While the expansion of mid-market buyouts in Latin America has been well documented in recent years, it has been much more difficult to track venture capital activity in the region. Brazil cultivated a domestic VC industry in the mid to late 90's spurred on by enabling legislation, and Argentina has generated a few high profile deals over the years, including the IPO of internet trading platform MercadoLibre on the NYSE. But outside and inside the region there is a perception that Latin American nations lack the culture of entrepreneurship found in China or India. I had the opportunity to challenge this view at a recent panel on economic competitiveness in the Americas, when I asked fund managers from Brazil, Mexico, Costa Rica and Uruguay to describe the environment for angel, seed and VC investing.

Diego May, director of the Costa Rica-based angel network LINK Inversiones, insisted that angel investing is both possible and necessary in Latin America, in order to develop a solid pipeline for VCs. The inspiration for LINK came when Diego was evaluating strategic investments for Intel Capital, and saw a range of deal opportunities in the $50-100k range that were too small for Intel. "With LINK, after a few months of operation and some initial investments that had good PR exposure, we started receiving a lot of inbound calls from entrepreneurs with interesting ideas. Even in a country like Costa Rica, with a population of four million, we have been to develop an angel network that has already invested in four deals and analyzed 130+ in its first 18 months of existence. This certainly shows that the US angel investing model can be adapted successfully in Latin America." LINK's portfolio companies are weighted towards technology, with approximately 50% in software, 20% in energy, biotech and other technologies, and 20% in service sectors including tourism and healthcare.

In Uruguay, the founders of Prosperitas raised $10m for the country's first VC fund in 2005, and are investing that fund in early stage companies in the IT, agribusiness and life sciences sectors. The idea is to leverage the competitive advantages of the Uruguayan market to develop companies that can compete globally. "Fortunately, the country has a well-educated work force, favorable time zone, and institutional stability", said Prosperitas partner Rodolfo Oppenheimer, who notes that software exports reached $200m in 2007. "But like in many fast growing emerging markets, a shortage of highly qualified management talent creates a bottleneck in growing businesses." Oppenheimer is currently recruiting Uruguayan emigrants that hold management positions overseas to staff portfolio companies.

The theme of human capital dominated the discussion on the ‘ecosystem for VC' in Latin America. "A major factor limiting the favorable development of small enterprises in Mexico is the sourcing and retaining of good employees," said Erik Carlberg, founding partner of Alta Growth Capital in Mexico. Alta was founded in partnership with Utah-based VC firm vSpring Capital, but is targeting growth capital and private equity investments in Mexico because managers perceive a difficult environment for exiting earlier stage venture deals, given the absence of other VC players to spread the risk.

"In the end, VC investments are bets on people. In Mexico there is little understanding by employees of the risk/reward ratio in smaller enterprises. Employment risk tends to be avoided given the systemic risk of living in a developing country, while the reward component is not properly appreciated by employees (or not offered by entrepreneurs)." According to Carlberg, higher education exacerbates this problem because business schools focus their curriculum on teaching students to execute, but do little to promote creativity and entrepreneurship. Diego May agreed that "educational systems in Latin America are more inclined to producing managers than entrepreneurs", but his experience with LINK has convinced him that "if the ecosystem is correctly developed there will be interesting and investable entrepreneurs."

Governments have an important role to play in developing that ecosystem -- in the US the government-backed Small Business Investment Company (SBIC) program has played a major role in expanding access to risk finance for entrepreneurs and small business owners. In Latin America, public sector efforts to cultivate venture capital have been most successful in Brazil, where an agency (FINEP) within the Science and Technology Ministry has been making equity investments in VC and PE funds since 2000. In 2001 the program was expanded with technical assistance from the Multilateral Investment Fund (MIF), a trust fund of the Inter-American Development Bank which invests in new fund managers across Latin America.

Susana Garcia Robles, senior investment officer, explained that the MIF "took Brazil as a laboratory of ideas, and developed a project, INOVAR I, to create an enabling environment for the venture capital industry, with coaching for entrepreneurs on how to present their companies for investment, training (locally and overseas) for new fund managers and investors on the asset class and what their peers had done in other parts of the world, and the creation of a consortium of investors looking together at deals and performing jointly due diligence, creating economies of scale and effectively shortening the fundraising period. The project was so successful that it has been replicated in Colombia and other countries in the region, and in Brazil we have started developing a second phase, emphasizing now the need for angel investors and a robust seed capital industry."

Sidney Chameh, founding partner of São Paulo-based DGF Investmentos and a vice-president of the Brazilian PE/VC Association (ABVCAP) described the role of the association in working with regulators to establish a favorable environment for VC. In Brazil, strong macroeconomic fundamentals and the country's natural resources have generated new opportunities in clean tech, biofuels and biotech, while deep capital markets and new opportunities for local IPOs have created new incentives for early stage managers. But as the amount of available capital expands exponentially, many managers who successfully invested early stage VC funds in the 1990s are now raising larger, later stage or sector funds. Chameh started with $10m for VC eight years ago, raised another $70m for a VC fund targeting IT and services in 2007, and is now raising $200m for renewable energy.

