Raising Capital in LatAm
Cross-Border Investment Strategies
When seeking Series B funding and beyond in Latin America, it"s common for local investors to cap their investments between $1-3 million. For larger funding rounds, international investors become critical. However, securing these international investors comes with its own set of challenges.
One frequent condition international investors impose, particularly those unfamiliar with Latin American jurisdictions, is the establishment of a holding company (holdco) in a foreign jurisdiction like Delaware or the UK. While this is intended to minimize their perceived risks, it can introduce delays and additional legal complexities to the capital raising process.
Alternatively, there are international investors with deep knowledge of local markets who are more comfortable investing directly within the region. Corporate venture capital (VC) arms of multinational companies operating in Latin America often fall into this category. For example, Japanese corporations have a history of investing in Chile due to longstanding business ties, particularly in mining. This familiarity with the jurisdiction enables them to invest more confidently without requiring a holdco restructuring.
Another valuable strategy is targeting investors from countries that already have strong commercial relationships with Latin America. These investors may be more open to local regulations and accustomed to the market dynamics, resulting in a smoother and faster investment process.
At Patagon Capital Group, we help our clients navigate these complexities by identifying the right investors who not only bring capital but also strategic value to your business. With our extensive network and understanding of both local and international markets, we ensure that you"re well-positioned to secure the capital you need to scale.
Raising in a Vulnerable Position
While raising capital under pressure is a challenge for startups globally, it"s particularly critical to avoid this situation in Latin America, where access to early-stage capital is more limited. Entering a fundraising round while burning cash quickly and with few financial options puts a startup in a vulnerable position.
First, when investors recognize that a company is desperate for capital, it creates an opportunity for them to negotiate less favorable terms. This could mean accepting lower valuations, giving away more equity than planned, or facing restrictive clauses that limit the startup"s flexibility.
Second, even if investors don"t exploit the situation, any delays in closing the deal significantly increase the risk. In Latin America, where the venture debt market is still in its infancy, securing bridge financing is not as easy as it might be in other regions. This lack of available alternatives means that any setback in the fundraising process could force a startup to drastically reduce operations or pivot in undesirable ways just to survive until the deal is finalized.
The key takeaway here is to raise capital proactively—when your runway is still healthy and you can negotiate from a position of strength. This not only improves your chances of securing better terms but also reduces the stress and risks associated with rushed or desperate fundraising efforts.
At Patagon Capital Group, we encourage our clients to plan their capital raising well in advance and to avoid waiting until the last minute. By staying ahead of the curve, you can ensure that you"re in control of the negotiation process, rather than reacting to financial pressure.
Relationships Matter, and They Are Tested in Due Diligence
Capital raising, much like scaling a business, is rarely smooth. Delays, setbacks, and unexpected challenges are inevitable. In these critical moments, strong relationships with your investors become vital. Good investors will observe how you handle these challenges and, perhaps more importantly, how easy it is to work with you under pressure.
Any seasoned board member will tell you that relationships are the cornerstone of success. No matter how brilliant your team may be, if the trust between board members, executives, or key stakeholders is fractured, the chances of achieving optimal results are slim. Collaboration, transparency, and open communication are non-negotiable for fostering trust, and this applies equally to your relationships with investors.
During the due diligence process, these dynamics are put to the test. If you"re unwilling to collaborate on issues such as why sales are lagging behind forecasts or how to improve a strategy that"s underperforming, it sends a strong signal that you"re not approaching your relationships with a long-term, strategic mindset. Investors want to know that you"re capable of working through challenges constructively, not defensively.
Furthermore, successful partnerships with investors go beyond just financial backing—they often involve valuable mentorship, industry connections, and ongoing guidance. By fostering trust and demonstrating openness during tough conversations, you position yourself as a leader who investors can rely on in the long run. This can significantly improve not only the terms of the deal but also the long-term support you receive from your investors post-funding.
At Patagon Capital Group, we emphasize the importance of building and maintaining strong relationships throughout the capital raising process. Our experience has shown that trust, open communication, and a willingness to solve problems together make a world of difference in securing long-term success.