Seeking “Diamonds” and “Growth Engines” in Latin America: An Interview with Allen Taylor
Conducted by Alyson Sheehan
Reprinted from Venture Equity Latin America (VELA) ©2011 WorldTrade Executive, a part of Thomson Reuters
VELA: Please tell me about the International Selection Panel (ISP) held in Uruguay last month.
AT: It was the forty-first panel in Endeavor’s history and our last one of 2011. There were eighteen candidates, which were companies hailing from different Latin American countries, including Argentina, Uruguay, Brazil, Colombia, Chile, Mexico and elsewhere. We selected fourteen out of the eighteen as Endeavor Entrepreneurs, which was a fantastic result.
VELA: How do you define a “diamond” candidate versus a “growth engine” candidate in your selection process?
AT: Those are two profile types that we use as internal tools to help our panelists, who participate in the selection process, understand that companies within a range of different stages of development can be high-impact entrepreneurs and therefore qualify as Endeavor entrepreneurs. Those two particular profile types are often juxtaposed. A diamond in the rough, or a “diamond” for short, is typically an early stage company, oftentimes working within the technology sector. A diamond might look like a back-able, Silicon Valley-esque company but is usually younger, smaller and without much revenue – perhaps it is just getting to profitability, if that. In selecting a diamond, there is a higher beta for us – a higher risk and potentially higher reward – but that is a type of company with whom Endeavor does want to work and has done so successfully over the years. If you look at some of our most successful companies that have grown very big, they were diamonds when we first got them. E-commerce website MercadoLibre is a good example of a “diamond” that has been a success story. By contrast, a “growth engine” tends to be a more established company possibly working within a non-technology industry. It already has a few million dollars, or up to tens of millions of dollars, in revenue and is employing some folks already. But what we see is really the potential for that company to keep growing, to really become a contributor towards creating jobsand creating wealth in their home economy and as part of our portfolio. Our mission is very much about job creation and wealth creation in these markets, and diamonds and growth engines are ways that we try to get to that same goal.
VELA: What separates the selected companies from the non-selected companies; in other words, what are pitfalls to avoid as entrepreneurs in Latin America?
AT: At the end of the day, Endeavor’s selection process is human-powered; we do not hold a business plan competition, where we say: “you get a score of x, and you become an Endeavor entrepreneur.” Everybody who becomes an Endeavor entrepreneur goes through a very detailed, rigorous process involving a number of interviews at their local country level, then a panel of folks at their local country level, and then an international selection panel, the last of which necessitates unanimous approval among six judges in favor of making the company an Endeavor entrepreneur. So, it is very much about the people that make this work. In terms of selection criteria, we usually have a few different buckets of criteria around development impact and growth potential, but usually the discussion and the debate all boils down to three things: the entrepreneur, the business, and the fit with Endeavor. We are looking for a remarkable entrepreneur, who has real potential to be a role model and a leader. We are looking for a business that stands as a platform for high impact growth, one that has the potential to create a significant number of jobs and to have a real development impact for the country. And the last category – the fit with Endeavor – is probably the most intangible but, in a way, the most important. It translates into the question of whether or not the entrepreneur understands the spirit of what we are trying to do. Endeavor is a community, an ecosystem and a network. We are looking for people who understand that mission and who want to be a part of it, so that if we help them and they become successful, they in turn will want to give back by being mentors and supporters of what we are doing. A company that does not make it all the way through the selection process does not quite stack up in one of those three categories. So, sometimes we see a great entrepreneur, but we do not see the business as a platform for growth. Sometimes we love the business idea but don’t believe that it’s the right entrepreneur. Other times, timing plays a role. Occasionally, we will say: “This is a great company, but it is not really ready to be ‘high impact’ yet. We’d like to see them go back and hit these milestones and then maybe come back to another ISP in another eighteen to twenty-four months.”
VELA: Where do you see the most entrepreneurial activity, country-wise, in Latin America?
AT: Endeavor works in six countries: Argentina, Chile, Uruguay, Colombia, Brazil and Mexico. We’re not in Peru or a few of the other Latin markets where certainly there are interesting things happening. But from our lens, there are a lot of interesting things, namely in terms of technology companies experiencing explosive growth in Brazil. Everybody talks about Brazil, but it’s true. Not only in Sao Paulo and Rio de Janeiro but also in other parts of the country now, we are seeing really interesting entrepreneurs addressing big problems and looking to build big companies. In addition, I’ve always been impressed with the quality of entrepreneurs coming out of Argentina. Argentines really do think big. They really believe that they can build amazing, global companies – and several of them have. Again, MercadoLibre serves as an example of that.
VELA: What kinds of technologies are you seeing in Latin America that will impact the development of venture capital in those markets?
AT: Certainly people are very excited about e-commerce and the consumer internet – anything that has to do with those areas, both in Brazil and in Spanish-speaking Latin America. There is a lot of enthusiasm that consumer-facing companies are going to be very exciting and witness high growth. At the same time, we also work with some companies doing impressive things on the business to business side, whether it’s around credit risk or data security. So, there are certainly some businesses that are not considered “sexy”, because they are not consumer brands, but which are also going to flourish in high growth sectors.
VELA: At the ISP, the distribution of selected companies spanned multiple Latin countries: 3 from Argentina, 3 from Brazil, 3 from Chile, 1 from Colombia, 2 from Mexico and 2 from Uruguay. Does this distribution reflect the robustness of entrepreneurial ecosystems per country?
AT: I think it definitely does. Endeavor looks to go into countries that have a nascent entrepreneurial ecosystem already, to help be a catalyst for making that ecosystem grow faster. Obviously, the scale and the size of the markets in countries like Mexico and Brazil are significantly bigger, so over the course of a couple years, they will probably see a bigger portfolio of Endeavor entrepreneurs than Uruguay, for example, just by virtue of market size. But I do think the result of this panel is reflective of the amazing things happening in entrepreneurship in all six markets across Latin America where we are working.
VELA: How does Latin America’s entrepreneurial ecosystem and deal pipeline compare to other emerging markets?
AT: In comparison to the Middle East, North Africa, parts of Turkey and South Africa, Latin America is pretty advanced. Some of Endeavor’s most successful companies and role models, globally, are coming out of Latin America. From a VC perspective, Brazil is the leader. Brazil is getting more attention from international VCs, from Silicon Valley and elsewhere, than any other market. From the top five countries receiving attention from international VCs, four out of five are from Latin America. After Brazil and Turkey, the top markets are probably Argentina, Colombia and Chile.
VELA: What’s the next biggest destination, countrywise, for Latin American venture capital deals?
AT: It’s quite possible that a lot of activity that we have seen in Brazil will ultimately spill over into some of the other Latin markets. If I had to choose a couple markets to watch, I would say Argentina and Colombia. They are probably the two in which the entrepreneurs are most visibly ready to build regional or global companies that address a significant enough market to attract the VCs. This type of activity may take place within the next 3-5 years, but perhaps even within the next 2-3. One reason is because we are starting to see the development of some sophisticated local VCs, which will be instrumental in ushering in international VCs to these markets.
Allen Taylor currently serves as the Director of Global Networks for Endeavor. Prior to his current role working out of Endeavor’s San Francisco office, Allen spent three years as the Director of Search & Selection at Endeavor’s global headquarters in New York, overseeing a team of 30 associates in 10 countries. Following his graduation from Princeton University with a degree in German Culture and European Politics and a certificate in Latin American Studies, Allen co-founded and directed the US-based nonprofit organization Princeton in Latin America (PiLA).