August 28 — Colombia has loosened restrictions on foreign investments in the local stock market, according to the chairman of the Colombian stock exchange (BVC). Bloomberg Full Story (English) Full Story (Spanish)

August 12 — Argentina has made an executive order abolishing income tax breaks for closed mutual funds and some types of trust, with immediate effect. Latin Lawyer

July 22 — Standard & Poor's raised its foreign and local currency long-term credit ratings on Uruguay to "BB-" from "B+" citing diminishing economic vulnerabilities while remaining solidly committed to sound macroeconomic policies. Reuters Full Story

August 29 — Advent International is close to landing its buyout of Aeropuertos Domincanos Siglo XXI. The global firm, whose Mexico team is running the deal, is raising $350m in the syndicated loan market to help pay for the asset, which operates 6 Dominican airports on concession from the government. The deal will likely be funded ahead of syndication, scheduled to close in mid-September. Around 9-10 banks are expected to participate, including Dominican institutions. LatinFinance Full Story

August 27 — ADMIRA recently launched Guatefondo, the first private equity fund listed on the Guatemalan stock exchange (BVN) and the first fund to have an initial public offering in Central America. Guatefondo will invest in equity securities of Guatemalan companies at their growth stage and primarily focused in the technology, energy, tourism, real state, and agricultural industries. Guatefondo Full Story

August 26 — Gavea Investimentos is looking at taking a 15% stake in RBS Comunicacoes, a broadcaster and a Globo affiliate based in the souther Brazilian state of Rio Grande do Sul. LatinFinance

August 25 — GP Investments has acquired an additional 17.7 percent stake in San Antonio Internacional, the leading provider of land-based drilling and integrated exploration and production (E&P) services to oil and natural gas companies in Latin America, for US$135 million, with an option to acquire another 1.8 percent for US13.4 million. Some, if not all, of the funding for the transaction will come from GP Capital Partners V. GP Investments held a 55.2 percent stake in San Antonio prior to the transaction. Business News Americas

August 25 — Spring Wireless Inc., a leading company in mobile business solutions in Latin America, has received a cash infusion of US$ 56 million from Goldman Sachs, the U.S. venture capital firm New Enterprise Associates (NEA) and Ideiasnet. Spring Wireless Full Story

August 20 — US PE firm Denham Capital is investing $50m in CariSal, an investment holding company that includes production of caustic soda, calcium chloride and other related products. Denham's investment is critical to the completion of a calcium chloride/ caustic soda complex to be constructed in Point Lisas, Trinidad. CariSal has operations in New York and Trinidad and Tobago. Denham Capital Full Story

August 20 — US-based investment company Equity International has invested $100 million in AGV Logistica, a privately-held logistics company headquartered in Brazil. With this, Equity International now has four portfolio companies in Brazil. Focused on real estate-related businesses operating outside of the United States, Equity International is affiliated with Equity Group Investments, the investment company founded and headed by Sam Zell. Business Wire

August 13 — Paul Capital Partners has committed $45 million in a secondary transaction with Argentina-based private equity firm Pegasus Capital. The deal gives Paul a stake in seven companies, although Pegasus also will initially retain a stake in each of them. Paul Capital Partners

August 6 — Gavea Investimentos is in the process of closing its third private equity fund, expected in the $1.2bn size area. With the new fund, Gavea, which is privately held and counts on onshore and international investors, will have $7.5bn under management. Gavea is completing its fifth year as an asset manager, though it only launched a dedicated PE vehicle two and a half years ago. LatinFinance

August 5 — Apollo Group has acquired a majority stake in Universidad Latinoamericana, an accredited private university in Mexico City, from Carlyle Mexico Partners. Apollo Global is a $1 billion joint venture formed last year, and is 19.9% owned by The Carlyle Group, which manages the Carlyle Mexico Partners fund. The Carlyle Group Full Story

August 5 — The Government of Singapore Investment Corp. (GIC) has acquired a minority stake in Mexico Retail Properties (MRP), a leading shopping mall developer in Mexico. MRP, an affiliate of U.S. private equity firm Black Creek Group, owns 14 shopping malls in Mexico, with five more under development and 21 others in the pipeline. Reuters

August 1 — Brazilian PE firm GP Investments is about to close its fifth and largest ever private equity fund. The new fund is targeting $2b. The firm raised $1.3b for its GP Capital Partners IV in October 2007. GP is among the most active PE firms in Brazil and has recently opened an office in Mexico. GP Investments

July 31 — Uruguay will receive a US$34 million loan from the Inter-American Development Bank to encourage more technological innovation. The project aims to enhance Uruguay's international position to compete and achieve greater integration into the world economy by diversifying export markets. The National Research and Innovation Agency (ANII) will carry out the project. IDB Full Story

July 28 — Brazilian renewable energy company Empresa de Investimentos em Energias Renovaveis (ERSA) is planning an IPO through the sale of BDRs. ERSA was formed in late 2006 by Patria Investimentos. Other investors in the fund include Eton Park and DEG. Gazeta Mercantil Full Story

July 28 — Sao Paulo based Geribá Investimentos, a middle-market private equity firm, has completed a leveraged buyout of 100% of Iqara Energy Services Ltda. along with existing management from BG Group. Total aggregate cash consideration for the transaction was approximately US$28 million. The total investment is expected to reach US$50MM over the next two years. Geriba Investimentos Full Story

July 22 — The Argentine national development agency has announced plans to launch a US$40 million venture capital fund to boost the country's IT and biotechnology sectors. The fund will finance local companies as well as international projects involving Argentina. Business News Americas

July 2008 — Nexxus Capital launched an IPO of Genomma Lab Internacional on the Mexican Stock Exchange on June 17. Genomma is a leading over-the-counter pharmaceuticals and personal care products company in Mexico. The investment was made through ZN Mexico II, L.P., one of Nexxus Capital funds ("Nexxus II"). Nexxus Capital Full Story