Faraway, So Close!

Your guide to investing in the young and rising Latin American tech

Camino a Chalco con los volcanes, Jose Maria Velasco, Mexico city, 1891

An April morning, I opened my phone as the Nespresso machine loudly poured a Ristretto lungo. For a machine that can’t grind, it sure makes a lot of noise. It reminds me of some people, I thought. While sipping the loud coffee and reading the news, the Chilean VC association Whatsapp channel started throwing around more emojis than usual. ‘Latin America Has ‘Arrived’ Among Global VCs’, read the Crunchbase link that had caused the excitement.


Not two months had passed after Softbank announced a whopping $5 billion commitment for the region, this headline encapsulated the positive feeling of everyone involved in the Latin American entrepreneurial ecosystem. We all felt energized. Whether the region reached some kind of destination, a new status or just caught up on the global VC surge, something was definitely starting to happen.


Global VCs are finally here.


We had been waiting for you for many years now. You briefly showed up during the Internet bubble and Brazil’s eCommerce boom in the early 2010s; never in the numbers and commitment, you’re showing nowadays. Now that we got your attention, we are cheering for you. We want you to stay.

Source: ALLVP Research

If you’re new to Latin America, you will be positively surprised. Navigating Mexico City or Sao Paolo or Bogota will feel much closer to San Francisco than say Delhi or Kuala Lumpur. While investing in Latin America will not be an unfamiliar experience, it can be hard, puzzling and filled with weird signals.


The best way to understand the ins and outs of the region is to ask awesome global investors committed to the region. Ping Angela, Andrew, Hans, Mike, Shu, Jenny or Rodolfo. Meanwhile, here are a couple, well ten, tips to get you started.


1- Welcome to a region of two tech continents


When the Europeans expanded to the new world and until the 19th century, two antagonist empires dominated the region from Texas to Tierra del Fuego: The Spanish Kingdom and the Empire of Portugal. Since then, Brazil and Spanish-speaking countries have written parallel yet distinct histories. Fast forward to the very end of the last century, when the Internet first started, entrepreneurial ecosystems emerged in Brazil and, Mexico, and Colombia in a similar dual pattern.


Despite what you read in mega-round announcements, looking objectively at the region, Latin America is still moving on two rails. Only a handful of American big tech companies and Mercado Libre, the Argentinian e-commerce God, have been able to integrate the two territories. As Uber or Facebook can attest, there’s a big prize when you win both.


2- Beware of small cultural differences with big implications


In our relationship-based business, reading not only founders but potential co-investors and advisers with only a few interactions is hard. The challenge is not related to a big cultural divide or language barrier, not at all. Quite the opposite. You will feel at ease and comfortable in most conversations. You will tend to overestimate your instincts. I’ve been working and investing across the region for two decades and I still get confused. Social cues, body language, words carry different weights and meaning according to the country you consider.


Case in point, it is sometimes useful to think in cities rather than countries when reading these subtleties. Mexico city Chilangos, Bogotanos, and Limeños hate to say no and tend to avoid conflicts. We are more self-aware and often low key. Porteños from Buenos Aires, Caleños and Cariocas from Rio come across as more passionate. Nuance is not their forte. They dream big and sell hard. You will find in Santiago, Monterrey, and Medellin, that people are often more direct, level headed and practical.


3- Partner with awesome yet different founders


Yes, talent is universal. Smarts, experience, curiosity, grit, resourcefulness are all traits we look for in founders. Entrepreneurs in Latin America often went to the same schools and worked for the same companies as US-based founders before starting a new company. But your MIT, Stanford, Xoogler and Uber alum in Latin America may seem more polished than bullish. English might not be our biggest strength, adding to the challenge of distinguishing great to exceptional.


In our experience, over the top and aggressive founders in Latin America may play the part you’re looking for, but will often underdeliver. They tend to fundraise more but execute less. When you think of the best founders in the region, the ones that have built unique companies, they are often confident introverts that have grown into visionaries over time.


4- Don’t look down, embrace different


Much like consumers in richer countries, middle-class citizens in our region use the same smartphones, Uber, order on-demand food, and groceries, bank on their smartphones, and shop with Prime. They spend time in similar shopping malls and get hooked on the same Netflix series. The rest of the population, in the lower part of the pyramid, a huge mobile-first army of consumers, is adopting technology fast.


Please don’t invest because you assume we still buy paper airplane tickets offline or find flats by looking for For Sale signs on the streets. Yes, we’re early in most adoption curves and user bases are sometimes smaller but software is indeed eating our region. Better yet, you will find better capital efficiency and unit economic due to lower operating labor costs and customer acquisition costs.


