New Venture Capital Fund in Uruguay Set to Launch Later This Year

We sat down recently with Pablo Brenner, Director of Innovation Consulting at Globant and a central figure in Uruguay’s venture capital (VC) scene, to talk about a new venture capital fund that is set to launch by year-end 2012 with a focus largely on Uruguay.  “The fund doesn’t have a name yet, maybe we will call it Fondo Emprender 3,” said Brenner as the fund will be the third VC fund born out of Uruguay, all three of which Brenner helped orchestrate.

Brenner became involved in helping to create Uruguay’s venture capital scene after returning from living extensively in Israel and observing the venture capital structure there.  He acted as board member at the Uruguay operation of Endeavor Global, a global non-profit that supports high-impact entrepreneurs, from 2004 to 2010 and is partner at Prosperitas Capital Partners, a direct provider of access to venture capital, management consulting services, and financial services for entrepreneurs that owns the title of the first VC entity in Uruguay.

Although Brenner is still very much involved in Uruguay’s VC scene, including linking it to Silicon Valley where he travels multiple times every year, he joined Globant, an innovative software product creator out of Argentina, in 2010 where he now is Director of Innovation Consulting.

The initial Fondo Emprender One (FE1) of US$ 10 million was raised by a $5 million  investment from the Inter-American Development Bank’s (IADB) Multilateral Investment Fund (FOMIN) and a range of partners and other individuals, with the traditional idea of investing early stage (yet relatively proven) high growth companies.  Fondo Emprender Two (FE2) took on the form of seed capital, was capitalized to the tune of US$ 1.1 million, and ended up investing in 20 ventures for a total sum of US$ 800,000 according to Fondo Emprender.

“We then later connected many of those seed funding recipients [from FE2] with angel investors in a very personalized and one-on-one way,” remarked Brenner when referencing the $3 million those 20 ventures attained in angel capital after receiving the initial seed funding from the fund.

Fondo Emprender Three (FE3)

According to Brenner, FE3 (a speculative name) will aim to raise between US$ 20-30 million, half of it coming from the IADB and the other half largely derived from institutional investors.

“We expect to use the 20-30 million FE3 raises to catalyze another $20-30 million  of co-investment from Silicon Valley.  We are seeing a trend in venture capital firms investing all around the world, we want to use the funds we raise to catalyze investment from the US or Brazil,” added Brenner.

It will be the largest VC fund to be raised out of Uruguay to date and will have focus on Uruguay, but will not be restricted to the country.

“The first fund we put together [FE1] was restricted to Uruguay and we missed the opportunity to invest in Globant,” remarked Brenner when talking about the software company born out of Argentina.  “This next one will be focused on Uruguay, but will have the flexibility to invest regionally if there is an attractive venture.”

“We need both and we cooperate really well.  Sometimes we send very early stage companies first to ANII, it is a good way to displace risk for private investors while early stage companies develop. “

Fallen Angels, not Really

Brenner told us that the seed capital fund FE2 was actually more successful (in terms of impact for investment) than the $10 million  FE1.  In 2007, the companies before receiving seed funding employed just 50 Uruguayans and accounted for US$ 500,000 in sales, those same companies now employ 170 Uruguayans and register US$ 3 million in sales. (video)

Brenner informed us that efforts to build a typical angel network based on the US model “didn’t really work here [Uruguay]; the open forum of strangers was not a good fit.”  He explained that after the seed companies were accelerated with money and mentorship they were connected with angel investors one-on-one in a less structured and more personal format than a traditional angel network.  It seems to work well; the IADB has written a case study on it and praised it as a worthy model.

UY Startup Ecosystem

Global Delivery Report (GDR) recently talked with the Uruguay office of Endeavor Global to report on Uruguay’s entrepreneurial ecosystem.  There are some 39 different organizations that contribute to the ecosystem while ANII plays a central role

“ANII (the National Institute of Research and Innovation) is a central figure tasked with charting the country’s course in research and innovation…  ANII finds itself in Startup, Initial Development, and Internationalization categories as it not only funds and guides younger business through its myriad of programs, but helps more mature businesses go deeper internationally,” according to GDR.

There is a good balance of public and private organizations that make up the ecosystem according to Brenner.

“We need both and we cooperate really well.  Sometimes we send very early stage companies first to ANII, it is a good way to displace risk for private investors while early stage companies develop. However, you can’t always look for only grants; you need private investors to push for results and profits so entrepreneurs are reminded that the business isn’t just about developing a technology, but instead about profit.”