In our new GIST Net series, Overcoming Regional Startup Challenges, we’ll share expert insights around identifying and overcoming common obstacles facing startups around the world. In the first installment, we spoke with Dr. Agostinho Almeida, Investment Manager with Promotora’s Venture Capital Unit in Colombia about particular challenges facing Latin American startups.
Four Main Challenges Facing Startups in Latin America
In my experience, tech startups struggle with developing something customers want – and are willing to buy. They also seem to have difficulty developing products that fall within regulatory or policy constraints. Part of the issue is a recent fascination with the MVP (Minimum Viable Product) concept. With the MVP mindset, startups are sometimes not asking the right questions with the end user in mind because of the focus on developing so fast prior to that phase.
There’s little connection between market strategy and sales. Startups, particularly those led by younger entrepreneurs, feel that developing a product or technology is enough. They don’t realize that you need to generate sales to not only help fund the venture, but to gauge customer interest and test scalability.
The ecosystem is young and relatively small. Compared to other countries, there’s a lack of funding lifecycle in the region, especially outside the IT sector. Most available funding (in $ value) from private funds is either in the IT space or for companies at later stages (late VC and PE). Pre-seed, seed and early VC are not so common. If you look at sectors such as biotech, health and agiculture, it will represent only 4% of the VC/PE investment in the last five years. That's not necessarily bad, but a reality we must face. Another important question to ask ourselves: how many of the first generation VC fund managers will open a second fund?
Cultural Mindset to Criticism
This may be a cultural issue, but some entrepreneurs from Latin countries have difficulty with honest and straightforward feedback. It seems they are sometimes reluctant to listen and take advice or input from the market or investors, especially if it isn't what that want to hear. Although being stubborn can be an important entrepreneurial trait, in most cases not listening to feedback to help inform your business plans or product designs may mean running a successful business turns into a matter of luck at the end of the day.
Ways to Overcome These Challenges
Understand the Landscape
The sooner startups talk to customers, the better. Startups should also identify knowledge gaps around customer needs, pain points and mindsets. Talk to buyers, end users, service providers – anyone that can shed some light on the space you’re trying to work in.
Plan for Lack of Financing
As mentioned, there isn’t much seed capital or VC investment outside of tech or IT. Startups should take that into account when developing a value proposition and road map. Be prepared to move faster through other regions or countries where there’s investor interest, or make plans to grow organically or with other investment sources.
Get Your Hands Dirty
Generating sales isn’t just to raise funding. It's mainly about using the sales experience to understand what customers are willing to pay for, how they’ll use the product, and their purchasing mindset.
Keep an Open Mind
Don’t take feedback personally. Expert advice or customer comments are a critical part of the entrepreneurial process. Without feedback, startups flounder in the dark much longer than necessary – or simply fail.
About Dr. Agostinho Almeida
Dr. Agostinho Almeida, is an Investment Manager with Promotora’s Venture Capital Unit. Based in Medellín, Colombia, Agostinho has executive training in Tech Commercialization and Venture Capital, and currently is part of a team that leads the IT and Life Sciences Portfolio companies at Promotora. There he helps manage a COP$ 40,000 Million size fund, which has made 7 investments and 3 exits (2 total and 1 partial) in the Life Sciences and IT sectors and is currently fundraising for a second fund of COP$ 60,000 Million. Additionally, Agostinho has helped develop businesses and projects in sectors ranging from medical devices to software development and has co-founded and owned three companies, raising approximately 2.0 € million euros for his different ventures.
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