After helping more than 1,250+ fellows who have raised USD 650M equity in aggregate so far, mostly in seed rounds and some As, we perceived that few understood that there are two possible paths when raising their first rounds of venture capital.
In this manifesto, we’ll outline these options, including benefits and tradeoffs.
But first, a quick intro to Latitud Ventures.
Latitud Ventures is a pre-seed fund investing in Latin American founders building software. We are proud to have just announced a new USD 25 million Fund II to continue writing the very first check for outlier founders across Latin America, helping them get from 0 to 1.
This new fund will enable us to invest in 50+ new teams across the entire region with an average check size of USD 200K, targeting a 5% ownership stake. When we say “first check” we really mean it: we are comfortable leading your pre-seed round, investing alongside angel investors or even before them.
Although we are sector agnostic, we tend to have a bias towards fintech, vertical SaaS, healthtech, marketplaces, e-commerce enablers, and proptech. Startups in Latitud Ventures' young portfolio that have already raised Series As and beyond include Alinea Health, BHub, Clubbi, Dinie, Finkargo, FUDO, Pomelo, StarkBank, Treble, and Yuno.
Our investors include leading institutions, plus some of the most successful founders of LatAm (Nubank, Mercado Libre, Rappi, Kavak, Quinto, Creditas, more) and top global VCs/GPs (a16z, NFX, QED, FJ Labs, DST, Index, Ribbit, Accel) – which trust Latitud Ventures as the key signal when looking at early-stage founders of LatAm.
When going out to raise their first round, LatAm founders have two main paths. There is no one-size-fits-all here so each founder needs to consider the aspects we’ll outline below, but after working with over 1,000 founders and investing in over 100, we have a point of view regarding which of these two tends to be advantageous for most. Read on to find out which one :)
In what we’ll call The Pre-Seed Path, founders:
The main message in the first path is: you're raising to build and validate something. You're willing to take longer, and to separate that in two fundraising cycles – potentially diluting a bit more (not always) but increasing your alignment with investors and theoretically decreasing your fundraising risk.
Instead, in what we’ll call The Out-of-the-Gate Seed Path, founders:
The main message in the second path is: you need or want to move faster, and you're willing to take more risk – both initially by fundraising more without a validated thesis and then by risking being less efficient with capital.
A small minority of founders go down a third path: raising out of the gates a “large seed” of USD 3M+. These are usually very successful repeat founders or very early/senior operators at top tech companies.
Like everything in life, there's no one-size-fits-all recipe. What works for startup A might not work for startup B, and you should assess whatever strategy fits better.
Choosing a path depends on elements like the founders' previous experience, their risk/return profile, or their startup’s business model and thesis – if you’re building in infrastructure, your MVP could cost more than USD 500k. But the tradeoffs are common to all.
By raising a pre-seed instead of gunning for a seed right out of the gates, you'll be able to:
Use that small capital base to efficiently assemble your founding team, build an MVP, iterate as many times as necessary, and validate your key hypotheses. We’ve seen dozens of great teams get into trouble because they raised too much capital, too early – particularly in the bull market of 2021-22 – hiring large teams too early, pursuing non-core projects, and bloating their expenses.
Smaller investors with an appetite for larger risk and an expertise in the early, even pre-product days and challenges you will face can be crucial.
Larger funds (even multi-stage ones) may not be as used to investing in this stage and therefore demand high velocity and growth in the short term.
Last but not least, pre-seed funds (and angels) almost surely won’t be able to lead your seed round. This means they’re most likely to be 100% aligned with you as founders in your subsequent quest to raise your Seed from the best possible investors (and not only from them).
They’ll help you with honest advice and warm intros to multiple seed funds, enabling you to run a structured process to raise your seed round. Those early investors should be crucial “signal” and “distribution” towards the Seed funds.
Raising a small round will also help ensure you keep your cap table in good shape and avoid excessive founder equity dilution early on.
With their help, good planning, and, of course, validation of your MVP, you should be able to pitch dozens of seed funds, and dramatically increase your chances of raising a seed round from the best.
In short – get the best possible partners for your company, extend your runway, and work towards product-market fit.
What founders in our portfolio have said about this:
Fernando Ribeiro, Alinea Health: "Latitud played an instrumental role during our early stages, supporting us through ideation with their fellowship and catalyzing our growth by being our first investor. They facilitated key connections with several of the world's best investors, including Founders Fund and General Catalyst, who joined our seed round and paved the way for the continued success we experience today."
Gaston Irigoyen, CEO, Pomelo: “Without Latitud Ventures opening their network for us as our first check, we wouldn’t be where we are today.”
Jorge Vargas Neto, CEO, BHub: “Latitud is an intrinsic part of our journey. They're really almost a co-founder of our company.”
Santiago Molina, CEO, Finkargo: "Connection to the VC world – that's exactly what we were missing. Fixing that was the game changer in our journey. And it has one name: Latitud Ventures. We wouldn't have achieved this without you."
Suzy Ferreira, Dinie: “In a world of choices, Latitud Ventures don't just talk the talk in their manifesto, they walk the walk, paving the way for Latin American founders with unparalleled support”