As a startup, raising money outside of your region can be intimidating. You may think there’s too much competition in a new, foreign market or that it’s too difficult to compete from abroad. However, getting investment in Latin America can be just as challenging, if not more difficult, than raising funds in another country such as the US.
Before pitching to an investor, you’ll need to do a significant amount of research. You must prepare yourself by answering questions that address everything from “Why are you solving this problem?” to “Is your company a fit for the VC fund?”
Here are ten questions startups should prepare to answer before meeting a VC.
I wrote an article on The Next Web about a topic that comes up weekly at Magma Partners: valuations in Latin America. I hope Latin American founders take a look at this article before they start talking with venture capitalists, so that we can start a conversation. I also hope that more US, Chinese and Latin American investors get in the market, and that more US, Chinese and Latin American companies start making acquisitions so that this valuation gap can change. From the article:
Latin American startups haven’t had the same valuations as Silicon Valley startups. This frustrates many Latin American entrepreneurs seeking investment, as they don’t understand why Latin American VCs aren’t doing deals at Silicon Valley valuations.
There are important reasons why Latin American early-stage investment valuations are lower. For one, there are few acquisitions in Latin America, and when acquisitions do happen, they tend to be at lower valuations than their counterparts in other parts of the world. VCs need to make returns, or they’ll be out of business. Therefore, if exits are lower, the initial price that venture capitalists pay must be lower.
But what other reasons are there for this? Why are there still so few Latin American exits and why are they at lower valuations compared to their international peers? Here are just a few of the reasons.
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. (more…)