Latin America Looks To Spur Later-Stage Venture Investments

The seeds of a venture investment scene are beginning to sprout at the early stage in Latin America, and now countries like Colombia and Chile are taking steps to make sure young companies can take root.

Chief among these initiatives is a new push by the Colombian financial services firm Bancoldex, the once-state-owned bank of Colombia, which is working to raise a $500 million fund-of-funds designed to spur private equity and venture capital investment in its home country.

It’s the latest plan from a Latin American country to drive foreign investment into the region’s economies. Around the world, developing nations are embracing private investment in startups and growth stage companies as an engine of economic development, and are increasingly looking to foreign capital to bring some experienced swagger to their nascent private markets.

“Latin American investors are not used to tech companies — they’re used to seeing things like patents or liquid assets that give you a lower risk, and most investments get a huge percent of the company,” says Freddy Vega, founder of education startup Platzi, one of the few Colombian companies to be accepted into Y Combinator.

“In the U.S. you’re gonna see a 20 percent rule, but in Colombia, it’s going to be 20 percent to 50 percent,” Vega says.

Vega bootstrapped Platzi, which he says is already profitable, before heading to the U.S. to participate in Y Combinator’s Winter 2015 class.

Lately, a number of Latin American governments have ramped up efforts to encourage local startup growth. Start-Up Chile, for instance, launched a follow-on fund earlier in the year, after backing over 1,000 startups through its accelerator program, to keep more entrepreneurs in Chile post-graduation.

Bancoldex is taking a different approach. Colombia has already seeded its startup community with its Innpulsa program, and now its fund-of-funds will look to build out the architecture of investment. While the bulk of the $500 million will go to private-equity commitments (sorry, VCs, those guys still get all the glory), venture funds can expect about 20 percent of the capital dedicated to the fund to go to early-stage investors.

Colombia has a population of 50 million, a 10-year track record of economic stability, and four major cities with millions of connected people. It’s a good place for startups tackling the Latin American market to gauge consumer behavior before thinking about scaling across the continent.

“Colombia is like a bridge — for every country in South America, Colombia is an important market because size of the market is right in the middle, we’re right on the path to Mexico,” says Esteban Mancuso, director of Colombian VC firm Velum Ventures.

Velum is focused on early-stage deals, which in Colombia means that their tickets generally range from $150K to $500K. They’re one of six active venture firms in Colombia, and Bancoldex is backing the bulk of them.

Mexico, on the other hand, has 29 active venture funds, but not enough dealflow to go around.

“There’s a lot of money in VC funds in Mexico, but a lot of them are invested in the same companies — so now all the Mexican guys are asking us about our portfolio and which companies would be interested in coming to Mexico,” says Esteban.

It’s situations like these where something like Bancoldex’s fund-of-funds would make a difference. Foreign investors are already coming down to Latin America in early prospecting missions (many have been in the region before, but were scared off during the several macro-economic shocks that shook the region).

By offering to invest in funds, and opening doors in the region, Bancoldex is hoping it can woo foreign investors while at the same time develop an ecosystem and a knowledge base in which companies can flourish and upon which younger investors can build.