Global Investors are Turning to Latin America: ALLVPBy Sofía Hanna | Wed, 03/09/2022 - 12:53
Q: What criteria must startups fulfill in terms of results and internal structure to get the investment they need?
A: First, they need a deep understanding of the problem that they are trying to solve, which is key to developing a successful business in general. Second, they must present compelling unit economics while understanding the magnitude of any impact or change in their operations. This is especially the case when undergoing a series A or B funding. Companies need to understand its unit economics and how they will evolve with time. Finally, clear storytelling is key. Being able to communicate to investors, clients, talent and stakeholders what the business is trying to do is what will bring the best results and open many possibilities and opportunities.
This might sound obvious but it is not always the case. Startups need to know that storytelling and unit economics are important fundamentals when starting new projects. Right now, it is common to see entrepreneurs focusing on the solution instead of looking at the customer's needs, which could lead to entrepreneurs missing important opportunities.
Q: What has Latin America done differently in recent years to become a record-breaking venture capital hub?
A: The world is paying attention to Latin America. The opportunities were always there but now there is more talent setting up their own companies. This talent often comes from other technology companies so they learned the craft of building a technology company first hand. These new founders are also being helped by larger companies. Making information available and sharing knowledge across industries has helped spur the tech sector’s rapid development.
Two factors have helped generate investor confidence in Latin America. First, some large investors announced significant investments in the region, which was unprecedented. Three years ago, no big funds were committing capital to the region so the new investments drew investors' attention. There was a gap of investment in the growth equity front. This allowed entrepreneurs to aim higher, to be ambitious and to invest in exceptional products to scale faster. Second, we saw large liquidity events that made the region even more attractive because it now had the talent and capital that made it a profitable bet.
Q: How has Mexico turned into a startup and unicorn hub? What is still missing for this trend to advance further?
A: Mexico’s size and unique geographical location are driving the creation of startups. The country is the second-largest in Latin America in terms of GDP, it is the right place to go if one wants to enter the region. The country’s geographical location is privileged because it is close to business hubs in the north, such as San Francisco, Miami and New York, and to the south of the continent. Finally, Mexico welcomes foreigners. It is also welcoming to new ideas and super friendly, which makes foreigners want to be in the country.
Q: How should startups be managed in uncertain times like these? What are the strategies and points that should be clear?
A: Flexibility is important but a clear direction is also essential. These two factors could counteract each other if companies do not have the capacity to change plans as new information comes along.
Everyone needs some sort of certainty in these uncertain times, which is why guidance is important. Knowing when to change and when not to can define where the company will be headed. Companies require a constant balance between guidance and discipline, while being open to feedback and change.
Q: How can ALLVP provide benefits to its founders beyond the investment made?
A: We often focus on four areas. The first is business development, helping companies find their first client and gathering more industry insights. The second is talent because we know people across Latin America who reach out to us to discover the most interesting companies. The third is to help with fundraising. Often, we are the first investors on the cap table and that means that we can help entrepreneurs connect with later stage VCs. Finally, we provide our expertise in the industries our clients are entering. Our four sectors for investment are: fintech, human capital, smart cities and the future of commerce.
During the COVID-19 outbreak, we set up different initiatives, out of which I want to highlight two. First, we invited our founders to talks and workshops that tackled changes taking place throughout the pandemic, so they could learn from each other and support. Second, we connected with over 100 angel operators and invited them to participate in our deals. We know the importance of talking to peers and connecting with the best operators of today.
Q: What are ALLVP’s expectations for 2022?
A: We will continue investing in our four verticals. The amount of capital flowing into Latin America has been extraordinary, as has been the number of talented people launching startups. This was not even a possibility five years ago, when startups were not a sexy industry to be in. We expect 2022 to be a year in which the industry will go back to its fundamental, to unit economics that progress positively over time as they reach scale and where network effects are leverage to offer better products and services to all its users.
ALLVP, an early-stage VC, invests in Latin American entrepreneurs who want to change the world through technology. It has invested in over 35 innovative companies that share the fund’s vision to democratize access to services and fix large, inefficient industries throughout the region.