2010 proved to be yet another record breaker for Latin America. This time it was the flood of cash from venture capital and private equity groups looking to capitalize on favorable economic and political conditions in the region. According to the Latin American Venture Capital Association, $7.2 billion dollars (more than twice the previous year) were thrown at buyouts and venture capital (VC) investments in energy, infrastructure, agribusiness, and mining.
But what about start up technology firms? How has this surge of capital benefited the region’s budding IT startups, and can it help transform them into those household names coming out of the US and Europe. According to Mike Hennessey of Hennessey Ventures (part of family owned Hennessey Enterprise Inc.) which invests in seed stage startups, LatAm is off to a very strong start, but it’s hard to compete against U.S. speed and talent when it comes to attracting the big venture dollars.
NSAM: Through the eyes of a technology investor, how would you describe LatAm’s tech innovation industry?
Hennessey: Interest within the VC community for early stage technology startups in Latin America is definitely growing, particularly in Brazil. Many of the larger US VC funds are sending people and doing deals in Brazil with an eye on the broader Latin American market. Brazil has the market size, Chile the incentives and legal structure, and Argentina has the talent. In the past the focus has been on larger mergers and Private Equity, however, this is changing as new local VC Firms and incubators are gaining traction.
One notable trend on the ground has been the visible cultural shift in attitudes toward entrepreneurship, risk and failure. These days, young professionals are more open to taking risks –challenging the strong social stigma associated with failure. So rather than working for the big banks, retailers or telcos, you see a lot of the younger entrepreneurs looking to start something on their own. Part of what’s driving it is that they’re seeing the successes that Latin entrepreneurs have had in recent years. Overcoming the fear of failure will have a big impact on the tech startup environment there.
NSAM: Can you point out some recent successes?
Hennessey: One example is Startup Chile, a government funded incubator that brings together teams from around the world to spend six months in Chile, to develop their companies and to build connections. It’s an ambitious program with a goal of sponsoring 1000 tech start-up companies. Chile has also adopted something of a hybrid model in the private sector, where startup companies have CEOs here in Silicon Valley with the technical resources in Chile and funding coming from local Chilean VCs. A few Chilean examples are Atakama Labs (social gaming) Junar (web data), Scopix (Retail IT) and Welcu (event management). All of these companies have their Latin chief executives here in California, were funded by Chilean VC firms like Austral, Aurus and Copec, and their CTOs and other development and support functions in Chile. A shining star and exit from Chile is a company called Needish, which was acquired by Groupon, and subsequently runs their Latin American operations out of Santiago. Gaming talent in Argentina is excellent as evidenced by US investment in MetroGames and Three Melons (Disney). Founders Institute has setup shop in Colombia and Chile and Geeks on a Plane recently organized a trip to the region.
NSAM: Can you talk about some of the bigger markets?
Hennessey: There’s a lot of talent in Argentina and huge demand coming out of Brazil. Two obvious standouts in Argentina are MercadoLibre, a $3.5B market cap Latin version of Ebay trading on NASDAQ, and Globant a well-known IT outsourcing player that employs almost 3,000 people. The VC’s in Argentina are growing in number with a new fund Kaszek Ventures alongside others like Cap VC, Patagonia, and Ax Ventures all focused on technology and biotech. Brazil has a talented investor pool as well with Monashees Capital, Arpex International, Fundo Pitanga, and Ideiasnet although I am less familiar with that market.
NSAM: How will private equity and venture capital play out in LatAm’s tech industry?
Hennessey: The US and California are still top dog when it comes to attracting venture capital with many funds in excess of $1Billion under management. You have to remember that these bigger VC players are looking for tech companies with IPO potential. If you include Brazil, you might have a big enough market to produce the kinds of global growth companies that a lot of the VC companies are after. I do think there’s a lot of potential with the $10-$30 million M&A deals as US companies are looking to get into the region.