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PS10 VC Panel: Post-seed crunch and absent foreign investors in LATAM

El panel de discusión se enfocó en el panorama de las startups en la región.

Investing in innovative, problem-solving Latin American tech start-ups should not be frigthening, a panel of expert investors and successful Latino tech entrepreneurs agreed last night at Pulso Social’s PS10 panel discussion and start-up demo.

According to the stock analysis websites, the participants concluded that conventional foreign investors should lower their guard when it comes to providing early-stage capital for promising Latin American start-ups.

“The initial $25,000 is easy, but not everyone is getting follow-up investment,” said panel member and InvestoMex co-founder Sergio Romo, whose firm seeks to strengthen Latin American entrepreneurial channels and provide early-round funding.

Marcus Dantus, director of Wayra Mexico, offered a similarly sobering assessment of the lack of opportunities available to mid-level start-ups. He said a shortage of high-publicity exits is crushing the flow of Mexico’s entrepreneurial ecosystem, and needs to be reversed if major progress is to be made.

“There’s a lot of early stage investment but not a lot of disruptive innovation,” he said. “The biggest problem Mexico faces is not the amount of money or projects in the country but that there are no exits and nothing can grow.

Why aren’t investors going the extra mile in Latin America? For one, the experts pointed out, familiarity is a huge factor. In Patrick McGinnis’, director of Dirigo Advisors, words: why would an American fund venture wildly into South America when it can find safer bets 25 to 50 miles away from its home base?

“Venture capital is a very local industry,” he told Pulso Social in an interview before the panel discussion. “For Americans, if you haven’t lived in Latin America and you don’t speak the language, it can be very intimidating.”

McGinnis believes this can change however. Familiarity, he said, will breed mentorship, knowledge and eventually investment.

“The key is for people to be very familiar with the region, know the right people, be integrated with the right networks and understand the culture,” he said. “Then exist within those networks for a long time.”

“Once you’ve done that,” he added, “the fears go away and you see more opportunity than concern.”

The end goal, McGinnis panel members agreed, is to keep this capital–both American and Latin American–flowing into the coffers of disruptive young companies. Too many times, they lamented, great companies never realize their potential. But how can entrepreneurs and Latin American nations ensure that well-researched, dedicated investment comes into start-ups and stays with them as they grow?

McGinnis says part of the solution will come through a closer-knit relation between capital investors and young entrepreneurs. Too many times, he recalled, foreign investors create absentee relationships in Latin America. They blindly give money without performing the proper research, fail to maintain relationships and twiddle their thumbs when they should be pulling the plug on a declining project.

“Today we need to invest in companies where their founders clearly sees the value that the investors bring to the table,” he said. “Too many funds have 15 investments where they just pick up the phone and have no interactions.”

On the other hand, McGinnis says, investors who form intimate relationships with young start-ups can sow the seeds of continued funding where the pair stays together and partners on future ventures.

If you know this entrepreneur, then you can have an impact on their next and next ventures and create an onward relationship,” he said.

Overall, Dantus looked inward to diagnose the ecosystem as whole. In Mexico, he sees promise in shifting mindsets. Even if a few failures occur, he said, the ecosystem needs those to grow.

“The first thing that’s changing,” he said, “is a leap towards risk and the changing mindframe of students to be entrepreneurs.”

“The overall effect will be positive worldwide.”