A difficult way to start a startup

Takeaway: A startup created to do something the founder wants to do is a lot more difficult than a startup created to solve a problem that the founder has experienced and dealt with first-hand.

At Escala.vc, we believe there is no recipe for a successful startup. We avoid providing blanket recommendations or generic directions to entrepreneurs. Each startup is unique and will depend on many idiosyncratic factors and decisions to succeed or fail.

In successful startups, a couple of decisions usually turn out to be good, and in failures most decisions turn out to be bad.

We, like most VCs, are not especially good at predicting what startups will succeed and which ones will fail (on average the VC industry hit ratio or ability to predict winners is only about 30%) but we start to get excited when we find teams that demonstrate their ability and willingness to make good decisions.

After hearing out hundreds of founders we have observed certain indicators that, while not predicting the final success or failure of a startup, help predict the relative difficulties the startup will face to progress. Because startups are never easy, it is important to minimize the encountered difficulties. Choosing how to start a startup is one of the key decisions.

A startup created to do something the founder wants to do is a lot more difficult to execute than a startup created to solve a problem that the founder has experienced and dealt with first-hand. Being an entrepreneur is hard enough, don’t make your life more difficult.

Beyond an observed correlation, we believe there is causation:

  • Lower Flexibility:  A startup that evolves continuously can better adapt to the needs of its users. If you are set on doing something in a particular way, it will be more difficult to change what you are doing. The alternative is to be set on solving a problem and adapting as needed to achieve a better solution.
  • Poor Market Understanding: When you are solving a problem and you solve it, it becomes immediately clear to you who will be your next 100 or 1,000 customers. You know the qualities of those individuals, can relate to them, maybe know a bunch of them, and know how to sell them your solution: “Stop doing X in 10 hours, now you can do Y in 2 minutes”. If you just wanted to “do this great idea”, how do you know who else will use it? Will it solve their problem too?

If you are choosing to start a startup, consider making a good decision and chose to solve a problem. This approach is likely to maximize your chance of gaining traction and allow you to learn faster in the process. Demonstrating your ability to make good decisions also plays well with potential venture capitalist or angel investors.

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Latin America startup Job openings / Oportunidades de trabajo en startups Latinas

Las startups Latino Americanas de nuestro portafolio estan contratando gente con caracter emprendedor, experiencia en el mundo digital y sin temor al fracaso. Descubre si alguna oportunidad es para ti aqui.

Posiciones disponibles en empresas de Escala.VC via Angel List

Our portfolio of Latin American startups are hiring entrepreneurial people with experience in the digital world and with no fear of failure. Discover if one of these job openings is suited for you.

Angel List Jobs Postings for Escala.VC portfolio

Our investment in TasteSpace

TasteSpace was formed from the merger of SeMeAntoja and SinImanes in early 2013. We invested in October 2013–it was our second Latin American Venture Capital investment.

SeMeAntoja was started as a web based online food ordering marketplace (SeMeAntoja.com) in Mexico, similar to the USAs Seamlessweb or GrubHub, and quickly evolved into a mobile solution targeting students in upper middle class colleges in Mexico. It was natural for them to focus in Monterrey, Nuevo Leon.

SinImanes also begun life as a web based online food delivery marketplace (SinImanes.com) in Argentina and prior to its merger with SeMeAntoja focused on young professionals in Buenos Aires.

I first met one of the founders (Tavo Zambrano) when searching through AngelList for startups in LatinAmerica. Only a short year and half ago (early 2013) I was only able to find few (less than 5) Latin American startups listed there (today a similar search including Argentina, Chile, Colombia, Mexico and Peru results in 1991 startups to browse through). Together with Ignacio Guglielmetti, they formed a great team with the right skill sets and determination to grow in a highly competitive market that included Rocket backed Hello Foods and Pedidos Ya and was likely to see other heavy weights such as Delivery Hero, Just-Eat, and Movile enter the fray.

We believed that the leading position of SeMeAntoja and SinImanes held in Mexico and Argentina (respectively) was not only sustainable against the new entrants but highly covetable by them and decided to join a large seed funding round together with 500 Startups and NXTP Labs to further fund the growth of the TasteSpace (the combination of SeMeAntoja and SinImanes).

Our investment thesis includes:
a) Defensible leadership position in a digital marketplace
b) Demonstrated agility to innovate and stay ahead against powerful rivals
c) Agile and well rounded team (5 founders in TasteSpace)
d) Food delivery opportunity is enormous in Latin America and ripe for disruption

The main risks to this investment:
a) The team’s ability to execute a mobile first strategy ahead of competition
b) Over-investment (low ROI) by large players with the hope of buying share

 

Investment Thesis: Technology adoption and middle class growth

Latin American consumers will evolve over the next 5-10 years, driven by an increase in technology penetration and raise in middle class affluence.  These changes will uncover unmet needs for the at-large population across multiple verticals, and agile start-ups are best positioned to take advantage of these opportunities.

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To date, the amount of seed capital available in Latin America has been constrained, to a large extent due to a very limited amount of previous success stories and the significant cost of scaling up businesses across the regions.

With the advent of low cost infrastructure (cloud computing) and higher penetration of internet media (social networks), growing businesses regionally or expanding to more developed markets has become a viable strategy for startups.

Combined with the advent of venture capital funds like Escala.vc that are focused on providing seed capital for entrepreneurs, we expect to develop a new batch of startups that have successful Latin American or global platforms, and are able to create and capture significantly more value than previous generations of entrepreneurs.

Technology adoption:

  • Mobile Broadband Connections to reach 500mm in 2017 from 100mm in 2012
  • Smartphone penetration to reach 45% in 2017, from 20% in 2012

Middle Class growth

  • Affluent and middle class expected to double to 100mm by 2020 from 2010

Capital for Startups / Capital de riesgo para emprendedores

About us:

We are an early-stage seed fund focused on providing Spanish speaking Latin American entrepreneurs and startups with access to growth capital. We look for companies with regional / global aspirations.

Typically, we focus on companies that have exited incubator/accelerator programs, have monetized their product, and can demonstrate traction over 3 months. We try to be agile, making investment decisions typically in 3-4 weeks and completing confirmatory diligence and negotiations in a couple of weeks or in parallel. We can lead a round or co-invest.

Value add to startups:

In addition to growth capital, we provide access to a strong network of successful entrepreneurs, mentors and senior commercial managers to help increase market penetration in Latin America or United States.

Team:

Our Principals have a track record funding and mentoring startups in USA and Latin America, with previous experience in banking, consulting and serial entrepreneurship.

Sectors:

We focus on technology startups and are otherwise sector agnostic: our investments already include education, hospitality, ecommerce, and marketplaces (both online-to-online and online-to-offline) with a strong preference for business models that have a credible short term path to operational break even and low capital intensity. We are also open to technology-enabled businesses, subject to the low capital intensity.

We are open to investing in startups based in any country in Latin America (including Argentina, Chile, Colombia, Mexico, Peru and others) or USA. The country of origin is not critical, but the scalability of the business across multiple countries is.

Portfolio companies:

The fund has completed 6 investments and is continuously open to new submissions.

Demos/Decks/Inquiries:

You can submit your deck/demo or contact us directly at: aqui@escalavc.co