Colombia “is not doing enough” to become an attractive venture capital investment destination, according to prominent venture capital investor Alan Colmenares.
In an interview with Colombia Reports, Colombian American Colmenares that the South American country has so far failed to create an environment that allows venture capital investors to invest in Colombian start-ups.
“There are two key factors, or components, of a strong venture capital ecosystem. Number one is the deal flow, the number of deals you can possibly invest in … and the second component are the exits; How many companies in the country were sold off to somebody? Because that’s when the investors make their money,” explained Colmenares.
“In both cases, compared to other countries, Colombia has almost nothing. It’s very sparse in both respects; the number of deals you can look at for investing and the number of exists that end up happening,” said the investor.
According to Colmenares, Colombia’s low competitiveness rating for venture capital investments is in spite of the country’s macro-economic situation and mostly due to an inadequate government policy that is failing to create investment opportunities.
“What they are doing is they’re helping Colombian entrepreneurs with government grants, with mentoring … What I feel is missing is kinda like what Chile is doing, attracting foreign entrepreneurs. It’s become a very divisive topic because Colombians don’t like the idea of giving Colombian tax payers’ money to foreigners, but I think that’s looking at it shortsightedly.”
According to Colmenares, the Colombian government should also create incentives for foreign entrepreneurs to develop their businesses inside Colombia to grow the number of investment possibilities for venture capital investors.
“What’s that going to do? When a foreigner comes here and starts creating an internet company, they’re going to hire Colombians and those Colombians are going to learn what it really takes to create a world-class start-up and that’s going to help Colombia,” said the investor.
Without this impulse, venture capital investments in Colombia “are not interesting enough.”
“With that said, foreign venture capitalists are intrigued by Colombia and the reason they’re intrigued is because of the macro-economic reality which is doing really well, but then they come here and when they try to look at some deals, it’s really hard to find any deal they’d want to invest in.”
According to Colmenares, the time to use foreign venture capital to stimulate the domestic economy is now as venture capital investors are pessimistic about the future of investment in the US and Europe, and are looking at developing countries to make money.
Colombian leaders “will have to get their act together,” improve the conditions for start-ups, promote venture capital financing and increase the number of possibilities for foreign companies to buy Colombian start-ups, said the investor.
“If they don’t, then Singapore and China and everybody else is going to take advantage and Colombia will do some things, but they’re not going to create that strong knowledge-based economy,” warned the investor.
“This is a godsend they are squandering … It’s the leader, like the President [Juan Manuel Santos], that really needs to assume leadership and say ‘We are going to put so much more behind this. This is one of the key initiatives of the country’ and right now it’s just one more initiative,” according to Colmenares.
- Interview with Alan Colmenares