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3 lessons that a VC fund learned when investing in Latin America start-ups

The lessons

  1. Get involved

Matcha Kaori joined Itera Capital’s portfolio in 2016. The company, founded by Liliana Díaz in 2013, imports handmade teas from Japan that she sells in different presentations. To accelerate its growth, the fund helped create a corporate governance, a commercial strategy and a sales plan. In addition, he approached her with his portfolio of contacts. “They closed important contracts with them,” says Morayta.

The result of two years of work was an increase of 300% sales. Tea is sold in department stores and self-service stores, such as Palacio de Hierro, Chedraui and Fresko, among other points of sale in 38 cities in the country. In July 2018, the fund sold its stake to a player in the same market. “The return was 3.5 times greater than the investment we made. It was high considering that it was two years. We also achieve 85% of the Internal Rate of Return (IRR), which is higher than the average, which is 30%, “says the co-founder.

The lesson. In this case, Morayta draws from experience to invest in companies that meet a need for niche markets, such as tea. “The product, the way they sell it and branding was something that people wanted,” says the investor, who would invest in this type of company again. “For the third fund we are looking for start-ups like Matcha”.

  1. Be cautious

The bankruptcy of Tenoli was a bad experience for the fund. The start-up, created in May 2014 by Thomas Ricolfi, Rodrigo Sánchez and Nicolás Carayon, formed a network of 3,000 neighborhood stores in Mexico City. To the owners of these businesses, the entrepreneurs gave them business training and sold them products – such as oil, bread and soap – at lower prices.

The model helped stores survive, but their profit margins were very low and required a lot of capital to keep growing, says Morayta. “It was a very prepared team, they did very good work, but they could not raise the capital. Some funds had bad experiences with similar schemes, “he adds. Finally, the entrepreneurs made the decision to close the company at the end of 2018.

The lesson. The director of Itera Capital does not share the amount of investment in Tenoli, however, says that this operation showed him to be cautious when investing in companies whose success depends on constantly raising capital or debt to operate. “It is important to measure the risk, the market moments, how much capital supply there will be throughout the life of the company,” says the investor. “We must find the midpoint between the capital that the company requires and the appetite of the funds for this type of business model.”

  1. Fine-tune the rider selection

José Miguel Sainz and Luis Redondo created Printoo in 2014. The application allowed users to select photos from the camera or social networks, request printing and schedule the shipment to their home. In two years, says Morayta, the company sent more than one million photographs to 45,000 users, until in May 2016 it stopped operating due to problems of the entrepreneurs.

“For us it was a very strong topic. They left the company due to personal problems when the only thing it did was grow, “says the investor. The fund made the legal arrangements to continue with the company, gathered the capital and a new administrative team. “We have been working for six months now. In February of this year we relaunched, “confides the businessman.

The lesson. 95% of the success of a company falls on the founders, underlines the fund manager. “For us it is important to review the processes and take more time to choose the entrepreneur, to know what are his weaknesses and strengths to be able to complement them,” he says.

Published inStartups

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