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Latin America is living through the aftermath of what Linda Rottenberg calls "punto-com fever."
In 1999 and 2000, she said, "suddenly everybody and their sisters wanted to be a VC, or an entrepreneur, or an angel investor, an incubator, or an accelerator—and the inevitable crash came."
Rottenberg, the moderator for the "Entrepreneurs After the Hype" panel at the Growth Opportunities in Latin America conference, is also the CEO and founder of The Endeavor Initiative, a non-profit that encourages entrepreneurship in emerging markets.
Since the crash, it's become tougher going for Latin American entrepreneurs, Rottenberg said. And what that means, panelists said, is that entrepreneurs must be more dedicated and realistic to succeed.
"We are definitively in the post-hype period, but the good news like we've heard earlier today is there's still great opportunities out there, and the great opportunities are getting funded," she said.
Gonzalo Rodriguez is CEO and co-founder of BtoBfactory, an Internet holding company with businesses in Southern Europe and Latin America. BtoBfactory succeeded in raising $150 million in first-found financing last September—well after the NASDAQ had fallen from its peak last March. "We still strongly believe in the new economy," he said. The company has 400 employees, with more than half of them in Latin America.
Sinking stock, growing business
Alec Oxenford (HBS MBA '97), co-founder of Spanish auction site DeRemate, said his company has seen its business grow even as stock prices for Internet companies have plummeted.
In March 2000, DeRemate had 5,000 successful transactions clear on its site; last month that number had grown to 35,000 transactions. But such successes, he said, are obscured by what has happened in the equity markets. "This is the truth behind what's been going on," he said.
Oxenford said one of the biggest mistakes made by start-up Internet companies in Latin America was paying more attention to investors than customers.
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| Take it from somebody who had the ship overturned: You've got to be prepared for that in this environment. | |
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| — Kaleil D. Isaza Tuzman, Recognition Group, LLC |
"Investors do have a phenomenal role in creating value," he said. "But also, they were very, very wrong in the incentives they gave most of the companies they funded."
At Despegar.com [http://www.despegar.com/site/paginas/splash.asp], a travel site catering to Spanish- and Portuguese-speaking travelers worldwide, Ricardo Meyer Mattos knew the market for venture capital was already evaporating when the company was founded in December, 1999, and that the first round of funding would have to last at least a year.
"We knew from the start this was going to be a tough environment," said Meyer Mattos, co-founder and chief operating officer. "We were very down to earth." He also knew Despegar.com couldn't sit back and wait to be discovered by consumers--it had to educate them about the advantages of online travel booking.
The strategy paid off. The company recorded 410,000 registered users and posted about $12 million in revenue in 2000. And it received a second round of funding in March, despite the tight venture capital market.
Life after disaster
Kaleil D. Isaza Tuzman is co-founder and managing director of Recognition Group, LLC, a New York-based professional services firm that works with troubled companies. But before that job, Isaza Tuzman saw the downturn firsthand.
As co-founder, chairman and CEO of govWorks, Inc., a company that helped create an e-government marketplace, Isaza Tuzman helped raise $60 million in venture financing from blue-chip investors. But when the market crash of 2000 hit, Isaza Tuzman suddenly had a different job: shepherding govWorks through a huge staff and cost reduction, and eventually a sale.
"Unfortunately, you may know me from such sites as f---edcompany.com," a Web site that predicted the deaths of a number of dot-coms, Isaza Tuzman said.
"I'm here to say there is life after difficult times," he said. "If you're going to take on an entrepreneurial lifestyle ... you have to be ready for the good times and the bad times."
Start-ups still sexy?
Given their struggles, Rottenberg asked the panelists if they would still prefer to work for an established company rather than strike out on their own.
Oxenford admitted that he and his partners had done some soul-searching, asking themselves, "To what degree did it all make sense, and to what degree does it still make sense for us to stay?"
"It took us about two seconds to absolutely agree that even if things were the absolute worst-case scenario ... it is all incredibly much more rewarding, and has been, and will be, than anything I can imagine in a standard corporation," he said.
"Building a company allows you to feel, firsthand, that you are doing something really important," he said. "The impact you can have on other people, your employees, your customers, your investors, and the responsibility you take, it's just another dimension."
Oxenford remains bullish on the opportunities for entrepreneurs. "There are actually many more opportunities today than there were two years ago," he said.
No substitute for experience
Emerging companies need to think about involving partners with more experience in the fields they're trying to enter, not just attracting bright business school students, said Meyer Mattos.
"Different stages of a company need different skills. You have to be much more pragmatic when you're starting a company right now," he said.
Isaza Tuzman, a witness to a number of failed or transitioning companies in his current work, has seen many entrepreneurs learn the hard way that they were unprepared for the challenges they faced.
"There are a lot of people who have gotten into this gravy train over the last few years who shouldn't have," he said. "There are a lot of people from prestigious institutions like this who were really involved to make a lot of money and seize a market opportunity and it was a trade, it was a financial trade. And it doesn't work."
He said his company has worked with some of the best-known venture capital firms on the East Coast, dealing with struggling companies in their portfolio.
Fire in the belly
"The symptoms are almost universal, of founding teams that had some very ambitious MBAs involved, some young teams, incredibly smart and incredibly motivated, hungry people, but who often didn't have a fundamental passion for, or understanding of, the business they were getting into," he said.
Lacking that passion and understanding, many of those entrepreneurs haven't had the motivation to stick with a sinking business.
"Take it from somebody who had the ship overturned; you've got to be prepared for that in this environment," he said. "You can't get into an entrepreneurial enterprise and live like a consultant or an investment banker."
As Rottenberg said, "Everyone out there in the audience needs to ask themselves, 'Do I have the stomach for this?'"
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