Tag: chilean vc

Three Years of Magma Partners

Francisco, Diego and I first started working on Magma Partners in December 2013, which means we’re just passing our 3rd birthday. We originally planned to invest in 4-6 Chile based companies per year, but quickly found that demand for private capital, high quality mentorship and a bridge to the US market outstripped our modest goal.

We like to be the first check into a startup and invest an average of $50k initially, with the capacity to follow on with $250k more in two niches:

  • B2B companies that serve the Latin American market
  • Startups whose tech team is based in Latin America but whose primary market is the US.

In 2016, we invested in 7 new companies, moved to new offices in Santiago and expanded our presence in Colombia and in the US. We’ve honed our expertise in helping Latin American startups derisk the jump to the US market and have had our first successes helping B2B companies in Latin America negotiate significant deals with legacy companies.

We also focused on building out our networks in Colombia, Mexico and the US. As more of our companies started to expand outside of Chile, it was the logical next step to live up to our promise of helping entrepreneurs with more than just money.

As we turn 3, here’s some of our 2016 stats: (more…)

Who Will be Chile’s Paul Graham or Dave McClure?

An article in Pulso, a Chilean business daily, titled Venture Capital: Critiques and changes proposed by entrepreneurs (Spanish, sorry!), has brought startup funding mainstream in Chile.  As far as I know, this article, written by Javiera Quiroga, is the first one in a major newspaper talking about the problems occurring in Chilean venture capital.  In summary, the article interviewed three successful entrepreneurs, Chileans Tomas Pollak and Nicolas Orellana and Argentinian Wences Caseres, who shared their experiences with venture capital in Chile.  To summarize:

Chilean entrepreneurs said that the vast majority of Chilean venture capital funds are not entrepreneur friendly.  They don’t use standardized term sheets, they try to take as much equity as possible (60%+), turning entrepreneurs into slaves, instead of partnering with entrepreneurs.  They are mostly former bankers or private equity without technology experience.  The vast majority just give money and don’t provide much else.  The only way to fix the problem is for time to pass and the industry to mature.

The funds responded that there’s plenty of money around and that entrepreneurs are getting funded at a high rate.

I agree with the vast majority of what the entrepreneurs say in the article.  I had contact with many of Chile’s investors either directly when we were looking to raise money with Entrustet and indirectly via speaking with Chilean and foreign entrepreneurs.  Some people believe that the solution is more money in the Chilean investor community.  If only there were more investors, they say, entrepreneurship would flourish.

I don’t agree.  More money can’t hurt, but there is plenty of investor money in Chile.  Startups with world class founders who execute and deliver what they promise get money, whether its from Chile, the US, Brazil or other countries.

The problem is that more Chilean startups fail than they should.  Chile has a very educated, passionate and hard working base of potential entrepreneurs who lack experience, connections and the know how to run startups.  A small percentage of Chile’s potential entrepreneurs are actually reaching the goals that they are capable of.

They don’t fail because of a lack of money.  They fail because many inexperienced entrepreneurs without networks make correctable mistakes that sink their companies.  Chile doesn’t need more VC.  It needs smart money.  It needs mentorship that comes with a check.

Chile needs mentor/investors who have successfully run startups.  People who knows what lean startups are.  How startups work in the US, but also understand Chilean culture.  Best practices for funding.  Someone to be a sounding board and tell startups when they are doing things wrong and give advice on how to make it better.  Someone credible to call bullshit on poor planning and excuses.  Someone to demand more and help create the roadmap to success.

Chile needs entrepreneurs turned investors who can mentor startups and give them the money they need to get a viable product that can bridge the gap to a Series A and steer them to good VC funds.  This will force Chilean VCs to improve, like their Brazilian counterparts Monahees Capital, who use Silicon Valley standards in Brazil.

Two great examples are Oskar Hjertonsson and Daniel Undurraga, the founders of Needish and Clandescuento, which were later acquired by Groupon.  After the acquisition, Oskar and Daniel were in charge of Groupon LatAm’s successful expansion across South America and are now investing in startups.  But they’re not just throwing cash at startups.  They’re using their expertise to mentor startups and push potential entrepreneurs to start their companies.

For example, after Nicolas Orellana organized the first Webprededor, Latin America’s most important tech and entrepreneurship conference, Oskar and Daniel told Nicolas that they would fund him if he developed his event management tool and started selling it to other companies.  Nicolas founded Welcu shortly thereafter. Although Nico’s the type of entrepreneur who would find a way to succeed no matter what, they’ve been indispensable advisers and additional investors.

Welcu’s now been funded by 500 Startups and Tomorrow Ventures in California and additional Groupon LatAm executives.  It’s grown from two guys in Chile to 35 employees and offices in Chile, Argentina, Brazil and Colombia and is still expanding quickly.  Welcu is a perfect example of how successful entrepreneurs funded a new startup and continue to share their know how.  There are other similar success stories in Chile, but Chile needs more of them and it should be an organized effort.

Chile needs a Dave McClure or Paul Graham who will formalize a seed mentorship program that can help startups navigate the beginning parts of the startup process and mold entrepreneurs who think like their entrepreneurial compatriots in California, NYC and other entrepreneurial hotbeds. That’s the gap in Chile’s market.  So who’s it gonna be?  Who will step up and fill the void as Chile’s Paul Graham or Dave McClure?  Will it be you?