Why Magma Partners Invests in both Elite Status and Underestimated Founders
February 23, 2021
We love Latin American founders, whether they’re elite status or underestimated. We invest in both. Not only is it the right thing to do, it’s also good business. We’ve generated good returns from investing in all types of founders. This valuation dichotomy is an opportunity for investors like us who have a dedicated process to invest in non-elite status, underestimated founders.
As you can see in the Pear.vc graph above, valuation converges at Series B. If we can help an overlooked startup raise their profile to be able to raise at Series B, it’s a win-win for both founders and Magma.
Since it’s much harder for underestimated founders to raise money for follow ons, we take much more risk when we invest in underestimated founders. Many underestimated founders also need more help with one part of their business, whether its learning the VC lingo, getting better at pitching, adding more “elite status” employees, improving their English, etc.
We have a process for underestimated founders to level up quickly, but even then, sometimes other VCs don’t want to invest and we write a second check where we generally end up owning a higher percentage of non-elite, high traction startups than their elite status peers.
Part of our long term strategy is to balance elite status founders with underestimated, non-elite status, underestimated founders who have built startups with big traction and help them showcase their startups to be Series B fundable.
Not only is it the right thing to do, we think it's our best possible portfolio construction strategy for outsized returns with our fund size.
Why don’t we focus only on underestimated founders if valuations are that much lower?
Because elite Stanford, Harvard, McKinsey, Goldman, JP Morgan, etc backgrounds produce great talent and great startups. With our strategy and fund size, we generally need to invest as early as possible when we partner with elite founders, before US funds pile in at high valuations that break our thesis for our fund size and profile.
Because we have a micro fund, we have to find these elite status founders when they have just passed the idea stage and are showing some traction so that we can avoid extremely high valuations. We also work with elite status founders who want to optimize for working with an early stage VC like us that can help on the ground in Latin America, rather than optimizing for valuation. If you’re an elite status founder and just getting started, we’d love to talk to you.
If you're an underestimated founder and want to learn more about fundraising in Latin America, be sure to check out the original post in this series about strategies you. can use to raise in Latin America, or get in touch with us, we'd love to meet you. If you're a VC or an LP who wants to learn about being intentional about supporting and investing in underestimated Latin American founders, we'd love to talk to you too.