Adding Value Through Venture Capital in Latin America and the Caribbean

by Josh Lerner, Ann Leamon, James Tighe & Susana Garcia-Robles

Overview — The process of value creation starts with the choice of a promising company, extends through the structure of the investment and into the deal management process, and ends as the venture capitalist positions the company for an exit to a situation where it can continue to grow. In all regions, value creation plays an important role in every venture capital investment. Given the relative youth of the industry in Latin America and the Caribbean (LAC), the issue of value addition is particularly critical. In this paper the authors draw on scholarship, industry statistics, and interviews with six LAC fund managers. They also place the material in the context of their combined 56 years of experience studying the VC industry in order to describe the challenges facing fund managers in value creation. The paper concludes with nine best practices that should be especially helpful in LAC as these economies develop. Key concepts include:

There are nine best practices for creating value in portfolio companies. Some of them apply to the internal operations of the VC firm while others address methods through which the fund managers interact with the portfolio companies.
An unwillingness to risk failure restrains LAC's innovative and entrepreneurial culture.
Entrepreneurs in the LAC region are less familiar with best practices in business, such as reaching beyond family and friends for investors in their companies, and most are new to the expectations of active, equity-owning investors.
Situations vary greatly between countries. What works in one LAC country may not succeed in another, forcing fund managers to be particularly flexible and creative to add value in their portfolio companies.

Author Abstract

There are nine best practices for creating value in portfolio companies. Some of them apply to the internal operations of the VC firm while others address methods through which the fund managers interact with the portfolio companies. An unwillingness to risk failure restrains LAC's innovative and entrepreneurial culture. Entrepreneurs in the LAC region are less familiar with best practices in business, such as reaching beyond family and friends for investors in their companies, and most are new to the expectations of active, equity-owning investors. Situations vary greatly between countries. What works in one LAC country may not succeed in another, forcing fund managers to be particularly flexible and creative to add value in their portfolio companies.