I had a discussion recently about early stage financing in Latin America that was quite fascinating. In essence the venture capital model as created in Silicon Valley, where you have an entire ecosystem that encourages new companies, does not exist in Latin America. Two interesting points.
Family networks. The preferred way of raising money is via family members, with close friends as a second option. Leaving out the pros and cons of this approach, using family members reveals a very important cultural fact about Latin America. Networks are everything, far exceeding their importance in the U.S. This can be seen by the intense social activity in Latin American business circles which American friends of mine have critiqued as excessive and a waste of time. Now we can see, via the informal early stage financing model, why this is so important.
Ecosystems. As all of you who work in the VC field know, Silicon Valley is an ecosystem with several different parts that produce great products for the IT field. Europe has tried to imitate this in certain countries but the jury is still out on how successful this will be. As for Latin America, the system just does not exist right now. Thus many great products are brought to the region from outside, which is how to get into this game. Find out which American products, for example, will sell well in the region then work that angle rather than looking for homegrown ideas. These need to brought out to prosper elsewhere.
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