Juan Pablo Cappello’s career trajectory speaks for itself. A Chilean lawyer and economist now living in the United States, Cappello has invested in over 20 early-stage companies, including Urbita, Idea.me and the LAB Miami. Formerly Partner and Director at Patagon.com, he has been named one of the most influential Hispanics by Poder Magazine. He is now a Principal Shareholder at Greenberg Traurig and, in his spare time, works on his own blog on innovation and entrepreneurship.
Cappello analyzed the early-stage panorama in Latin America in a conversation with PulsoSocial.
Clarisa Herrera: Do you think the term acqui-hiring is finally losing its bad rap?
Juan Pablo Cappello: It started as almost a negative term, like hacker, and ended up having a positive connotation. Acqui-hiring was perceived as a failure for entrepreneurs. It was a way of finding an elegant exit from a project – what was being acquired wasn’t the product but instead the company’s human capital. In the United States, acqui-hiring didn’t have a positive connotation until recently. In the past 18 months, if a company goes through an acqui-hiring process, its founders talk about it with pride, because companies like Facebook, Twitter and Google are acquiring two to five businesses each month. Because shares of these companies are worth gold, it’s much easier for them to acquire a business for between three and 15 million dollars than it is for them to go out and hire their entire teams.
CH: Is the same thing happening in Latin America?
JPC: In Latin America, we’re just starting to see that change in perception. For example, in Chile, there were a few operations that took place years ago where acqui-hiring was treated as a bad word, looked down upon, an insult for entrepreneurs. That’s changed. What we’re seeing with acquisitions like that of Comenta TV is acqui-entry. They’re buying companies not only because of their talent but also because, from one day to another, they can have operations in three, five, seven different Latin American countries and 20 new employees. For 10 million dollars, paying three or four million in cash and the rest in shares, they close a very attractive operation. Especially having in mind that a good engineer in Silicon Valley is going to request a US$500,000, US$1 million bonus before signing a contract to start a new company.
CH: Is selling talent or the company the only option for Latin American businesses? Why do so few reach an IPO?
JPC: Timetables in Latin America are very different. Entrepreneurs may be magicians, but they can’t do magic. It took MercadoLibre eight years to hit the stock market, Globant, too. Despegar has been around for more than a decade and is looking at the possibility just now. Building a company in Latin America, because of the socio-economic environment, takes longer. Reaching a critical mass of users means you have to go beyond the country you’ve started in, and each step requires effort, capital and time. If you’re in the U.S., in New York, and you want to sell to Canada, for example, there are practically no issues. Entrepreneurs aren’t failing, but expectations have to change. We’re not going to see overnight successes – things take time.
CH: Do you think that in Latin America investors have become more flexible with their terms of entry into a company?
JPC: Until 2010, the internet in Latin America was just a place to store information. Thanks to Facebook and Twitter, users began to interact. There, we started to see accelerators, investment programs, etc. Investors, recognizing this ball of interest, started to make investments and realized that they couldn’t demand the same conditions they did five years ago, when no one else was looking at these companies. The process has become more competitive, and companies have the luxury of choosing their investors – it’s not just a one-sided process. That has made investors more flexible, for example at the level of Silicon Valley, where conditions are more favorable for entrepreneurs.
CH: What is your analysis of the zombie startups in Latin America? Why are there more and more?
JPC: In the United States, they understand that the industry is defined by failure and not success. Most companies don’t get anywhere, and the ecosystem doesn’t punish failure. A good way to raise money in Silicon Valley is buy saying that you’ve been starting companies for 10 years and the first three failed, that you’ve made mistakes and learned a lot. Those are the conditions for a real hit. Latinos think what matters is saying that they’re geniuses and know everything. The possibility of failure must be recognized, not negated. What tends to happen is that they want out of the project but aren’t honest about what they’re doing, putting the company between life and death even though it’s not really operating and they’re barely even in charge. Sometimes, there are cultural issues, and other times, legal. No one wants to admit that things didn’t work out.