Funds like a16z, Sequoia, Softbank have all planted the flag, sharing their thesis. Funds like QED, who have been in Latin America for years, are generating great returns. Global investors are pouring billions into Latin American startups. Since we started investing in LatAm, VC has increased 30x from $500M in 2014 to at least $15B in 2021.
But as we see more mega-rounds, many assume it's easy for founders to raise money. For some founders it is. For everyone else, it's still really hard.
Capital is abundant for ~10% of Latin American founders and really hard for everyone else. These elite status founders are able to pull in millions of dollars at high valuations, sometimes with only a powerpoint, or reach $250M-$1B valuations in under 12 months.
The hottest elite status startups receive fast, momentum based follow ons between $20-$100M within 3-9 months of raising their first rounds. Many Magma companies have been able to access these capital markets, using the money to build their teams and solve LatAm’s biggest problems even faster.
For the rest, while easier than 3 years ago, and much better than 8 years ago, raising even $1M is still a big struggle. There are still not enough Latin American funds operating at a high level, making decisions quickly, and providing support to portfolio companies.
As Brad Feld said in his classic 2010 angel investing blog post, “decide quickly and…dont torture founders.” Unfortunately too many funds and family offices haven’t followed this advice.
On the other hand, many US funds have more or less outsourced their early LatAm investing to YCombinator, preferring to invest at much higher valuations at demo day than go early with LatAm funds or going direct, making it seem like YC or bust for LatAm founders.
It’s easy to get discouraged, feel depressed, burnt out or think it’s all unfair if you have better traction and better growth than the elite status founders that are raising big rounds. Don’t be.
Imagine trying to jump on the soccer field with Messi and Ronaldo if you’d never seen a soccer game before, and you didn’t even know you couldn’t use your hands? You’d be terrible!
The same is true for fundraising: Most underestimated founders don’t know the rules to the VC game or maybe have an idea, but have never practiced before.
As Deepak Chhugani, founder of Nuvocargo puts it, “Founders need to learn the unspoken rules of fundraising and practice skills to be good at it. Most importantly, founders need to understand the psychology of investors and VCs' business model.”
While VCs certainly have some bias, most are making rational decisions for themselves and their firms. Most US VC’s still don’t have enough experience in Latin America yet to diligence underestimated founders, and default to networks they know: