The economics of LATAM VC
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Biography
Luis Enriquez is the co-founder and operating partner at Bridge LATAM, a VC fund spun out from an angel syndicate. Bridge LATAM has the particularity of being led by former founders.
Prior to Bridge, Luis co-founded Cultura Collectiva, one of the largest native content platforms in Latin America.
You claim that LATAM VCs shouldn’t replicate the US way of doing things. Why?
The conventional US VC approach is to invest in Series A rounds and continue with follow-on investments in Series B and C. This model is predicated on a large market size, lots of available VC funding ($248B in 2022) and proven exit opportunities. You can invest in Series A and have a decent chance, or at least many proxies of success, to exit that investment later on.
In 2022, LATAM as a whole raised $8B in VC funding. Mechanically, exit opportunities are both rarer and smaller. Let’s do some math.
Let’s say you run a $50M Series A VC fund in LATAM, and you are aiming to return 3 times the fund. Your average investment is a $3M check on a $30M valuation. For a deal to be one of your “homeruns”, you should aim to exit that investment for $100M. To do so, the company’s valuation would have to rise to 34x, surpassing $1B. You’ll also need a liquidity event to exit your position.