Investment

How Medellín is creating a culture of investment in startups

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Access to capital at various stages of a technology startup’s lifecycle is crucial to its survival and development. Historically, Colombia’s “biggest ceiling” to startup growth has been a lack of venture capital activity from regional actors.

For instance, while Colombia only lagged behind Brazil for the largest amount of venture capital investment in South America in 2018 (USD $334 million invested across 19 deals), most of the capital came from firms outside of Colombia, and no Colombian investors made Latin America Venture Capital Association’s (LAVCA) list of most active investors in the region for 2018, according to LAVCA’s Annual Review of Tech Investment in Latin America.

“The VC ecosystem in Colombia is very poor,” Oscar Hoyos, CEO of Uptime Analytics, a big data analytics startup from Medellín that’s seeking a seed round of investment told ESPACIO. He explained that there are people with significant capital in the country (Colombia is the fifth richest South American nation in terms of per capita GDP) but they still invest in traditional markets like real estate.

We see this behavior in larger funds as well. Take VeroNorte, the Medellín-based corporate venture capital firm that invests for some of Colombia’s largest corporations including Sura, Argos and Nutresa. It counts just one Colombian company in its portfolio of 12 investments. 

Speaking generally about corporate venture capital firms, Angela Vanegas, Head of Corporate Innovation at Corona, a multinational ceramics manufacturer based in Medellín, told ESPACIO, “It’s a very good initiative, but the problem is, they are not looking for startups here, they are looking for startups overseas.” 

Partly because of this, many of the most promising startups have looked abroad for funding. For example, in 2018, Silicon Valley’s Y Combinator, Foundation Capital and Graph Ventures invested in Medellín-based online tax filing startup Tributi. And Colombian startup darling Rappi recently received a USD $1 billion capital injection from Japanese firm Softbank, after having earlier raised funds from Andreesen Horowitz and Sequoia Capital, among others.

Medellín’s Blooming VC Culture 

With all its challenges, a culture of venture capital investment is blooming in Medellín, thanks to local and national government initiatives, local investor pioneers, and Colombian startup success stories abroad. 

Directly after streaming a Facebook Live presentation from his offices in Bogotá, Ignacio Gaitan, President of iNNpulsa — an organization backed by the national government that promotes business growth and entrepreneurship — told ESPACIO that Colombia’s government has been creating financial tools to help attract foreign venture capital. “The big VCs are waiting for the government to create instruments so they can see that there is a market [in Colombia],” said Mr. Gaitan. “When the government sends a message, the funds come knocking,” he proclaimed, adding that this helps Colombia create a culture of investment among its own community. 

In July last year it was announced that Japan’s Softbank and China’s Neogen Fund each invested USD $15 million in Colombia’s “Fondo de Fondos” (Fund of Funds), a fund for Colombian startups. The government, via the state-owned commercial bank Bancoldex and other public actors, invested another USD $15 million, with a final goal of raising USD $100 million in capital. 

During a whirlwind roadshow to promote Colombia in Silicon Valley last May, Gaitan and President Iván Duque also signed a memorandum with international accelerator 500 Startups to advance methods to support and accelerate Colombian ventures. 

Back in Medellín, RutaN, the business and innovation center supported by the Medellín Mayor’s Office, facilitates investment in local startups via its Red de Capital Inteligente (Intelligent Capital Network), that connects startups with various investment funds. According to its latest figures, RutaN increased the amount of available resources for financing innovation to 32,500 millones COP (USD $9.76 million), which is two and a half times the resources available in 2018, according to RutaN spokesman Sergio Naranjo.

Alejandro Franco, Former Director, RutaN

To further foster a culture of financing startups in Medellín, the city hosts numerous venture capital events, including the Smart Capital conference featuring international investors, the GIST Investors training program from the US State Department, as well as smaller-scale seminars from RutaN, among others.  

Early pioneers of Medellín’s tech ecosystem have also laid a foundation upon which a culture of investment can be built in the city. CREAME, a business accelerator that has been in the city for over 20 years, spun off Capitalia in 2013. The company offers different financial services for startups and a network of angel investors. In 2012, Esteban Mancuso started his early-stage seed fund Velum Ventures in the city, and Michael Puscar, an Italian-American tech entrepreneur launched GITP Ventures in 2013. Socialatom Ventures, created by Grooveshark founder Andres Barreto, is a small VC firm, now based in Miami, active in the region and the company recently spun off another fund, Firstrock Capital. And Finaktiva, a company that provides loans and other financial instruments to entrepreneurs, launched in 2016. 

Corporations that have launched venture capital arms or accelerator programs include: Aceleradora Sodimac Corona, that has accelerated nine Colombian startups to date and EPM Ventures, a corporate VC fund from the city’s public utility company, which has invested in eight startups, four of which are Colombian. 

While these early successes are encouraging, entrepreneurs in Medellín are hopeful that more investment funds will continue to be created, and see the success of Colombian startups abroad as a way to open up local investors’ eyes to the potential of startups at home. 

“The best thing that could happen this year was Rappi becoming a unicorn,” said Mr. Hoyos, the entrepreneur seeking his first seed investment. He said that people are starting to ask questions like, “What’s a unicorn?” and “How is it possible to get so valuable so fast?” This, said Hoyos, piques their interest and “people begin to see that it’s possible, and they say, ‘Hey, I want to invest there.’”

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