Latam Startups Conference 2014

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Providing a window on the emergence of startups in Latin America, the Latam Startups Conference 2014 brought together top global experts to collaborate on innovative ideas to drive global entrepreneurial success.

Torsten Kolind, CEO of YouNoodle
Torsten Kolind

Torsten Kolind, CEO of YouNoodle, an international platform for global entrepreneurial competitions, discussed the primary problem with the region. His first slide: “Latin America: Where Opportunity Meets Inefficiency.” The data backs up this contention. While the growth in startup activity has been quite impressive, the fact remains that productivity has fallen in real terms by 30% in Latin America during the past 40 years. There are many reasons, not the least of which is a relatively recent history of political instability.

Of course, the lack of access to startup capital is also a factor that throttles growth for Latin American startups. In developed capital ecosystems, there is investment from institutions like pension funds and governments into venture funds. This capital pool permits funds to successfully raise money quickly and efficiently. That type of funding does not exist in Latin America. A cultural shift toward appreciating the startup ecosystem as a financial opportunity will help address this problem.

Winerry, Casablanca, Chile
A trip to a Chilean winery made it onto my agenda.

But the problem isn’t only on the funding side. The problem also exists on the “exit” side. That is, large companies do not systematically acquire startup companies in order to develop new product and services line. Instead, the Latin American corporations are focused on research and development rather than finding the best and brightest companies.

There is also a concept called “country risk”. That is, the less stable the political infrastructure of a country, the higher returns that investors will demand. For example, can you imagine owning a factory somewhere near central Ukraine? An investor in that situation would rightfully want to ensure that any return compensates for the risk that the Russian army may march right through the doors. Although Latin America is far from a war zone, most countries have recent history with nationalization of industry and armed political conflict which rightfully concerns investors. The downside for entrepreneurs in emerging markets is that they must present a compelling case for enhanced financial returns.

Seaside City of Valpraiso, Chile
Seaside City of Valpraiso, Chile

So, in short, the ecosystem is far from developed. Of course, some countries are doing better than others. According to some data, the most successful countries in promoting entrepreneurship by investment are Mexico, Brazil and Colombia. On the other hand, countries like Peru and Chile have been lagging behind.

There are other cultural barriers to successful development. For the most part, startup employees in Latin America do not get stock options. As any experienced hand knows, these stock options create the premiere incentive for startup companies to attract the best type of employees – those with a vested interest in the success (or the failure) of a new enterprise.

The conference was the brainchild of Miryam Lazarte, CEO, Go South! Consulting, Inc., a Vancouver based consultancy assisting North American companies looking for opportunities in Latin America. Go South! helps companies succeed in Latin America by translating business culture between new business partners. CrowdfundBeat was privileged to be a silver media partner.

The startup ecosystem has to do as good of a job communicating with corporations, as corporations do selling their products. Once that happens, then the success of startup companies will no longer be a story about Silicon Valley. Instead, it will be a tale about global growth.

Recycling Chilean Style* Someone needs to start a business to complete these signs. These are great looking recycle bins, but I have no idea what items go into which bin. I assure you that there are some hurried people who are putting garbage into the aluminum bin and glass into the paper bin.

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Jonathan FrutkinJonathan Frutkin is CEO of Cricca Funding, LLC. He’s the author of “Equity Crowdfunding: Transforming Customers into Loyal Owners” which is available in paperback, Kindle and audio book formats.

Why Equity Crowdfunding is NOT a Terrible Idea

Jeff Wald wrote a piece that was published in Entrepreneur earlier today. The article is called “Why Equity Crowdfunding is a Terrible Idea“. He argues that the process for raising capital is “time tested” and the current methods assist startup companies that help build our society. He also suggests that there is a great deal of value contributed to these startups by venture capitalists, and by implication, argues that the “crowd” is unable to add the same type of value. Jeff is no stranger to the crowdsourcing market. He runs workmarket.com, a web-based platform for managing labor resources including consultants and freelancers. And while workmarketyou can argue that the crowd is actually able to contribute a much greater amount of value to a startup then a venture capitalist, Jeff has a point. The current structure produces relative stability in the unstable world of startups.

But here is where Jeff (and many are wrong). Crowdfunding isn’t about raising money for startups at all. Let’s face it, if the average venture fund makes ten investments, they would be thrilled to death with one great success and two small winners. An amateur investor doesn’t want that sort of thrill ride; they want predictable returns and the feeling of “investment” that only comes from being an owner. And that’s why crowdfunding is such a huge opportunity for profitable, local companies that benefit from the unique marketing (and corresponding revenue boost) that comes with the crowd.

And it is also the same reason why crowdfunding is a huge opportunity for investors. Instead of being locked into owning the tiniest fraction of a huge multinational conglomerate, the investor gets to become part owners in a local business, and maybe even make an actual impact on the bottom line. They get to brag to their friends and family that they are owners of local businesses that are part of the fabric of their community. And best of all, they get dividend checks that can exceed the paltry returns afforded by some types of alternative investments.

So Jeff gets it half right. Crowdfunding is a lousy tool for startups. But for businesses looking to transform their customers into loyal owners? It doesn’t get any better.

Jonathan Frutkin Jonathan Frutkin is CEO of Cricca Funding, LLC. He’s written a new book called “Equity Crowdfunding: Transforming Customers into Loyal Owners” which was published in May, 2013.

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