The World of venture capital has taken a hit over the past year and a half, leading to greater caution in this type of investment. This has been offset by lower valuations and a smaller number of deals, accompanied by more thorough analysis and stricter screening when making an investment. 

In addition to this, it is very important to consider two key factors that will determine the success of a fund with investments of this nature: access to a strong deal flow and the proper selection of startups.

First of all, to gain access to a good deal flow, venture capital funds build a network of contacts and partnerships with various industry players, such as incubators, accelerators, other investment funds, and associations, among others. 

There are also many events that bring together the most important figures in the entrepreneurial ecosystem, both nationally and internationally, where connections are made with funds—with which deal flow is shared—co-investments are made, and participants can also learn about companies from other Latin American countries that are looking to enter the local market. 

Other types of events include hackathons and other business competitions designed to showcase new startups, where you can discover great opportunities for the future. In addition, there are numerous online platforms for finding startups and investment funds, such as Startupeable, AngelList, and Crunchbase, which offer an extensive directory of industry players and, at times, quite comprehensive guides that help people understand the key concepts of venture capital.

Second, the funds’ ability to select startups is based on three fundamental pillars: the team, the business model, and the potential market. It is important that the team have experience and skills relevant to the business; that the business model be sustainable and have clear growth potential; and, finally, that the potential market be large enough to justify the investment. 

Of course, this analysis has a depth and level of detail that goes beyond the scope of this article, but these three points are a good starting point for understanding the logic behind analyzing a startup and thus being able to assess its true potential.

In Chile, there are many successful startups that have raised capital abroad and/or have a profitable operation in the country. Among them is Migrante, a startup that helps immigrants secure financing to purchase, primarily motorcycles to carry out delivery services—a model the company has already scaled beyond Chile’s borders, having launched operations in Peru and Mexico so far. 

There's also Cornershop, a “unicorn” that’s quite well-known due to its acquisition by Uber, which is an online shopping app that grew exponentially in just a few years. And NotCo, another “unicorn” that has expanded beyond Chile and Latin America, selling food products by using artificial intelligence to create plant-based alternatives to animal-derived products.

The Chilean economy is home to a growing entrepreneurial ecosystem, with many startups showing high growth potential. Furthermore, in recent years, the adoption of innovative technologies and business models has accelerated significantly, which creates investment opportunities in light of new trends and consumer needs, especially in sectors such as finance, digital health, online education, and e-commerce, among many others.

This is why the ability to select and access a good deal flow is key to success in venture capital investing. Funds that can effectively select startups with high growth potential will be more likely to generate significant returns. In this regard, it is important to have a team with expertise in analyzing and selecting investment opportunities, as well as a solid network of contacts and partnerships within the entrepreneurial ecosystem.

Tomás Latorre

AGF Team