Magma Partners: Supporting Latin American Entrepreneurs

In 2014, I was sitting in a Manhattan office tower, asking an experienced venture capitalist for advice about Magma Partners, our new seed stage fund that finds the best entrepreneurs in Latin America and helps them launch and scale their US incorporated startups in the states.

The VC’s advice? Leave Latin America. Come back to the US. “You’re going to lose all your money!” Nearly all of my entrepreneur and investor friends said the same thing.

Since 2014, my partners and I have invested $2M of our own money into a portfolio of 32 fast growing companies founded by entrepreneurs from 9 countries that employ 300+ people from 13 countries. All for less than a typical Silicon Valley company’s seed round.

The diverse founders we support are building real US incorporated businesses that generate eight figures in annual revenue. And they’re 90% more capital efficient than Silicon Valley startups.

I thought that once our entrepreneurs built the first few companies that were scaling in the US, Silicon Valley would be excited to fund these capital efficient entrepreneurs targeting the US market. But Silicon Valley has mostly ignored them. Latin America and its founders only raised ~$500M in funding in the past year! That’s less than some Valley companies raise in one round these days!

Because Silicon Valley mostly ignores Latin America startups and many Latin American founders in the US, we help fill the gap and are able to invest in the top entrepreneurs a continent has to offer.

Why Silicon Valley VCs Are Just Starting to Invest in Latin American Founders

When we first started Magma, I assumed that most VCs had vetted the Latin American opportunity and decided it wasn’t profitable. But I mostly found the opposite: ignorance.

The vast majority had never even investigated. But they’d also seen Narcos, Mexican drug violence, Brazilian corruption and Venezuela’s self destruction. And they asked questions like, what would happen if a US born founder stole the money and went to live in Latin America. Or if there was internet in Latin America. Others expressed surprise that there were tall buildings in Chile, Colombia had a startup culture and that Guadalajara churns out huge numbers of engineers each year.

It’s understandable. There’s amazing deal flow in Silicon Valley and New York. If it ain’t broke, don’t fix it, some think. But they’re missing out on amazing entrepreneurs from places like Santiago, Medellin, Buenos Aires, San Jose, Guadalajara, Mexico City, Sao Paolo and more that are bringing novel solutions to real world problems in the US market.

I was a little discouraged after our companies had been rejected by US funds for 12 months straight. But three and a half years after my first meeting in Manhattan, some of the same VCs that told me to abandon Latin America are starting to take notice. Some have even made investments into Latin America or Latin American founders.

Our first fund is doing really well. But making money isn’t the only metric that’s motivating us. Along with many others, we’re helping change the culture of an entire continent. We’re bringing US startup best practices like stock options, high paying jobs, open business cultures and flexible work schedules.

We’re also busting down barriers caused by racism, classism and sexism by investing in startup founders of all backgrounds, who then hire the best people for a job, rather than what high school they went to, their last name, or worse yet, their social class or skin color.

Our startups are not outsourcing. They’re building tech and sales teams that form the core of their startup. They just happen to be based in Latin America. Our most successful companies follow the same model: a cofounder led business development team of 1-5 in places like San Francisco, Los Angeles, New York, Chicago, Houston and Phoenix paired up with another cofounder led 4-20 person tech and sales team in places like Chile, Colombia, Costa Rica, Mexico or Argentina.

These startups have a leg up on Silicon Valley because they have up to 90% lower burn rates, access to talented, experienced, loyal team members, and sell into the US market, the best place to do business in the world, at US prices.

Latin America’s Inflection Point

Entrepreneurs, investors and government have seeded the ecosystem and more successful entrepreneurs are showing others that they can do it. Tech best practices are now available online, in English and in Spanish. And while some the first wave of tech startups that started in 2010s were successful, others have failed and founders who learned hard lessons are starting up again and becoming successful.

At the same time, US, European and Chinese immigration to Latin America has skyrocketed as countries like the US have slammed their doors shut on talented entrepreneurs and tech workers. And employee loyalty at US tech startups has plummeted, down to less than 2 years on average at Facebook, an industry leader in engineering job tenure. Because Latin America employees value stability, startups pay well, and there’s less competition, employees are much more loyal.

And it’s not just us. There’s a whole generation of top Latin American startups that are competing in the big leagues and winning, supported by a new generation of venture capitalists who are supporting them. We’ve adopted Steve Martin’s quote as a mantra that I hope gets adopted Latin America wide: Be so good they can’t ignore you.