Latin American Investors Seek Profitable Path
Although the glitter and glamour might have faded, Latin American Internet investors heading into 2001 say they are still flush with cash--but a lot pickier.
Nursing their wounds from a year blotted by the slump of technology shares and a succession of “dot-com” dreams turning to dust, investors are on the lookout for ventures that show a clear path to profit.
“There’s clearly a lot of people out there with money. The big difference is they are asking for a lot more than they used to in terms of valuation, profitability, business plans and management,” said Julio Zamora, a Latin American Internet analyst at Morgan Stanley Dean Witter.
Venture and private equity capital stampeded into Latin America in 1999 and early 2000, greedy to grab a slice of one of the world’s fastest-growing online markets.
Amid the hype, local executives boldly quit their jobs to found Internet start-ups, aspiring to be the Latin equivalent of Amazon.com or Yahoo.
But many once-bitten, twice-shy investors who got burned when Latin start-ups folded now want to see a shorter break-even point than the three to five years previously tolerated.
“We need to see break-even in one to two years. . . . In the foreseeable future,” said Edson Bacellar, director of Puntocom Holdings, a Brazil-based investment company, in a recent interview.
A short path to profitability is even more of an asset this year with capital markets virtually closed to Latin start-ups seeking to “exit” to market with an initial public offering.
“The time-to-exit expectations have changed. A year ago, everyone who was investing thought it possible that six months on they could take their company public,” said Gary Nusbaum, of Warburg Pincus investment company.
Online ventures such as Mexico’s Todito.com and Brazil’s Universo Online toyed with IPOs before the April-May high-tech confidence crisis. The ensuing market’s slump left other players battening down the hatches to stay afloat.
In that environment, an investor favorite for 2001 is the bricks-and-mortar company that moves online because those ventures drain far less capital in start-up costs, experts say.
Preferences are for “existing companies that are finding the Web as an ideal vehicle to expand,” said David Bernad, chief executive of Latin Venture, which helps unite fund-seeking Internet ventures with investors.
Bernad favors players in industries that are strong in the region, such as petrochemicals, automobiles and mining.
Mexican cement maker Cemex joined Cisco Systems in 2000 to launch a subsidiary for online buying and selling of products that spurred leading supermarkets regionwide to sell online.
“Incumbents understand their category; they have a brand name that doesn’t stand for hype, but stands for trust,” said Alberto Perlman, chief executive of Spydre Labs investment firm.
“Things will be easier for a proven business model that is generating revenues and has barriers to entry,” he added in a recent interview.
That does not mean the window is closed to bright entrepreneurs wanting to start ventures from scratch. After all, the Internet to date has been a mere drop in Latin America’s ocean, with the vast majority of the region’s large and youthful population yet to discover the World Wide Web.
Investors say their radar screens are tuned in especially to innovative ventures that offer Web-based technologies suited to the region’s topography.
“We have money for breakthrough technologies,” Perlman said.
As an example, Perlman cited a mapping service that allows users to locate people on the screens of their cellular phones. Ventures involving voice over the Internet and broadband Internet services could also win investors’ favor.
Latin America offers an auspicious space for the development of Web consultancy companies and online long-distance education services for corporations. Anything involving Web-related infrastructure is also the investors’ darling.
“If people come up with a new idea that is more suited to Latin American limitations and Latin American structure, they could get funded,” Zamora said.
But as more incumbents and upstarts emerge in 2001--albeit at a slower pace than in past years--many weaker existing players could find themselves squeezed out and small fries swallowed up as the region’s consolidation wave continues.
