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Chile VC Interview – Manutara Ventures

Manutara Ventures is an early-stage technology fund located in Santiago, Chile. Founded in 2016, Manutara Ventures raised a $20M fund to invest in highly scalable tech ventures with a global mindset. To date, the firm has made nine investments from that fund. In 2018, the Draper Venture Network admitted them as Beta members of their program. Recently, I had the opportunity to speak with Pablo Traub, General Partner, about their firm and the startup scene in Chile.

Pablo Traub, General Partner

Below are excerpts from our interview.

The interview has been edited for clarity.


What is your investment thesis?

We invest in what we call a “convergence model,” where we look to find deal flow in the early-stage at a lower valuation and then co-invest at the Seed or Series A round with a strategic investor. This approach allows us to find local companies and increase their chances of success. For example, if we are looking to invest in a cybersecurity firm in an early-stage, we would then want to find a firm that invests in the next stage and drive the company to develop the necessary metrics for that further investment.

It’s not like we magically came up with this concept. If you look at some other emerging markets like Israel and China, they used this model before as well. An example at a later stage would be Alibaba, which grew in the Chinese market, but IPO’d in the U.S. to help capture more value. We feel like this model is successful when applied to solve some of the challenges that come along with an emerging marketplace.


In what industries do you focus on your investments?

We are agnostic in terms of a specific industry, and instead, we try to focus on new technology trends. We do this for two reasons: one, it is difficult to guess the future in just one vertical as you work through the lifecycle of a fund. A lot of things can change in ten years. The second reason is that Chile is not a big enough market to focus on just one vertical. We’ll see what happens in the next few years, but at this point, we don’t have enough critical mass to concentrate on a single industry. 

We do things a little bit differently from the rest of Chile’s funds by mostly investing in two types of companies. First, we like to find someone that has the potential to become a regional leader, and second, we look for companies that are working on really sophisticated technologies that can compete in developed markets. So far, we have nine investments, which span from construction-tech to cybersecurity and quantum computing.


How were you able to get LPs on board with your first fund?

Entrepreneurs make up the majority of our firm, so investors were able to look at our track records. For me, apart from the entrepreneurial side, I focused on venture capital while I was studying at MIT for my MBA. That experience gave me the chance to learn a lot about this asset class. When I returned to Chile, I helped launch the Microsoft Accelerator, which allowed me to better understand the entrepreneurial ecosystem. At Microsoft, we had two programs, one of which was an incubation program that I did not run. Still, I had all the relationships with Microsoft ventures and the special programs focused on emerging markets. 


How do you find companies in which to invest?

Well, we focus on early-stage companies in Late-Seed or Pre-Series A financing rounds. For sourcing and scouting, I would say we have multiple sources from entrepreneurs’ recommendations. We also have a very close relationship and a proper positioning at the base of the ecosystem throughout the region by participating in summits and maintaining relationships with other funds. This activity always exposes us to new deals. The rest of the sources are through public initiatives like CORFO and Start-Up Chile.


Is the amount of capital in Chile sufficient to fund the ecosystem? 

The capital is sufficient for funding the early-stage. Chile, Colombia, and many other countries in the region have a funding gap from Series A and beyond. Some people here will even define a round as Series A. Still, their definition is $1.5M, which is below the average you’d see in the U.S. That’s a problem in the entire region except for a few places like Brazil, where they have enough capital for a Series A or B round.

Even for a firm like Softbank, which allocated $5B for a Latin American focused fund, it is challenging to fund companies in Chile or Colombia. Twenty percent of that fund ended up in one company (Rappi), and their smallest investment in the region was maybe $20M. We need to fill the gap from the Series A rounds to the later stage investments, and no one is currently serving that market.


How is Chile currently dealing with that situation?

I would say each case is different. Some startups that grow in the region will look for VCs from abroad that want to invest in Latin America, but there aren’t many firms that do. Even if a company can potentially raise funds from a firm from the U.S., if they’re doing well in the market here, the U.S. firms will require that they already have some customers in the U.S. as well to validate that market. Also, there are cases where a company moves to the U.S., so they’re under the local law, and everything becomes easier for investors there. If companies do anything slightly different from that, it takes too much time and effort for investors there, and they pass. So it’s still a big challenge.


Is it difficult for companies here to scale in a way that attracts investment dollars beyond the early-stage?

Scaling in the Chilean market alone creates obstacles. The market is small here and is typically used to validate ideas in terms of new technologies to early adopters in the region. When companies like Linkedin and Facebook entered Latin America, they had more clients in Chile than in other countries like Brazil, which is a much larger market. A lot of companies realize that and use Chile as a testing ground, but to be candidates for venture capital, they need to decide early on to expand their market outside here.


Why do you think that this country is so open to early adoption?

In Chile, there is a cultural affinity with the U.S. in terms of trends, fashion, etc., which I believe lends itself to our ability to be open-minded about new technologies. Also, in terms of education, many people here actually study in the U.S. for their advanced degrees. I think that historical relationship allows us to be more familiar with some technology trends as well. Lastly, in terms of talent, Chile is at the top of the region, so that also helps with adoption.

Another consideration is how tied our economy is to other countries. We are one of the countries in the world with an abundance of trade agreements with others, so here you probably find more brands than in other locations. With more brands and technology coming here from elsewhere, it helps with the adoption mindset.


You mentioned talent. What’s that like here for entrepreneurs and startup teams?

The entrepreneur side is getting better, but many people here still prefer a traditional career over starting a business. The culture here is still very much focused on climbing up the corporate ladder. Every day it’s improving though. When I mention top talent, it certainly shows in technical skills here, from software development to engineering. Wealth inequality is a problem here as well, so that creates challenges for starting businesses.


What is Chile doing to help change that culture?

There’s a program here called Start-Up Chile that has helped change the mindset by bringing in entrepreneurs from other parts of the world to innovate here and help inspire entrepreneurship here as well. This program created some issues because they were fostering this new generation of entrepreneurs who couldn’t get funded later. So, they hadn’t built the next stage and weren’t ready to take advantage of the work done at the beginning of the program.

They’re trying to change that. But at the same time, in terms of public policies, you don’t want to subsidize this whole ecosystem forever. We can finance the base in the early-stage, but then you need the private sector to come in. Unlike the U.S., you don’t have many institutional investors here investing in venture capital. The expectation is that it should happen soon, so that could change the landscape dramatically.

Another thing that will change soon is participation by corporations by setting up programs like a venture capital arm. In the last few years, many corporations have gotten into open innovation programs, but there’s a point where that isn’t enough. If they want to be forward-looking as companies and be efficient in acquiring innovation, corporate venture capital will be much more a better way to do it. I think they’re very close to that tipping point.


What’s next for Manutara Ventures?

Ideally, what’s next for us and some of the other funds here will be to move up a little bit in the VC cycle. Hopefully, we can move beyond the early-stage because a lot of companies that got invested in years ago are maturing, they’re doing well, they’re looking for those series A dollars, but they don’t have many candidates for investors here. That’s a challenge, and we want to be able to help support them further down the line and drive them towards an exit.


What’s next for Chile?

Hopefully, Chile’s pension funds will get into venture capital. This topic is something that we’re discussing with both the government and the Chile Venture Capital Association. The pension programs here are extensive but also have stringent investment parameters. To help solve that kind of challenge, we are proposing a “fund of funds,” which can help pool together resources and decrease risk across the board. A solution like this could generate a new Series A financing pool and help Chile jump to the next stage.

For more information on Manutara Ventures, please visit their website.

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