5- Mind the networks


Networks and connections are more important in developing countries because institutions are more fluid and economic power, more concentrated. Some families create informal coalitions and do business together. Antagonistic dynamics between corporate alliances are minefields for doing business.


Homogenous groups in tight réseaux collaborate more. There’s the French community in Mexico City, the Jewish communities in Buenos Aires and Sao Paolo; Alums from Stanford, MIT and HBS. ITAM alumni and La Catolica alumni in Mexico and Chile are powerful webs. These exist in every country.


Entrepreneurial mafias have also started to form in the last few years. These networks of founders, angel investors, corporate players, and VCs co-exist, interact and quarrel. Whatsapp chat groups often help YC companies, the Rappi mafia, Rocket Internet alums or the Endeavor network coordinate and exchange information.

Latin American VC Momentum

6- Meet them all


Latin American ecosystems are relatively small. In sync with other more advanced ecosystems, startup development works in waves. Last year there was a Proptech wave in the region and the Mexican neo-bank wave is bigger than anyone expected. Cloudkitchens, Dental apps, and banking API platforms are popping everywhere as you read this.


I’ve seen too many foreign investors pull the trigger on an opportunity without taking the time to meet with the two or three other teams working in the same problem. In general, digital signals are weaker so your exploration should be based on old fashion personal research. Make a few calls to key network nodes and, voila! you’ve mapped a vertical.


7- Stop comparing and open your mind


In emerging markets, there are no copycats, just budding entrepreneurs. Copycat is more than a term to describe a straightforward recipe to launch, I see it as an unconscious way to belittle an entire group of hard-charging founders and investors.


Indeed, while in foreign eyes, we have been building a Mexican Kickstarter, a Middle Eastern Uber, an Indian Amazon or a Colombian Postmates, I argue visionary founders are taking a simple idea that already exists and creating new worlds.


So here’s my humble suggestion to you: stop using the c-word with founders. Most probably, these founders are facing more challenges to build their companies and lower odds for success that the first mover. If anything, they have more merit than the ‘originals’.


8- Find the right teammates


If you were investing in France you wouldn’t consider a Moroccan VC or a Swedish firm a local investor right? We may share the same language and love for soccer but your boots-on-the-ground-co-investors need to be, well, on the ground. If you’re outsourcing the monitoring and not the picking, then go for the locally bred. This is particularly true in Mexico and Brazil where the field and rules of the game are opaque, changing and based on written and unwritten rules.


For example, all successful startups currently valued at more than $100M, with no exception, in Mexico, were spotted by a Mexican VC firm. We may have collectively missed the headline grabber rounds because funds tend to be smaller, but we definitely did not miss Kavak, Cornershop, Konfio, Kueski or Clip. This is no accident.

9- Avoid rushed and proxy due diligence


Your diligence processes need to be adapted for the region. Too many investors assume their counterparts be them global or local, have done their fiduciary duty. Don’t. Being a great global fintech investor doesn’t make them a specialist in every regulation in every region. Speaking Spanish doesn’t make you good at navigating local non-market forces, fiscal risks or bankruptcy laws.


Fail because you were too early or too late. Fail because you misread the team. Fail because industry dynamics changed or a big shift in technology happened. We don’t want to see you lose time and money because an over-worked big five auditor rubber-stamped a DD. There are no weird regional requirements but also no short cuts. It’s just part of a rigorous underwriting.


10- Be a giver


It’s surprising how most Silicon Valley investors forget what makes their ecosystem great. When operating in the Bay Area, they are generous with their time and connections. Even with strangers. In Latin America, not so much. Send potential investments, make introductions to your Latin American colleagues, send information, meet founders outside of your scope. Pay it forward.


Ecosystems in our region have historically been late bloomers. These networks of founders, mentors, advisors, universities, accelerators and VC firms need nurture and care to grow. If our day job is as a tech founder or a VC investor, our side hustle is almost always, ecosystem building. We could use another hand.


In 2015, I wrote the following on a post about my improbable search of the next Unicornio.

‘The minute a major Silicon Valley VC sets up a branch in Mexico, you will be out of business,’ a Mexican founder told me over dinner at last year’s Mexico VC Day in San Francisco. I did not respond because I actually think our risk of going out of business is higher if they don’t come. And we don’t expect them to come in the near future.

Whatever happens to the local VC industry, whichever the winners, if any, Latin American founders are better off having you around. They are better off with the powerful combination of foreign, regional and local investors working together behind their vision.


I’ve been lucky to co-invest with outstanding global VCs. More than the money and the prestige, we’ve accelerated our understanding of the VC craft. You have set higher expectations for what investors should do and have allowed us to dream bigger, collectively. If you’re investing in the region, we are here to help.


And if you are, Latin America will bring you much more than awesome returns. Mucho más!

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