6 Secrets VCs Don’t Know About Lima
My top takeaways from a week immersion in Lima’s entrepreneurial ecosystem
I have written before on the theme of necessity as the mother of invention, so it shouldn’t come as a surprise to you when I repeat it here. Living in San Francisco and working with entrepreneurs in emerging markets, I am privileged to have a unique view on both what’s going on in the Valley and elsewhere. One of the things I love about Silicon Valley is the unbridled optimism that we can and will solve the world’s most pressing problems. The thing is, often those problems are not evident from the desk of a tech worker in one of the wealthiest cities in the world. In order to have the impact so often lauded, we must look beyond our ivory towers into the streets, both at home and abroad. Here in San Francisco, ShelterTech, founded by Darcel Jackson, is one of such organisation by which I’m inspired. And one of my favorite things about traveling is the opportunity it brings to learn from how entrepreneurs elsewhere are building creative solutions to some of the toughest problems. It’s also why I helped found Project Binario, to shine a light on these entrepreneurs and help connect them with knowledge exchange, mentorship, and capital.
I don’t blame you if Peru isn’t exactly the first place that comes to mind when thinking tech and startups. But hopefully that’s about to change. Earlier this month I had the opportunity to meet and hear pitches from nearly 30 founders of both tech and non-tech startups that call Lima home, as well as pick the brains of quite a few of the major actors on the funding side, including incubators, accelerators, angel networks, government innovation programs, and even a few budding VCs.
Before I go into my biggest takeaways, I want to give a huge thank you to all who welcomed and shared their knowledge and experience with us. I’m very excited by what I saw, and here’s why:
(1) The government is investing in innovation
With a name like StartUp Peru, it’s hard not to compare the Peruvian government’s program to promote entrepreneurship with StartUp Chile. Unlike the latter, however, StartUp Peru is not an incubator. Instead, the Ministry of Production’s Center for Innovation (Innóvate) has set up parallel programs to support both the growth of entrepreneurship and the funding sources they rely on. Startups can apply for an equity-free government grant under one of three categories, depending on whether they’re at the idea stage, prototyping stage, or growth stage. These are open to any startups and vary in amount from $20–150k. And there are even extra funds specially earmarked for science-based startups. On the funding side, last year the government awarded grants of working capital to five angel investor networks and four venture capital funds to manage and raise a fund. If the four are successful in this endeavor, they can apply for another grant to cover operating costs. The government also recently mandated that all universities must have an incubator. This can often mean variances in quality, but overall definitely helps normalize entrepreneurism as a viable option. StartUp Peru has now launched grants to support the operating costs of incubator and accelerator programs as well.
(2) Growing variety in incubators/accelerators
Back in 2011, when Wayra opened its doors as the first accelerator in Peru, entrepreneurship and startups were foreign concepts for the most part. Now, there is an increasing number of incubators and accelerators, both traditional and with social impact at their core. Many are private, such as Future Startup Hero, Fledge and Nesst. Some are international nonprofits, like Endeavor and Agora. Others are part of universities as a result of the law requiring them to have one, such as UTEC Ventures, EmprendeUP, PAD University of Piura, and Bioincuba in Lima, Impulsat in Chiclayo, and Kaman in Arequipa.
(3) PECAP: the Peruvian Seed Capital and Entrepreneur Association
Certainly the Peruvian market is not yet saturated at any funding ticket size, but angel investing is finally being considered a viable option. There are now five angel networks in Peru (including Angel Ventures, PAD Red de Inversionistas Los Ángeles, BBCS, UTEC’s Capital 0, and EmprendeUP), which all came together last year to form PECAP, the Peruvian Seed and Venture Capital Association. They are working jointly to develop and disseminate best practices for both the investor and the entrepreneur to help ensure that as this culture grows, it does so responsibly. Read their 2017 Fourth Quarter report here (link in Spanish).
(4) Serial entrepreneurs
Peruvian entrepreneurs who have had success elsewhere, either with their own startups or others, are returning home to Peru, such as Gonzalo Begazo, Founder/CEO of Chazki; Pedro Neira, Founder/CEO of Mi Media Manzana; and Fernando D’Alessio of Juntoz. An important part of growing any entrepreneurial ecosystem is increasing the number of people who see it as a viable alternative to more traditional career paths. Certainly, there are few better ways to do that than to make celebrities out of the Peruvian entrepreneurs with some successes that are now returning with a new startup. The more people do so, the less stigma, and the more the average Peruvian will feel starting a business is a viable career.
(5) The quality of the startups
Over the course of the week, we met with quite a few entrepreneurs and heard them pitch their startups. There are many more than we initially expected, spanning many sectors, and many of them were quite impressive. There will always be duds, but overall, I was impressed with the quality of the startups we saw, in terms of the maturity of the founder, attention to cash flow, and thinking responsibly about scaling to new markets. Though perhaps not with quite enough attention to saturating their home market first. Understanding that Peru in and of itself is not a big enough market to sustain a business (for most), it becomes necessary to look to Mexico, Chile, Colombia and Argentina and forces founders to think strategically about moving early (-ier than usual) into new markets, ensuring scalability if/when they succeed. It’s worth noting the small, but growing, number of successful exits of Peruvian companies, such as PickApp acquired by the Scharf group, CinePapaya acquired by Fandango, TodoAutos acquired by LatAm Autos, and India’s redBus buying a majority stake in Busportal. This serves to set an example for the next generation of entrepreneurs and move the needle forward.
(6) Social Impact
I was pleasantly surprised to hear social impact and social enterprise on the tongues of most everyone we met. Even the most traditional Fintech founders were concerned about doing business the right way. The many female founders we met were an added plus. Without even trying, about fifty percent of the companies we met with were female-founded! This has an undeniably positive impact on the ecosystem.
Of course, no market is perfect. The government grants that are given through StartUp Peru could also create dependencies. Many of the new incubators are run by academics who’ve never gotten their hands dirty with entrepreneurship. And, as in many Latin American countries, there seems to be a funding gap for ticket sizes between $250,000-$2,000,000, depending on who you talk to. But overall, the Peruvian startup ecosystem seems very vibrant, socially conscious, and poised for big moves. I’m excited to watch it take off, and hope to be along for the ride!