will, however, starts with a committed capital of approximately €300 million that will allow managing business projects with an aggregated estimated value of €1 billion.

The fund will be launched initially in Chile, Brazil, Colombia, where it has received funding from governments and institutions.

The VC fund, dubbed Amérigo, is open to other investors and industrial partners that want to participate in the acceleration and financing of high potential technology companies in the region.

Telefonica has even promised to allow venture capital investors to determine which start-ups represent the best investment opportunity. That means it will contact venture capital fund managers in the region to see who will take interest in investing.

Interesting part of the matter is the VC fund has the support of governments, public financial institutions, and other private partners. In Spain, the fund has already invested in five ‘undisclosed’ technology companies.

Funding for Private Equity (PE) and VC deals in Latin America has more than doubled from 2009 to 2010, topping $8.1 billion. As for the first half of 2011, LAVCA (Latin American Venture Capital Association) reports nearly $7.5 billion in fundraising and investments—impressive performance by any measure. Nonetheless, VC represents only a tiny portion of the PE/VC category in Latin America.

“The objective of this initiative is to lay the foundations to create a global network of innovation that drives businesses and new digital services around the world, particularly in areas such as Latin America that are not currently a focus for venture capital,” Telephinica stated in a press release.

The aim of Amérigo is to become a key source of financing for technology entrepreneurs globally, particularly ‘outside of the main centers of VC activity, such as Silicon Valley and London.’

“The Amérigo program starts its activity with a capital of about €300 million, provided by its promoting entities – in particular Telefónica has undertaken initially investments of €68 million for the next five years- and the funds subscribed to the program. This initial capital will allow managing business projects with an aggregated estimated value of €1 billion,” the statement noted.

Within the Amérigo network, the best technology fund managers are being selected who are also specialized in the ICT sector. These managers and the technology funds designated to coordinate the financial resources in each market will identify and promote high potential companies, with an initial investment of approximately one million euros depending on the size of level of development of the project.

“Amérigo marks the next stage in this strategy as we seek to combine the funding power of private and public funds to create a real engine for stimulating technology innovation’ said Matthew Key, Chairman & CEO, Telefónica Digital.

Amérigo joins Telefónica’s other initiatives such as Wayra, which is already accelerating over 145 start-ups in its 12 Academies, and Telefónica’s direct investment program, Telefónica Ventures.