International -- Latin American Business: The Internet
Net Investors Discover a New Continent: Latin America (int'l edition)
Venture capital from around the world is flowing into startups
Last September, Juan Carlos Garcia was getting anxious. The $300,000 he and his partners had raised from family and friends to launch decompras.com, a Mexican e-store that sells everything from perfume to Palm Pilots, had run out. So Garcia, a 31-year-old Wharton School graduate from Monterrey, rang up a former boss who had started a small venture capital fund in Mexico City. He soon got the answer he wanted: $1 million in seed money in exchange for a 30% stake in decompras. com. Now, the fund, Ventura Capital Privado, is arranging a $5 million to $7 million financing for the startup. "I no longer have to knock on doors," says a relieved Garcia.
Latin America is suddenly awash in cash for Internet startups. In a region where good ideas often go nowhere for lack of financing, venture-capital funds from San Francisco to Sao Paulo are pouring money into everything from Web portals to online pharmacies. By early February, as much as $500 million could be available to Latin Netrepreneurs.
Investors are drawn to the region by an explosion in Internet use. International Data Corp. expects the number of Net users to surge from 8.5 million today to 24.3 million by 2003. "Latin America is lagging the U.S. by two to three years," says Susan L. Segal, Latin America general partner at Chase Capital Partners in New York. "But the speed of what's happening is much faster."
Some 30 investments in Latin American Internet companies have been announced over the past seven months. Chase, which has plowed close to $60 million into Latin Net startups, expects to add as many as four new companies to its portfolio within two months. In Brazil, home to nearly half the region's Internet users, Rio de Janeiro investment bank Opportunity is putting together a $260 million fund to target local ventures. The latest to join the fray is Softbank Corp.: On Jan. 11, the Japanese giant announced plans for a $100 million Latin venture-capital fund.
Even private-equity funds that typically limit their investments to established companies are joining the gold rush. Dallas-based Hicks, Muse Tate & Furst Inc. expects to fund Latin Net startups through a new $1.5 billion global fund. Billionaires such as Edgar Bronfman Jr., George Soros, and Mexico's Carlos Slim Helu are also sinking money into deals around the region.
They're all hoping to discover the next StarMedia Network Inc., an early Latin Net success story. Back in 1997, when Chase Capital Partners first invested in the Spanish- and Portuguese-language portal, "Internet investors in the U.S. could not find Latin America on the map, and Latin investors didn't understand the Internet," recalls Segal.HAIR-RAISING RIDE. But Chase's $29 million bet on StarMedia changed that. The company went public last May, and Chase's equity stake is now worth $375 million. To be sure, it's been a hair-raising ride. StarMedia's shares are trading at $33--down from a high of $70, but still double the offering price. StarMedia's success has "poured water and fertilizer on a number of budding entrepreneurs," notes Andrew H. Cummins, president of explorador.net, a San Francisco-based venture capital fund with $40 million for Latin startups. Market watchers expect a stream of Latin Internet public offerings, mostly on Nasdaq, this year.
Besides StarMedia, other Latin portals, such as Brazil's Universo Online, Argentina's El Sitio, and Miami-based Yupi.com, were winners in last year's money sweeps. Now, it's the turn of more specialized sites. Chase, for example, is considering investments in Web sites that focus on health care and women's issues. E-commerce is another hot spot, with online sales expected to soar from $460 million to $8 billion by 2003.
But competition is picking up, too. As soon as one site is launched, a rival appears. So investors have to pick companies more carefully. Jan Boyer, who heads Softbank Latin America Ventures, has words of caution for novice investors. "There are some folks who think `this is the flavor of the month and we have to jump in,' " says Boyer. "They are not going to be successful."
Of course. But for the moment, Latin America's entrepreneurs have somewhere to turn to when they've run down their savings and hit the limits on their credit cards. Before, jokes Garcia of decompras.com, it was a matter of "knowing which rich aunt to call." These days, he's still dialing for dollars--but it's mostly to bankers in New York.By Elisabeth Malkin in Mexico City, with Cristina Lindblad in New York and Bill Hieronymus in Sao PauloReturn to top