With the recent acquisition of Micropagos by IN Switch, there has been an optimistic mood in the Uruguayan start up and venture community. Founded in 2010, Micropagos provided B2B financial services and marks Tokai Venture’s first successful exit in Uruguay. On a larger scale, it is an indicator of the growth of the start up ecosystem in Uruguay and a good sign for Venture Capital and Private Equity firms.
Pablo Brenner, VP Innovation at Globant, is one of the pioneers of Venture Capital investments in Uruguay. As a partner at Prosperitas Capital Partners and Board member at Endeavor, he has spearheaded many investments in Uruguay. Sharing his thoughts on the growth in the Venture Capital scene in Uruguay, he says “The VC and Startup ecosystem in Uruguay is slowly building up. When we started Prosperitas, 10 years ago, there were no VCs either local, regional or international operating in the country. There were neither accelerators, nor active angel investors. Today, a local entrepreneur can start his company and get funding along the way, through government programs like ANII (National Agency for Innovation and Research), accelerators, seed capital funds, angel investors, regional and even Global funds (like Atomico and Sequoia).”
Friendly Regulatory Environment
Part of the reason for this growth is the friendly regulatory environment in Uruguay. A clear set of legal guidelines and a stable economy make it easier for VCs and PEs to invest in Uruguay as compared to other countries in the region. Mr Ariel Arrieta, CEO & Co-Founder NXTP Labs, says “We have our holding fund based in Uruguay, because we see this country as one of the best in terms of legal leniency and tax efficiency reasons.”
NXTP Labs provides seed funding to technology start-ups in Uruguay and across Latin America through a Private Equity fund and helps a select set of start-ups are via an accelerator program. “We only invest in technology companies in LatAm. So far we have invested in more than 150 companies and this make us the most active investor in the seed- stage space, in LatAm. Our next goal is to provide the higher ROI for our LPs,” shared Arrieta.
Most of the VC investments in Uruguay qualify as mid-market. This makes it challenging at times for VCs to justify the investment. Says Mr Brenner: “One challenge is that currently exits are relatively small, in the range of $5-20 million, so it is difficult to make the right multiples for our investments, but this is slowly changing. Five years ago, exits were on the range of $2-5M, today we are in the $5-20M range. I guess in 5-10 years we will start seeing $100M exits.”
PE funds on the other hand, have grown quite rapidly in Uruguay over the last few years. The large number of start-ups and the entrepreneurial spirit in Uruguay make it a good investment opportunity for early stage private investors and angel investors. NXTP Labs for example, provides from $25,000 to $1M in funding and helps connect private investors to entrepreneurs. These investors typically also mentor the companies, helping the companies to grow and strengthening the start-up ecosystem further.
While NXTP Labs focuses purely on the technology sector, Brenner is more optimistic about other areas as well. “One interesting area that plays to the local strengths is agro-oriented technology. Our economy is highly based on exports of agro-related products, and there is space for lots of innovation to increase productivity in this space. Some other hot areas (like anywhere else in the world) are mobile apps, games, and data (opendata, bigdata, etc). Technology for transportation and supply chain are also interesting; we have 2 portfolio companies in this sector: CPGSoft which develops software for Sales and Distribution of Consumer Packaged Goods (standard US and European software is not that useful in developing countries), and CEPA Safe Drive, which provides technology, data and training for fleet drivers, reducing risk of accidents,” says Brenner
While the spending power of the middle class has increased, sales and revenues directly from Uruguay continue to be limited, due to the smaller population of only 3 million. Consequently many start-ups, especially technology based start-ups, start venturing into global markets quite early compared to start-ups in Silicon Valley. Mr Brenner backs this, saying that “the main challenge is that Uruguay is a tiny market, so companies need to focus on exporting from the very beginning. While this is good on the medium and long term, it requires early development of skills that in other markets start-ups only develop when they are already selling several million dollars. So as board members we need to be very active.”
All together, with growing support for start-ups including accelerator and incubation programs, the early stage investment scene in Uruguay is only improving, and this makes it all the more attractive for Venture Capital and Private Equity funds.