INSUBCONTINENT EXCLUSIVE:
Jose Deustua
Contributor
Jose Deustua is the managing director of Peruvian accelerator UTEC Ventures, the
organization behind Peru largest investor event, the Peru Venture Capital Conference
Looking for funding as a startup in Latin America is a lot like looking for a watering hole in the middle of the desert
You know it out there, but finding it in time is a life or death situation.
Granted, venture capital investment in the region is at an
all-time high, with leading firms like Andreessen Horowitz, Sequoia Capital and Accel Partners having made inaugural investments in markets
like Colombia, Brazil and Mexico, respectively
But, at the same time, while startup founders might be tantalized by the news of big investments happening around them, as many of them get
closer to the funding stage themselves, they often realize it nothing but a mirage.
And this isn''t just a problem in Latin America
All over the world, startups are struggling to find investment, as VCs are investing more money in fewer deals in the endless search for the
Due to a dwindling number of VC deals in both the United States and Europe, even entrepreneurs in established ecosystems are having to look
further afield for the resources they need to build their businesses, bringing many of them to emerging markets like Latin
America.
Fortunately, whether you&re a local or foreign founder in an emerging market, there is a way to quench your thirst for the
international investment that you need to scale your company
Here what we recommend to the startups that are part of our UTEC Ventures accelerator program in Peru, and what we&d recommend to you,
too.
Find local seed money first
As a startup in an emerging market, the prospect of finding local investment can seem challenging
In fact, this is probably why you&re looking for international investment in the first place
But the truth is, finding local seed money to get started is really the first prerequisite for securing international funding later on.
Last
year in Peru, for example, US$7.2 million of seed capital was invested in the country startups, with barely over US$1 million coming from
This goes to show that international investors peeking into emerging markets are less active in seed rounds, and more interested in
later-stage rounds once a company has better demonstrated its worth.
If you want to attract international investors, you need to be
an international startup.
As such, we advise all startups to raise a first or second seed round locally in Peru, and then seek
The same can go for other emerging markets, as well.
To raise these initial rounds, the most important thing is to show that you have a
solid team, a business idea that works and has traction with clients chasing your product and that you&re better than any local competition
If you can demonstrate that you meet these requirements, finding local seed capital shouldn''t be too difficult; all you need is a good
pitch deck and some patience when networking within local angel groups or at investor events.
Replicate success in a bigger, more
competitive market
If you want to attract international investors, you need to be an international startup
In other words, you need to demonstrate that you can sell your product in a bigger, more competitive market before turning the heads of
For startups in Peru and other emerging markets in Latin America, that means successfully expanding to the region most developed markets in
Mexico, Brazil or Argentina.
Consider, for example, the Colombian courier service Rappi
It wasn''t until after the company expanded its operations to Mexico at the beginning of 2016 that it secured its first major international
investment, led by Andreessen Horowitz
The company then went on to close a Series B round just one month later, in addition to a US$130 million venture round at the beginning of
this year, led by a German food delivery service with participation from a number of United States -based investors.
The same idea goes for
emerging markets outside of Latin America, too
In Eastern Europe, which lags behind its western counterpart in terms of VC funding, many entrepreneurs will either set up their businesses
in Western European countries from the get-go, or expand there as soon as they&ve achieved product/market fit and demonstrated success in
their home countries.
This is a clear demonstration of the broader fact that if you want to start raising money from more developed markets,
you generally need to be based in those markets, or at least a market of comparable size
Accordingly, your primary focus when seeking international funding should be to first succeed locally, and then replicate that success in a
more developed market — whether that be in the United States, Mexico, Western Europe or anywhere else.
Remember, not all international
funding comes from international VCs
While it easy to be distracted by the glitz and glamour of securing a round from international VCs,
startups have a number of other options at their disposal to secure international funding.
Foreign governments in emerging markets are
increasingly stepping up their game with programs designed to bolster their local startup ecosystems as an engine for economic growth
As such, a number of foreign governmental programs have emerged, offering support in the form of equity-free cash to entrepreneurs who
decide to set up shop in a given country.
Corporate capital has taken on a very important role in many emerging markets like Latin
There are plenty of examples in Latin America alone
Start-Up Chile, for example, offers entrepreneurs up to US$80,000 to launch their businesses in Chile as a launch pad to reach the rest of
the world; Parallel18 in Puerto Rico offers entrepreneurs up to US$75,000 to do the same thing; and the Peruvian government plans to
announce a similar program to help startups soft launch in Peru with up to US$40,000 at the upcoming Peru Venture Capital
Conference.
Startups have another option, as well
Corporate capital, or startup investment from major corporations, has taken on a very important role in many emerging markets like Latin
In fact, Qualcomm Ventures, the investment arm of United States -based tech giant Qualcomm, is the most active global corporate investor in
Naspers, American Express Ventures and other corporate funds have taken an active interest in the region startups, as well.
Together, the
growing support of foreign governments and interest from international corporations highlights the fact that securing international funding
is in fact possible, and not as hard as you&d expect
Knowing that there are options besides getting an international VC on board, you should take the time to find out which alternatives are
available in the markets to which you&re hoping to expand.
So, no matter whether you&re a local or foreign entrepreneur in an emerging
market, there no reason to give up hope on finding international funding
The key is to think globally and use technology to solve real-world challenges
Then, demonstrate success at home first, and duplicate it later in a bigger market
Resources are available to help you when taking your first step abroad, and if you do it well, you&ll find that the investment wells aren''t
