LatAm StartUp Challenges: Why startups should raise capital today, not tomorrow

Takeaway: Bootstrapping or Raising capital is an easy decision if you can answer a far more difficult one: Are you building a startup with solid barriers to entry?

As an entrepreneur in Latin America one of the hardest decisions is whether to bootstrap or to seek outside capital. While these decisions are very case specific, our firm’s view is that you should definitely decide to raise outside capital if your business venture is one where you can build significant barriers to entry. There are many forms of barriers to entry, but advanced technology stacks, network effects, economies of scale or scope, and improved business processes are all integral to creating solid barriers to entry.

In a traditional businesses,  there can be few of the above mentioned barriers, and the main defense against competition becomes a strong brand. A brand can be a very powerful barrier to entry (see: Coca Cola), but a strong brand is the result of careful and controlled growth. Startups, by their definition, are not intended to execute slow and controlled growth but, on the contrary, fast growth. Good startups need to execute fast growth because they are solving a pressing problem, one that requires an urgent solution. Startups are not conceived to build a brand over many decades – though some will, and will therefore add brand to their barriers to entry.

In a competitive market, where a pressing problem exists, there are likely to be many more than one competitor trying to solve a problem. Most startups will seek to solve a problem in a manner that leverages trechnology to create barriers to entry to other participants. That is, the succesful startup is likely to start creating barriers to entry as they grow with the objective of setting up a “powerful business moat” (barriers to entry). In doing so, they will likely increase the costs to compete and scale for other startups that intend to solve the same problem.

One of the old adages in Silicon Valley is: “Optimize for the pie size, not the slice”. That thinking applies best to businesses that will be able to create and capture significant value in a form that beat incumbents and other startups if properly executed. If your startup has limited barriers to entry, like a restaurant, the founder should be thinking about maximizing the pie slice. If you are building the next Facebook, with solid network and technology barriers to entry, you should think about maximizing the pie size, as any slice will be awesome.

In this context, the answer to the question of “Bootstrap or Raise capital?” is obvious. The truly difficult question the entrepreneur needs to ask is whether or not the startup will be able to build powerful barriers to entry and create significant long term value. If your startup will create barriers to entry, be the first to start setting them up because the value creation you will accrue will far outweigh additional potential dilution. Even if operating profitably, the entrepreneur that raises capital will be able to accelerate the creation of barriers to entry,  reduce the chance competition will be succesful, and capture a larger share of the opportunity value. Once the decision is to raise capital, the faster you can raise the capital the better. Setting an unrealistic valuation upfront and hoping to grow into it, or eventually find the investors that will pay the appropriate premium is effectively giving your competitors the opportunity to catch up to you and you risk letting them build barriers to entry against you. That is, you may loose 100% of the value of your startup to avoid giving up an extra 3-5% of your Startup. 

This appears self-serving advice, after all I am in the business of funding startups at the lowest reasonable value and expecting an exit at the highest possible value to make my LPs happy, but it is not. Escala.VC couldn’t possibly fund all the great companies that are or will be in Latin America, the market will determine the right valuation levels for each fund raising round. However, we have seen too many startups that lost momentum and competitive advantages while sitting around waiting to complete fund raising rounds at valuations far above market.

Think about what you want to optimize for.


Our investment in Nubity seed round

Nubity server management

Managing your IT infrastructure is typically not your core competency, but it is Nubity’s

Think about Nubity as an IT version of TechCrunch Disrupt 2014 winner “Alfred”. Companies run their virtual servers on Amazon’s AWS, IBM Softlayer, Rackspace or a bunch of competing services that race each other at blazing speeds to commoditize processing power, memory and bandwidth. Some of our customers also contract services to reduce costs, optimize usage & monitor potential security issues. Nubity sits on top of all these services and manages infrastructure alerts and alarms, ensuring improved up time and consistent deployments–all in all a happier virtual/cloud server experience. Today, Nubity manages servers. Tomorrow Nubity will be your service provider to monitor and manage all your virtual infrastructure, including cloud servers and software platforms.

We are happy to announce our participation in the recently completed seed round for Nubity, Sysadmin as a Service.

