Nathan Lustig

Introducing Magma Partners: My New Seed Stage Fund in Chile

magma partnersI’m excited to announce a new project I’ve been working on for the past six months: Magma Partners, a new seed fund in Santiago, Chile that invests in startups and high potential small businesses. Along with two Chilean partners, Francisco Sáenz and Diego Philippi, we’ll invest $25,000-$75,000 in 8-10 high potential entrepreneurs each year for the next three years. Some press: Andes Beat (en), Fayerwayer, Diario Financiero, Pulso Social, Pulso Social (en).

magma1
Me, Francisco Sáenz, Diego Philippi

Our goal is to then provide follow on investments in the successful companies. We held our launch event last night where we announced the fund and our first two investments and it was a great time.

I’m excited to announce  our first investment, Propiedad Fácil, a property portal and real estate service provider in Chile. I think Magma Partners represents an opportunity to help keep the Chilean entrepreneurial ecosystem’s momentum going since the Startup Chile burst onto the scene in 2010.

Ever since trying to raise money for Entrustet in Chile in 2011, I’ve seen an opportunity for a Chilean early stage seed fund that operates using best practices from the United States. Chile is a very conservative country, so most investors still treat startup investing as if they were investing in a bakery or a bank and try to get as much equity as possible in the first capital raise, killing startups in the process.

I strongly believe that a higher percentage Chilean entrepreneurs fail than they should because the nascent Chilean entrepreneurship ecosystem lacks high quality mentorship, people willing to connect startups to existing businesses and access to capital using US industry standard terms. The best Chilean entrepreneurs get their start and quickly move abroad to find funding.

Our fund aims to fill the niche of high potential entrepreneurs who are starting their business in Chile with the goal of expanding across Latin America. We promise to be transparent, use US industry standard terms, give real mentorship and help you connect with potential clients and investors in Chile, Latin American and abroad.

But we’re aiming much higher. One of the things that I like about Chile is that it’s small. With about 17m people, you can have a nationwide impact fairly easily. Our plan is to not only help the entrepreneurs we invest in, but also to be a real help to those who we can’t invest in. I believe that if we execute our plan, we may be able to change the culture in Chile.

We’ve partnered with the Kauffman Mindset program to give mentorship to both companies that we invest in and Chileans who are interested in starting a business.

If you’re an entrepreneur with a business based in Chile who’s looking for funding, please check out our site, fill out our application form and a partner will get back to you within 48 hours with a “no, it doesn’t meet our criteria and here’s why” or a “yes, we’re interested, lets set up a meeting!”

BnJfxJ9IYAA9qQW BnJx8GxIEAIgu8x

photo (12)

The Chilean Mindset Needs to Change from Extraction to Value Creation

People always ask me questions along the lines of “what’s the one thing holding Chile back from being an innovative country?” It’s a question I’m really interested in, not just for Chile, but for the US as well.

My latest column in the Santiago Times titled The Extraction vs. Value Added Mindset talks about Chile’s current preference for business models that extract value, either from the ground, the sea, or even other people, rather than business models that create new value.

Note 22 January 2017: Santiago Times no longer hosts my article, so I reposted it here.

Chile needs to foster value creation over extraction if it wants to establish a real entrepreneurial ecosystem.

I was invited to speak at a roundtable at the Universidad de Desarrollo about the challenges of teaching entrepreneurship in Chile. We had a lively and wide ranging discussion about how best to continue to foment entrepreneurship at all levels of Chilean society. One of the best debates was about trying to answer the question: What is the biggest factor holding Chilean culture back from being more entrepreneurial?

The general consensus was that it’s the Chilean family’s fault. Kids live with their parents until their mid- to late-twenties and generally only move out when they get married. Moms and Dads tell their kids they can do no wrong. Many lead pampered lifestyles with doting parents (and sometimes nanas), who solve even the most trivial of problems. (more…)

Why Have Job Killing Tech Startups Gotten a Pass From Public Outrage?

As I was reading The Everything Store, a book that chronicles Jeff Bezos’ and Amazon’s rise to its current status as retail giant, I was struck by how similar Amazon and WalMart are, but how different their public reputations are.

Walmart is consistently one of the most hated companies in the US. Some people even call them evil. Amazon is consistently one of the most loved. But when you really peel away the layers, both companies are nearly identical. Walmart employs 20x more employees than Amazon and Amazon cloaks itself in startupy, technology marketing, but 0ther than that, they’re pretty much the same.

They both have used advanced technology and inventory management systems to outclass their rivals. They’ve both used extremely low margins for extended periods of time to put their rivals out of business. They’ve used the same bully tactics to punish rivals.

Both exploit their non executive/technology workers by working them to the bone and paying them low wages. Both put their rivals out of business, killing local and online commerce and eliminating choice in the market. And up until this year, Amazon didn’t even pay sales tax, giving it an unfair advantage over brick and mortar stores. (See Amazon infographic)  Yet Amazon is rated as one of the most trusted and Walmart among the most hated.

This dichotomy plays itself out in nearly all tech startups. Although I’d contend that the majority of new startups are net job killers that make huge amounts of money for a small number of people, a bit of money for another larger group and give non monetary benefits to the rest, startups have been able to successfully wrap themselves in the all protecting shroud of being job creators and the engine of our economy. Almost nobody questions it.

The public thinks startups are the way out of slow job growth. So do politicians on both sides of the aisle. Startups are the job creators. They’re completely meritocratic. They’ve (or in this case, we’ve) been almost deified by the adoring public, press and politicians. This deification has brought with it an insidious self righteousness and self aggrandizement that’s reaching social darwinist proportions that we haven’t seen since the gilded age.

Too many founders and the general public have bought the narrative that founders are rugged individualists that succeed all on their own. That they deserve massive rewards because everyone else who hasn’t done it is lazy or stupid. And the most sacred of all, that startups create jobs. Startups and entrepreneurs have wrapped themselves in a narrative of technology and progress that allows people like Jeff Bezos to say things like “were not putting people out of business, the future is happening to them,” and say it with a straight face and a sense of self riotousness. If you want insight into this new phenomenon, look to Peter Theil, who’s best advice for prospective founders is to “find monopolies” where you can take the entire market.

So in our new world Walmart is hated and Amazon loved. It’s bizarre. From my point of view they’re pretty much the same. One just happens to be wrapped in better marketing. I wonder how much longer this tech inoculation will last?

I’d love to get a discussion going, so please leave comments or email me directly.

The Chilean Entrepreneurial Ecosystem: 2010 to 2014

I’m writing a bimonthly column for The Santiago Times, one of Chile’s English language newspapers, about doing business in Chile and the entrepreneurial ecosystem. My first article was published today and it overviews some of the changes I’ve seen in the Chilean entrepreneurial ecosystem since I first came to Chile in 2010. From the article:

But entrepreneurs in 2010 also had to face powerful cultural obstacles. Chile was risk averse and punished failure. A typical conversation went something like this:

Chilean: “What do you do?”
Me: “I have my own business.”
Chilean: Blank look … “But what do you do?”
Me: “I have my own business!”
Chilean: “So you don’t have a job?”

When new businesses failed, as many do, the typical Chilean response was that the entrepreneur was either: a) stupid, b) lazy, c) stole the money or d) all of the above. Almost none of my new Chilean friends even could imagine themselves starting a business and looked at me like an odd duck who was on a weird path — not the traditional one of getting a job at a big, prestigious company with a comfortable salary and three weeks of vacation, plus fifteen days of “feriados.”

You can read the entire article, Creating an Entrepreneurial Ecosystem in Chile, on The Santiago Times.