The amount of innovative and dynamic startups in Latin America is skyrocketing right now, which means many companies are scurrying to find investment. While startups in the region typically have no problem finding seed and Series A funds, raising larger amounts of cash can be tough. Since this is a challenge, many startups look to the US or Europe when they are ready for Series C and D funds.
The issue is that US and European investors can be reluctant to invest in Latin American startups for somewhat unjustified reasons: language barriers (though most of entrepreneurs speak English), complicated tax codes (which entrepreneurs get around with Delaware Holdings), currency risks (though most of Latin American startups consolidate their incomes in US dollars), etc.
However, there are steps that Latin American startups can take in order to attract interest and eventual investment from foreign VCs. If your startup is thinking about raising money abroad, here is what you should provide to potential investors to have a better chance of raising funds.
Clear Cost and Income Structure in Each Country
All startups need an organized cost and income structure, but where Latin American countries can go wrong is not adapting this structure for each country in the area. For example, if your startup is in Colombia and plans to launch in Brazil and then Argentina, you must be able to thoroughly explain how your product, costs, and income will adapt in each market.
Latin America has more than 25 countries. An optimal expansion strategy in Latin America is based on well-diversified operations in the region. Being in several countries in Latin America could minimize not only operating risks, but also foreign exchange risks.
Moreover, many investors are looking for cost structure optimization by offshoring development processes. If you have a well-organized cost structure, you could increase your chances of receiving foreign investments.
Advisory Board Member or Mentor in Investing Country
If you want investment from a US VC firm, you’re going to have to gain trust. To do this, you’ll need to create some ties in the US through serious networking. Even if this board member or mentor has only invested a small amount in your company, this can begin to build your reputation in that country and in the industry, where they are likely experts. All VCs want to be able to trust the company they are investing in, so having a person from the US who can speak highly of the co-founders, or at least can be named in press materials, is an advantage. There are organizations such as Puente Labs that can help entrepreneurs close the gap between Latin America and Silicon Valley, so startups should start there when looking to build relationships.
One area where Latin American startups have an advantage is that the market is not as saturated as it is in the US, specifically Silicon Valley. Startups in Latin America can build products that, though they are similar to products in the US, thrive in the untapped regional community. Showing investors how certain ideas, concepts, or products haven’t been brought to Latin America and how they will solve a consumer problem can help give you an edge.
Latin America is beginning to show itself as a destination market for verticals such as agriculture technology and financial technology. In these two industries, Latin American companies are gaining worldwide attention, making the region a global startup creator for this sector.
Tax and Legal Framework in Investing Country’s Language
Your company doesn’t want to make it harder on VCs by making them have all documents translated. Your company should make sure to have tax and legal documents ready in the language the investors speak. Additionally, if your startup provides solutions upfront to any legal challenges, it will make it easier, and therefore more likely that a foreign VC invests in your company.
Selecting an investor-friendly jurisdiction when forming a holding company is really useful in the investment readiness process. For example, structuring a holding company in Delaware creates an efficient way for startups to gain funding in the US.
Set Up Office in Investing Country
Having business development in the country that you want to invest in makes it much easier for funding to go through. Many Latin American startups smartly keep engineering in their local country to save on cost – another point that will win you favor with investors. If possible, though it’s usually quite expensive, set up an office (even of one person) in the country: a person that can handle business and finance meetings, meaning they are fluent in whatever language needed.
Latin America is ripe with “blue ocean” opportunities and boasts a more collaborative than competitive investor environment. This is a great opportunity for investors to obtain low valuations since there are more startups available than funds to invest in them. This can generate opportunity to obtain high ROI, especially in the seed stage.
Latin American startups are beginning to have more options when it comes to later series investments, but many are still interested in going abroad to find more cash quickly. If going that route, it’s important to make it as easy as possible for investors so they will know you do your homework and you are ready to take the next steps.
This post is part of our contributor series. It is written and published independently of TNW.