The Magma Partners Latin America Investment Thesis
At Magma Partners, we invest in the best entrepreneurs we can find. We would rather invest in an amazing entrepreneur with a mediocre idea rather than a mediocre entrepreneur with an amazing idea. An amazing entrepreneur can always change their idea. We also strongly believe that Magma must be able to provide direct help to each company we invest in outside of just money. If our only help is just money, it doesn’t make sense for us to invest in a startup.
After we’ve checked the “amazing entrepreneur” and the “can Magma help outside of just money” boxes, we evaluate each company based on criteria that we’ve developed to see if it fits with the types of businesses that we think can be successful in Latin America.
We’re publishing our investment thesis in hopes the best entrepreneurs with businesses that fit our criteria come talk to us and that our thesis will help new and hopeful entrepreneurs to focus on categories that we think are most likely to produce successes in Latin America.
Companies that allow the “have nots” to access the “good life”
We believe that income inequality and wealth disparity are two of the biggest challenges that Chilean and Latin American countries need to overcome to improve their entrepreneurial ecosystems. For example, according to a 2011 study, the average household income in Chile is $1350, but only 15% of households earn more than the average and 50% of households make less than $820 per month. Most other Latin American countries are similar or worse. These stats mean that the majority of people are just getting by. They pay for their basic needs and then have a bit more left over for what the top 15% would consider necessities.This means that the vast majority of Chileans and Latin Americans don’t have access to products and services that most people in the top 15% would consider basic or small luxuries, either because of a lack of money, ignorance or a combination of the two.
Magma invests in companies that help the 85%-95% gain access to “good life” products and services that they currently can’t, either through a lack of money, ignorance or both.For example, only 15% of Chileans regularly go to the dentist and there is fewer than one toothbrush per capita sold in Chile each year. This means that 85% of people don’t have access to a basic service that most people in the top 15% would consider a necessity. We invested in Deenty, a platform that connects dentists with patients via education and a rating system, because we believe that they can help Chileans who currently don’t go to the dentist either out of ignorance, fear or lack of money better access Chile’s oversupply of professionals.Other successful cases on a Latin American level are Cumplo, which helps people get better access to credit at fairer rates, ComparaOnline, which helps people the best and cheapest access insurance plans and Babytuto, which makes providing for a baby more economical. If you’re the founder of a company that is helping more people access the “good life,” we’d love to talk to you.
Companies that improve business processes or sell B2B
Latin America has some very successful companies that service their populations. But many of these large, successful companies haven’t met the internet revolution: they still use pen and paper, excel spreadsheets and business processes that many in the US or Europe would have a hard time believing still exist. Just like the rest of the world, these companies are big and old fashioned. The vast majority, even if they wanted to, can’t adapt their business processes to the realities of today. Many have been protected from global competition via quasi monopolies or collusion. But that is changing. And they need to compete.Magma loves to invest in companies that improve business processes or take paper based, time consuming processes and bring them up to date with the times. Companies like Propiedad Fácil, which help real estate agents manage their business with world class tools, is a perfect example of a company we have invested in that fits this investment thesis.If you are the founder of a company that helps businesses operate more efficiently, we want to hear from you.
Companies that have an advantage being from Latam
Latin America has advantages that other places in the world don’t. We invest in companies that have a distinct competitive advantage by being based in Latin America. For example, we invested in Thinker Thing because they have been able to create an incredible team in Chile at a fraction of what the same team would cost in San Francisco or New York. We think they have a massive competitive advantage by being a world class team but able to operate on less capital than they would need if they were based in other places.We’ve also invested in Ttanti, a Chilean company that makes hand crafted watches using native Chilean wood. These watches are beautiful machines that combine swiss watch technology and high quality Chilean wood from Southern Chile. We believe that Latin American products that can not only be sold in their home markets, but also use their Latin American cache to sell in foreign markets have a distinct competitive advantage.If your company has a clear advantage to being based in Latin America, we want to hear from you.
Going after business models that require huge scale like most social networks in the US is already incredibly difficult model. But in Latin America it’s even harder. Currently, the base of people that have enough resources that companies are willing to pay to advertise to is so small that these models are very difficult to pull off. The small to non existent middle class doesn’t have enough disposable income to make advertising and huge scale business models attractive enough for us in Latin America. We’ve seen some interesting social networking companies pass through Magma and we’ve advised them to try to move to the US or New York, as we believe being in Latin America with a social company is very difficult.
If you’re an entrepreneur with a company that fits our investment thesis, we’d love to meet you. If you’re an entrepreneur evaluating starting your own business and jumping into the ring, we advise you to think long and hard about how you can make your business attractive to one of our investment theses.