Completing The Latin American Innovation And Entrepreneurial Ecosystem

The Latin America entrepreneurial ecosystem has developed significantly during the last decade. Today, Latin American entrepreneurs can benefit from multiple financing alternatives from both public and private sectors. The Latin American ecosystem has proven to be a fertile ground for the creation and development of startups of great potential and substantial global impact [1]. Ecosystems across the LatAm region are maturing/gaining global recognition, and their compelling solutions are tackling world markets. Their innovations, product/service development capabilities, marketing, finance or supply chain management compete neck–in–neck with the innovations of far more developed ecosystems. Supporting this effort, investors (venture capitalist, angels, et al) have invested, often leveraging public funds in the ballpark of hundreds of millions of dollars.

For all this progress, investors are anxiously hoping that their investments will be rewarded with successful exits of their portfolio companies in the future, obtaining great multiples and promised returns to their LPs (limited partners). This aspiration has yet to fully materialize, and until it does, LatAm emerging ecosystems will remain incomplete [2]. Furthermore, frequent successful liquidity events across Latin America will have the effect of truly giving shape to LatAm entrepreneurial culture, compelling organic startup growth and attendant societal lifestyle changes.

Completing the LatAm ecosystem will require the development of a vibrant market of global buyers and sellers. This is a challenge not a single stakeholder can solve. The solution will emerge when, collectively, multiple stakeholders recognize the importance of the Exit issue––giving it the visibility/priority it deserves and working together to conceive a shared solution that “tropicalizes” best practices.

Supporting this transformation, our firm, Alaya CP, and Magical Startups are co–sponsoring a first gathering of its kind in Santiago (Chile) next week [3], which we hope to institutionalize as an annual LatAm event. Exit Day aims to collect experiences/insights and share best practices from international players tropicalized to Latin American ecosystems. Furthermore, we hope that Exit Day [4] will emerge as a convener of future buyers and sellers and an annual M&A forum for stakeholders in LatAm innovation and entrepreneurial ecosystems.

Our objectives are to maximize exit opportunities by:

  • Sharing insights and experiences among local and international Angels, VCs, and PE funds.
  • Collaborating to design and adapt best practices, as well as implement exit strategies for Latin American startups.
  • Convening and connecting Latin American sellers and global buyers.

The promotional brochure for the event consists of the following two images:

As I identified in my prior blog post [5], Latin America has made significant progress along most startup development dimensions, including product development, marketing, finance, and supply chain management. LatAm entrepreneurs aren’t just birthing intriguing conceptual/informal businesses, but are often creating full–fledged enterprises that are increasingly gaining global recognition. However, the ultimate testimonial for LatAm entrepreneurial success will be when exits become ordinary events.

Of paramount importance here is that entrepreneurs and VCs are aligned around their exit objectives, timing, and possible suitors. It is only after this alignment of mindsets that the hard work of managing successful startup exits can truly begin.

With these considerations in mind, I will briefly delineate steps for facilitating successful exits—which will be one of selected topics covered at next week’s Exit Day event. To ensure a successful exit, a startup firm must:

  1. Perform a readiness review 18 months before its intended time of exit. In fact, it is my view that startups should be “born exit–ready”. Moreover, startups should run due diligence simulations across all areas of the company need to meet the most exhaustive auditing standards. In particular, startups should ensure that they are complying with all accounting, tax, human resources, and legal guidelines in all jurisdictions where the they operate. This could be particularly challenging in Latin America, where legal guidelines are often loosely enforced by both local and national governments. This type of situation could become difficult to explain to global suitors or may require contingency plans that improve exit viability.
  2. Demonstrate future potential to possible new owners. Here, the founding team should focus on value–adding performance improvements that accelerate value creation while preparing for the exit and beyond.
  3. Search and identify venues where they may readily identify promising potential buyers. Successful firms have already reduced to a science—namely through a variety of sophisticated channels and marketing modalities—methods for efficiently acquiring customers for their products and/or services. Finding prospective buyers of companies, however, is entirely different: to be successful at this task, startups must be prepared to unlearn approaches for the former and become far more opportunistic.
  4. Prepare to disclose and actively manage unpleasant surprises and give forthright answers to buyers’ difficult questions. Startups that take this advice seriously may drastically improve their chances of awesome exit outcomes––namely by decreasing the risks of exit process derailment and ensuring that suitors will be able to appreciate the full values of their prospective investments.

See you next week at the Exit Day event, or until my next post… – Carlos B.

[1] There are several examples of Latin American Startups that have gained global recognition, including Mercado Libre, Despegar, Paperless, Globant.

[2] This topic is fully developed in my last blog post: https://carlosbaradello.com/2018/07/25/latin–american–innovation–and–entrepreneurial–ecosystems–will–be–incomplete–until–exits–become–ordinary–occurrences/

[3] Hotel DoubleTree, Av. Vitacura 2727, Las Condes, Santiago, Chile.

[4] We have secured the domain www.exitday.org, which will be the future web site for this event.

[5] https://carlosbaradello.com/2018/07/25/latin–american–innovation–and–entrepreneurial–ecosystems–will–be–incomplete–until–exits–become–ordinary–occurrences/

 

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About Carlos S. Baradello

Investor, thought leader, and advisor in areas of corporate innovation, born global entrepreneurship and global scaling.
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One Response to Completing The Latin American Innovation And Entrepreneurial Ecosystem

  1. domingostern says:

    Good luck Carlos !!

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