I hope everyone’s off to great start for 2014. We’re back in action here at Startup Nomad, so let’s dive right back into the interviews:
My next stop in Medellín was at Velum Ventures, one of the few venture capital firms in the country, to speak with one of its founders, Esteban Mancuso. Esteban is actually an Argentinian who has relocated to Colombia and brought his vast experience with startups to Colombia’s ecosystem. He’s been a founder, CEO, partner, mentor, or advisor at a host of companies and is a major player in the development of the startup ecosystem in Colombia.
He sees the environment for business as much healthier and more stable in Colombia than in his native Argentina.
“In Colombia, the government is fostering innovation and startups,” he said.
He also sees Colombia’s position within the market as advantageous for entrepreneurs saying,
“As a market there are a lot of opportunities. We have a lot of stability. The middle class is growing. There is a lack of many business models that already exist in Spain or wherever and are successful, so why not come to Colombia and then expand to Peru, Ecuador? Maybe go into Mexico. Maybe go into Chile.”
And he’s not the only one who sees this opportunity. A theme throughout all of my interviews in Medellín was that foreign entrepreneurs have been falling in love with and moving to the Colombian city in droves. According to Esteban, there are a lot of foreigners that came to start businesses in Medellín because “they like the city, they like the climate, and they can buy a house for cheap.”
He sees this as a great opportunity for Colombia to take its place as a leader in the growth of Latin American entrepreneurship and, more selfishly, recognizes the benefits for his own fund.
“What we are realizing is that there are many entrepreneurs from Argentina or Chile or Mexico where there is also a lack of early stage financing who are willing to come and live in Medellín for many reasons,” he said.
The city, the climate, and the universities all rank high. Additionally,
“there is a lot of talent here and the human resources are still cheap compared to other countries for coders and designers,” he said.
There are some hurdles that Colombia still needs to overcome if it wants to create a truly thriving and sustainable ecosystem, however. Many of those hurdles ring true throughout Latin America, and Esteban recognizes that the region, as a whole, shares these hurdles, a major one being a lack of investors.”I think all the rest of Latin America [excluding Brasil and Argentina] is in the same situation,” Esteban told me. “Lack of funds, lack of professional investors.” He continued:
“One of the problems we have in the region, at least in Colombia, is the lack of investors, the lack of angels. Because traditional business people in Colombia are related to traditional industries…and they are not interested in investing in innovation. They’re interested in investing in traditional assets.”
Additionally, it can be tough to attract outside investors that do have experience because the risk is greater in the region due to lower deal flow and lower valuations.
“Valuations in Colombia and in the Andean region are not high,” Esteban said. “You are not going to find acquisitions for more than $30 million in the region [with the possible exceptions of Brazil and Argentina]…because of the size of the markets…When you see the valuations in exits you realize that it’s impossible to get a relationship of 1 hit in 10 companies that you invest in, you need to invest in 10 companies and have a success in 5 to return something interesting…Because the exits aren’t high you need many more exits,”
Therefore, entering the early stage market here can be very risky business and “there is not enough deal flow right now in Colombia to invest a $50 million fund or a $60 million fund in a few years.”
That’s probably at least partially why, according to Esteban, “nowadays there are only 3 or 4 VCs: one focused on impact investment, another one more focused on BPO, and another one really active in VC and they’re the only fund in Colombia that has exits.”
That also means there aren’t examples of successful entrepreneurs for new entrepreneurs to look up to and to learn from.
Despite the hurdles, however, Colombia seems to be poised for growth in the startup ecosystem and Medellín in particular is becoming an international hotbed of entrepreneurial talent.
So what’s Esteban’s advice for new entrepreneurs?
“Entrepreneurs have to be much more prepared, to understand what it means to take a company from zero and make it grow in 3 or 4 years, in 4 countries…being really excellent in execution.” They need to “prove much more and be much more in the market. You don’t build a company from behind your Mac coding.”
Finally, if you have the newest hottest app, don’t go knocking on Esteban’s door just yet. “We don’t invest in applications,” he told me. “We won’t invest in applications. We invest in companies.”