The problem

IT resources, such as cloud servers, are becoming increasingly integral to any business but remain a noncore function. Small and medium businesses that use the cloud seldom have the necessary expertise and resources to manage this infrastructure effectively. The result is subpar utilization and/or expensive management (i.e. a $100/hr programmer may take a couple of hours to solve a server problem, for the same price a company could have delegated their server management for an entire month to Nubity).

The solution

Nubity provides the full spectrum of services helping small and medium businesses manage their IT infrastructure through a simple monitoring tool that groups and summarizes warnings and alerts across multiple server providers (multi-cloud). The monitoring tool also provides customers the opportunity to fully outsource their server management needs 24/7, allowing Nubity to provide comprehensive and preventative maintenance to all your IT resources.

The opportunity

Cloud computing spend in Latin America is in the $ billions and while growing overall, it is becoming increasingly affordable on a per unit of processing power (or per unit of memory). If businesses can delegate the management of these low cost servers to platforms such as Nubity, adoption of cloud computing will increase. Nubity can make money on both sides of the table: helping small and medium companies adopt cloud computing and helping cloud companies differentiate their offering based on service quality.


  • Nubity is an outsourced service managing mission critical equipment and information. Operating errors could cause serious reputational issues
  • Low cost competition can emerge from countries such as India or via automated service platforms, that provide 80% of Nubity value for 20% of cost
  • Customer acquisition costs maybe high given SMB market fragmentation and sophistication level (i.e. ability of customers to carve out Nubity functions)

If you are an IT manager and want to reduce your System Administration costs, increase reliability and security, or want to delegate 24/7 server management to a specialized firm, consider trying out Nubity.

Investors with extensive IT and corporate sales experience in North America feel free to contact us regarding our potential next equity raising rounds as Nubity prepares to increase its participation in the North American market.

For additional information on the cloud server industry, and the importance of high quality customer support and system administration, see the recent Rackspace investor presentation emphasizing its “Fanatical Support” as its key differentiator vs other cloud companies.

Our investment in Tizkka angel round

TiZZKA fashion advisor

We want you to look your best everyday

With TiZKKA you will be able to get real-time fashion tips from your favorite stylists/fashionistas on how to look great for a date, an important meeting, hanging out with friends or even hitting the gym. TiZKKA keeps your fashion radar fresh with the latest styles, sharing with you looks from fashionistas you are interested in and helping you discover others to complement your personal style.

We are happy to announce our recent investment in TiZKKA angel round, a social photo-sharing app for fashion conscious people (and those fashionable in-progress) to connect, browse the latest trends or get advice on their looks from professionals.

The problem

People want to look great all the time, but unfortunately very few of us have an inner fashionista or one that can be reliably summoned on demand.

The solution

Today those looking for fashion advice share their looks on facebook, instagram, or snapchat and ask for friends feedback. Unfortunately current tools are not optimized for this purpose resulting in eclectic feedback that is ineffective and typically untimely.
With TiZKKA you can get instantaneous feedback from professional stylists and fashionistas, who have access to your wardrobe inventory and can help you match those red shoes you love with the best look for the occasion.

The opportunity

Today, the market for on-hire fashionistas is tiny. But by enabling people to access a stylist on demand we expect this market to expand dramatically. Further, the revenue opportunity for TiZKKA includes native advertising, lead generation and fashion intelligence. Overall, we believe TiZZKA will be able to monetize a slice of the global fashion business, which is worth hundreds of billions of dollars.


As investors, we view the principal challenges of TiZKKA to be:
– improving user engagement levels while making the platform widely available to fashionistas and users globally
– the emergence of competitors (the idea is too interesting for only one company to tackle)
– absent typical Silicon Valley funding, maintaining an awesome user experience while starting to generate revenues

Congrats to the co-founders are Gabriel Roizner (@groizner) and Nathan Schorr (@nathanschorr) on a great product.

Download the app here.

More information at AngelList.

Should you have fashion experience and an interest in investing in this opportunity, feel free to reach out to us at:

Note: This note is not designed to analyze all of the investment considerations (including terms, traction, technology, product/market fit tests, etc) as some of this information is confidential.

