TL; DR: Learn how to raise rounds from global VCs from the investors' mouth. Here are five lessons taught by partners from a16z, Founders Fund, and Harlem Capital to Latin American founders and startups:
Starting your startup's fundraising journey? We know you're taking note of all the investors who could be great additions to your business. And, of course, that includes global VCs, who might have in their portfolios just the experience and examples you were looking for.
Good news: ours truly, Latin America, is already on their map. Now all you need to do is prove that you're a world-class founder to them. Knowing how they think and what they value in founders and startups are two key steps that show them how prepared you are for their check.
Don't take my word for it. Take it from Gabriel Vasquez, an a16z partner whose only focus is Latin America. Or take it from Matias Van Thienen, a partner at Peter Thiel's Founders Fund. Or from Gabby Cazeau, a principal at Harlem Capital, a venture firm that's going to invest in 1,000 diverse founders throughout countries over the next 20 years.
These venture capitalists know from experience how you should position yourself to raise from global VCs – and shared some insights with us during Vamos Latam Summit. These next best five lessons will not only increase the odds of your startup raising money from the best global VCs. They will also help you build the path to an impressive valuation – and an even more impressive impact in Latin America.
"It's all about people", says Gabby. I know it sounds cliché and you've probably heard many venture capitalists saying the same thing. Do your research. Go to that networking event. Make an effort and understand how that other founder, that mentor, that investor, heck, everyone single person that crosses your path thinks.
Well, VCs say that because it's the truth. Half the battle is knowing HOW, but the other half is knowing WHO. If you are not nurturing relationships, you're not giving a chance to serendipity and to expand your view of the world. Being pragmatic, these relationships could help your startup's mission and even put money on its table.
We'll let you know that VCs are making that same consistent effort. Investors don't pick only business models and huge markets: they also pick founders that look like winners. Gabriel and Matias shared that their secret sauce is being able to connect and relate to founders. That's what makes them conquer good deals.
Gabriel even shared a quick story that illustrates the power of relationships. He pioneers a16z's investments in LatAm. When he entered the firm that now manages nothing less than US$ 35B, at the end of 2020, they all knew LatAm's big numbers. But the billion dollar question (literally) was:
- How do we crack the market without being in the market?
Their unique insight was relationships. Gabriel decided to meet with all the Latin American unicorn founders that were also angel investors at that time, when the region had about 31 unicorns. With each DM or warm intro, he started growing his network. Eventually, these contacts turned into access to the best deals in the region. It's all about who you know, and who knows you.
Our Fernanda Caloi asked the VCs:
- What are the most important signs or traits you look for when picking great founders?
They could have said a well-developed product, a tested-out business model, a stellar track record, or any other signal of a good investment opportunity.
But they didn't. Matias said something very different:
"The generational companies we know of are doing their life's work. They have always had a 10, 20-year vision." (Mathias Van Thienen, Founders Fund)
Do not put 10 ideas on a whiteboard and pick the least bad-seeming one to start. You just won't have the stamina to break through walls as the problems rise – and they will. For that, you should have a genuine reason for why you are building it.
After you've decided to do your life's work on building this startup, you have to understand everything related to the problem you're solving and the customers you're serving.
"If I ask you a question about your business in a 20-minute conversation and you don't know the answer, that's not a good sign." (Gabriel Vasquez, a16z)
Gabriel shared an amazing framework to understand how well you know your business and products that Marc Andreessen uses a lot: the Idea Maze.
The startup journey is like a maze. There are a lot of paths that might lead to some traps that slow you down, or even to the death of your business. There might also be a path that leads to an exit. Or not.
Should you turn right or left? If you entered the maze at ground level, you don't have the answer. It doesn't matter how fast you go. Your journey will probably end in failure.
Successful founders analyze past casualties of players battling the same maze, train their top-down view, and finally draw a map of the maze. The earlier you can have that guide and the more you update and refine it, the better.
These founders know which turns they need to turn left or right to reach the exit. If there's no way out in view, they know which technologies are able to move the walls in the maze.
It's not about having ideas while you're in the shower, nor sprinting blindly and hoping to reach the finishing line. For writing that map, you need to be obsessed with your industry.
That way, you'll become the master of the maze – and by that, we mean the master of your startup's journey.
"When I meet a great founder, there is nothing in the pitch that I can ask them that they don't have the answer for", says Gabriel. That's what you need to aim for.
Stories drive humans. But great stories always have struggles. Otherwise, they would be as boring as watching paint dry.
So here's another powerful story that Gabriel shared at Vamos Latam Summit.
Foodo, a startup that sells software for restaurants, was founded nine years ago and raised a Seed round with a16z. Everything seemed fine. But then, covid-19 came.
Restaurants closed and the startup suffered a lot. But instead of running away, the founder chose to double down. Even with co-founders on the fence. He bought all their shares.
When Gabriel brought this deal for a16z, they politely asked what the heck.
– What are you doing? This company is nine years old.
He explained his rationale:
– This guy has been doubling the size of his business by selling software for nine years. He knows more about the food industry than anyone else. He grew the company to US$ 9 million annual revenue with no outside capital.
Now, Gabriel says it has been one of the most exciting deals they closed, as they also helped the founder turn the business around with their resources and support.
(Side note: how Gabriel met this awesome founder? At a Latitud Angel Fellowship cohort. 😎 If you didn't catch that, go back to the first insight.)
We all remember 2021. That year "when everything was funded", as Kaszek's Santiago Fossatti also said at VLS.
And we all know we're playing a different game right now. Market valuations are lower in the public and the private world. And even with this correction, it's still harder to get funded than before.
Gabby says the current uncertain market conditions didn't impact the consistency of Harlem Capital's due diligence and quick yes and nos. But there was some change. The bar got higher for them and for other VCs.
Matias added another layer to this onion for you to peel. Investors are thinking not only about their own investment but also about your startup's next round. In the present context, fewer investors believe 100% others will invest later.
Does that mean you are screwed?
You need to remember that venture capital is a boost, but not the engine. Now is the time to show your strategy and execution skills.
"The best founders make it, regardless of capital. The best founders shouldn't give up his dream because a VC turned him down." (Gabriel Vasquez, a16z)
When this storm passes, you will surely have a better story and better numbers to show investors. Or you will be able to simply say nah, thanks, I'm good (and lucrative). Your task for the next months is either achieving the next milestone so you can raise the next round or trying to get to profitability soon, advises Matias.
Still need one last motivation to keep pushing? Stocks may not always go up – but opportunities in Latin America sure do. We're in the same vibe as Gabriel, who has a spicy take on the current market conditions applied to Latin America.
"On the early stage, I can't miss a deal just because it's expensive/overpriced. I need to be a part of that", he says. "Nubank is just the very beginning. Outcomes in LatAm will keep getting larger and larger."
a16z's partner also shared a dream: that we have so many unicorn founders in the region that they can't fit in a WhatsApp group, which currently supports 512 people. What a Latin American dream. We're already putting that our own dream list.