That the market capitalization of Mercado Libre is 10 times greater than that of YPF should not surprise anyone. On the contrary, it is the result of a phenomenal 20-year expansion that led the firm founded by Marcos Galperín to become the largest eCommerce firm in Latin America.
However, it all started from scratch, with successive rounds of funding that allowed the company to overcome the recessive winds of the 2001 crisis and grow in the region. Without capital injections, none of this would have been possible.
Mercado Libre was followed by four unicorns: Takeoff, OLX, Globant and, more recently, Auth0, the last member of the "one billion dollars" list. Meanwhile, firms such as fintech Ualá and Etermax grow at a sustained pace to join that select group soon.
The entrepreneurial ecosystem also has a multiplier effect on the economy. The development of local innovation-oriented entrepreneurship boosted the growth of the local entrepreneurial capital industry, also known as venture capital.
This route is the main (in many cases the only) form of funding used by young, innovative and high-risk companies. It is a process in which managers, who can manage more than one fund, define the strategy (usually 10 years), gather investors and select the portfolio of entrepreneurs.
Unlike other sources of financing, such as bank loans, in these cases the process does not end in the delivery of money; on the contrary, non-financial support is provided such as mentoring, guides that are key and access to local and international networks of value for invested companies.
In the case of Argentina, where access to fresh money is one of the worst in the world, according to Banco el Mundial, these actors acquire a fundamental role.In this context, it is important to know what sectors are looking at and what are the projections for 2020 of entrepreneurial funds that are encouraged to invest in the country.
Argentine entrepreneurial capital companies had a first period of expansion between 1999 and 2001, in line with the "puntocom" phenomenon. Now they are going through a new expansive cycle.A report by the Argentine Association of Private, Entrepreneurial and Seed Capital (ARCAP) exclusively assigned to iProUP, reveals that in the last five years:
- The number of fund managers doubled (now total 50)
- The amount invested increased more than 11 times (up to US $ 740 million)Of this total (50), ten were created by companies, such as Mercado Libre Fund, Globant Ventures, Supervielle and Eklos, from Quilmes.
According to the survey of ARCAP, the seed investment allocated the bulk of its transactions to the segments of:
- Ecommerce and fintech
- Services and software
- Biotech (biotechnology)The entrepreneurial capital, meanwhile, focused on these same areas and extended its gaze to the agtech segment.
In the eyes of investors, these are today the most attractive and thriving sectors. It is not accidental: Fintech have been demonstrating their strong maturation, agtech are world-wide references and - at the level of scientific resources -, the country shows a very high potential for the growth of startups oriented to biotechnology.
In a dialogue with iProUP, Diego González Bravo, president of ARCAP and co-founder of the investment fund Draper Cygnus, points out: "Argentina generates a lot of good innovation and high impact ventures, despite being a small market."
In that line, the executive expresses that this segment even managed to avoid a recessive context like that of 2019: in a bad year for business, it could grow in activity. However, he clarifies that "Latin America has been growing more than us."Fortunately, the country has a large talent base that allows it, despite the difficulties of the "macro", to remain a benchmark in terms of innovation.
"We have good talents. In addition to fintech and agtech, healtech is growing. There are also subsectors that generate interest, such as digital currency and blockchain, in which Argentina is a world reference. Or the nanosatellites industry, where we have probed at least to six local companies, "reveals González Bravo.
For Mariano Amartino, former Global Director of Wayra and current director of Microsoft for Startups Latin America, the financial area will continue to boom. For the executive, it is a key item, since "if you do not have a good infrastructure, you cannot generate eCommerce, new businesses and increase the base of banking people."
Amartino tells iProUP that a point of maturity was reached such that "the investment rounds should be larger, yes or yes." He also maintains that another key trend will be the increase in startups that buy from others to boost their platforms. It is a virtuous circle that will depend on the success of the funding rounds in 2020."Today we have sophisticated entrepreneurs, who understood how the industry works, how to raise money and so on. There was great learning," says the specialist.
Much of the maturation process was given by the experience of the first four Argentine unicorns, born before 2005. They not only continued to develop successfully but also laid out a path that served as a mirror for later initiatives, crowned with the rise to the major leagues of Auth0.
The investment in Entrepreneurial Capital is long term, since the successful development of the businesses of funded companies takes years of maturation. In general, between ten and fifteen years, until its time of liquidation.
Therefore, it is not surprising that giants such as Softbank or the Chinese Tencent have set their sights on the local market in 2019 and are aiming to raise their disbursements in 2020. For Andy Freire, responsible for Softbank operations for Latin America, it is good news that the Argentine unicorns have "an international vocation".In that sense, the executive points out that the "albiceleste" startups took a different direction from their Brazilian counterparts, since "in most cases today they have a presence in the region and did not stay in one country."
According to Freire, the firms to be funded by Softbank must be platforms with some artificial intelligence component. That they be accelerated in their growth process and that they have an entrepreneurial team that "thinks big".
Specifically, its fund seeks potential unicorns and megaunicorns (firms that exceed $ 10 billion in valuation), since the minimum investment they make is $ 50 million. In total, they will allocate $ 3.6 billion to Latin American companies.
At the time, they participated in the $ 150 million round raised by Ualá, the most important in the local market in 2019, which catapulted the valuation of the firm founded by Pierpaolo Barbieri at a figure higher than $ 900 million.
Sebastián Aldasoro, Blockchain Business Development of NXTP Corporate Partners, says that "venture capitals are not tied to the problems of each country." In that sense, he explains that what they do is look at "the complete picture"."The investments are made with an eye on the attractiveness of the business and how it can evolve in 10 years. If we see potential in an Argentine company, we will surely invest, regardless of the economic landscape."
Thus, an ecosystem is formed that combines international investors of different sizes with another venture capital that continues to add actors. González Bravo is confident that the volume of disbursements will grow in 2020 but clarifies that, although there is capital available, it was always hard to raise money in Argentina for entrepreneurs.
"There is no institutional capital such as pension funds or insurers. In general, those that bet are family offices or private investments. It requires government initiatives that make private capital flow," says the president of ARCAP.
In this regard, the specialist clarifies the good moment of the region helps to counteract the fluctuations of the Argentine economy, so the flow of money for startups will not lose strength.Proof of this is the US $ 740 million allocated to Entrepreneurial Capital companies between 2016 and 2019: of that total, 90% came from foreigners.
For ARCAP, these figures confirm that promoting the development of Entrepreneurial Capital "boosts the entry of foreign currency into the country."
Thus, an investment landscape is formed that, at all times, bets on fresh dollars so that 2020 is the year that perhaps crowns a new unicorn "made in Argentina" and, in the process, makes thousands of new ones bloom ventures