Our first exit: PedidosYa acquires SeMeAntoja

Latin America Venture Capital Exits: Sale of SeMeAntoja to PedidosYa (Delivery Hero)

PedidosYa adquired SeMeAntoja, a startup in our investment portfolio. Announced via a tweet on September 1st, 2014, PedidosYa confirmed the acquisition of the Mexican startup whose founders included Mexican and Argentinian entrepreneurs. In addition to, SeMeAntoja was funded by investments from 500 Mexico City, 500 Startups and NXTP Labs.

SeMeAntoja is one of the leading players in the online food-delivery business in Mexico for restaurants, with a web and mobile presence in iOS and Android.

PedidosYa was acquired by Delivery Hero on June 2014, and the company has maintained is acquisitive growth in Latin America, besides its adquisition of SeMeAntoja, PedidosYa also acquired Clickdelivery in Colombia for an undisclosed amount estimated to be USD 15mm.

From the gallery, we congratulate the entire SeMeAntoja team.

PedidosYa adquiere SeMeAntoja: Nuestro primer “exit”

Latin America Venture Capital Exits: Sale of SeMeAntoja to PedidosYa (Delivery Hero)

PedidosYa adquirio SeMeAntoja, una empresa de nuestro portafolio. Mediante un tweet el 1ro de Setiembre del 2014, PedidosYa confirmo la adquisición de la startup Mexicana cuyos fundadores son emprendedores Mexicanos y Argentinos. Ademas de, también invirtieron en SeMeAntoja los fondos de inversión de 500 Mexico City, 500 Startups y NXTP Labs.

SeMeAntoja es uno de los líderes en el segmento de pedidos en-linea en Mexico para restaurantes, con aplicaciones móviles en Android y IOS.

PedidosYa fue adquirida por Delivery Hero en Junio del 2014, y la empresa se ha mantenido activa en el campo de adquicisiones en Latino America, anunciando ademas de la adquisicion de SeMeAntoja, la adquisicion de Clickdelivery en Colombia por un monto no especificado pero estimado en USD 15mm.

Desde la galeria, felicitamos a todo el equipo de SeMeAntoja.

Building X and then selling millions of Y

One man band

Takeaway: Creating 2 startups at once (usually disguised as 1 startup with 2 distinct products: eg community + ecommerce) is about 1,000 times more difficult than creating just 1.

Succeeding in a startup can be very difficult. Mathematically, the odds are against you, ranging from 1/100 to 1/15,000 depending on many variables including how early you are in the startup process, depth of sponsor pockets, and your definition of “success”. Even though succeeding in 1 startup can be difficult, we find many entrepreneurs are set on creating not 1, but 2 startups!

Examples of 2-in1-startups include: building a community of sport enthusiasts to sell sporting goods, selling POS systems to create critical mass and sell payment processing, building a multi-brand ecommerce to introduce a proprietary private label, building an ecommerce whose value add is a 30 minute delivery window. Its like Starbucks saying: “I am going to create busy coffee places and then develop high traffic wifi routers to sell in stadiums.”

Creating 2 startups at the same time is really a lot more difficult than creating 1. If you need to create a community to be able to sell your sporting goods, then the success of the venture depends on both businesses being successful. The correct mathematics to estimate success when one condition depends on the other requires the multiplication of the possibilities to obtain the combined probability of an outcome (event dependent probability). Lets say each startup has a 0.1% chance of being successful: 0.1% x 0.1% = 0.0001%. Ie, In a 2-in-1-startup your chances of being successful go from 1 in 1,000 to 1 in 1,000,000, literally: “one in a million”.

On the contrary, if you are able to develop a startup that only requires to be successful in one concept or direction, you need to multiply the expected value by 1,000! That is, you are one thousand times more likely to succeed by doing one thing right.

As we posted before, we believe there are no secrets to a successful startup that you can read of a webpage (or get from a mentor session), but it appears that focusing on 1 startup at a time is a smarter decision than trying to do 2 at once. (and other potential investors) are generally interested in teams that demonstrate their ability to make smart decisions and whose business is more likely to succeed.

Note: Some of the above discussion can be avoided if entrepreneurs decide to focus on solving a problem, versus doing what they want to do. Once you are focused on solving a problem, the purpose of the startup is to solve this one issue in the more streamlined and clean manner, and postulating a 2-in-1 solution becomes an evidently bad plan.

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, 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.

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 ( 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 ( 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.


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 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