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In The Pipeline: Private Equity In Colombia

1 February 2006

New Public/Private Sector Initiatives Bring Opportunities to the Surface

Chicago, IL / February 1, 2006 – With recent government initiatives to boost access to local equity capital, public sector support and a surge in country-specific fundraising, Colombia seems set to lose its status as a well-kept secret for venture capital and private equity (VC/PE) investors.

The idea of Colombia as a hot investment destination may surprise those who associate the nation entirely with its recent history of violent civil unrest. But the growing number of fund managers active in Colombia say security issues don’t diminish it’s attractions – economic stability since the 1980s (with Latin America’s 5th largest economy), a long-standing stable democracy and an educated and highly entrepreneurial workforce.

“Colombia has a first-class, global-class entrepreneurial class,” said Julio Lastres, Managing Director of Darby Overseas Investments, Ltd. “This is a country where you find excellent business men and women—there are opportunities and a growing need for capital.”

Colombia’s stock market, which has doubled in value in the past 12 months for the best performance in Latin America, is another prime indicator of positive momentum.

“Colombia’s capital markets sector is more flexible and the nation should rank relatively well in comparison with other Latin American nations,” said Eduardo Elejalde, Founding Partner with Latin America Enterprise Fund Managers (LAEF). “There are some regulatory problems but they are of a more legalistic nature, which makes things slower but ultimately more secure.”

Darby and LAEF speak from experience. Both fund managers are industry pioneers and can boast well over a decade’s worth of Colombia-specific investment activity.

Darby’s first Colombian endeavor, a 35% stake in PetroSantander Inc., was made in 1995. Subsequent Darby investments include stakes in Colombian companies Avantel Holdings, Corfinsura, Sysgold, and TEBSA.

LAEF entered Colombia in 1997 with several investments in the steel sector as well as theater chain CineColombia. In September 2005 LAEF launched the Colombian Investment in Hydrocarbons Fund with initial committed resources of US $60 million and a Bogotá office.

Said Mr. Elejalde, “We decided we had to open an office here as things got hot and we appreciated the complexity of the projects.”

The LAEF Hydrocarbons Fund, in which state energy company Ecopetrol is a major investor, will exploit the 94% of probable petroleum reserves in Colombia found in oil fields of less than 200 million barrels.

According to Mr. Lastres, investors have already done well by Colombia’s energy sector.

“People are looking at Colombia, particularly oil, coal, energy, power and infrastructure,” said Mr. Lastres. “I think Colombia will be a very fertile investment environment in which we can all participate. The more professional funds, the better.”


Fundraising figures indicate that some players are, in fact, taking a closer look at Colombia.

Prior to 2005, Colombia averaged just 3% of the VC/PE dollars committed to Latin America and the Caribbean, according to Venture Equity Latin America.

By mid-2005 that percentage had jumped to 13%, largely due to Colombia-dedicated fundraising by LAEF as well as the new kid on the block, SEAF-Colombia.

According to the Small Enterprise Assistance Fund (SEAF), there are currently 4,300 companies in Colombia with revenues between US$ 1 million and US$ 15 million, growing on average at 9.5% annually over the last two years in terms of sales, significantly higher than the larger companies.

SEAF’s new diversified private equity fund for Colombia, which closed this past month, will capitalize on the rapid growth shown by Colombia’s small- and medium- sized (SME) businesses.

SEAF-Colombia was subscribed by four local institutions (3 pension funds and 1 insurance company) and three international investors (USAID, SECO, and BIO). Director General of SEAF-Colombia Juan Pablo Ospina hopes to increase the fund to US$20 million over the next month.

“During the boom years, in the 90s, Colombia was not on the radar,” said Mr. Ospina. “There was a total lack of this type of local funding despite having a wealth of well-run companies and the pension funds gathering an excess of liquidity.”

According to Mr. Ospina, despite Colombia’s preponderance of high-growth entrepreneurs, it will be years before the local culture becomes acclimatized to the level of scrutiny involved in accessing venture capital and private equity dollars.

“There’s obviously an advantage to being one of the only funds in the market,” said Mr. Ospina. “But that’s also a disadvantage because of the level of understanding among the companies. You have to educate them on a very active level. If you had a lot of players that would make that job easier.”


Over the past year the Colombian government has made notable efforts to boost the local venture capital and private equity industry.

In mid-2005 Colombia’s Superintendencia de Valores – Superintendency of Securities – enacted measures designed to further attract private equity. According to Baker & McKenzie, Resolution 470, passed in June 2005, “creates a whole universe of possibilities for developing projects by attracting private equity, giving investors the possibility of a secondary market for liquidity, as the subscription rights of private equity funds are securities that must be registered in the National Securities and Issuers Registry and listed on the Stock Exchange.”

The passage of Resolution 470 is furthered by a project recently approved by the Multilateral Investment Fund (MIF), which granted US $790,000 to the Bolsa de Valores de Colombia – Colombia’s stock exchange – to help finance a program to deepen capital markets, creating financing alternatives for enterprises interested in expansion and new business opportunities.

The Colciencias project, to be executed by the Instituto Colombiano para el Desarrollo de la Ciencia y la Tecnología, is modeled after Brazil’s highly successful Projeto Inovar, administered by the Financiadora de Estudos e Projetos (FINEP) under Brazil’s Ministry of Science and Technology.

Colciencias will catalyze the establishment of new venture capital funds, develop and train quality local fund managers, and fund a vehicle that will provide equity capital, financial and technical advisory, and value-added governance to Colombian SMEs.

“We’re breaking new ground all the time,” said Mr. Elejalde. “The laws in Colombia are not yet geared toward the kind of investment. It’s a country you have to learn.”

With an improving regulatory environment and the support of public agencies like the MIF, it’s likely that those investors already active in Colombia aren’t the only ones taking notes.


LAVCA’s mission is to promote the growth of the venture capital and private equity industry in Latin America through research, education, networking, best practices, and the advocacy of sound public policy. LAVCA is a not-for-profit trade association serving a core membership of venture capital and private equity firms that invest in emerging companies.

For more information on LAVCA and its activities please visit