LAVCA’s 2008 Annual Scorecard on PE/VC Environment in Latin America: Colombia is Ranked 6th July 2, 2008Posted by jgarciaalvarez in Colombia, Entrepreneurship, Latin America, Private Equity, Venture Capital.
The Latin American Venture Capital Association (LAVCA), in cooperation with the Economist Intelligence Unit, published a few weeks ago, LAVCA’s 2008 Annual Scorecard on the Private Equity and Venture Capital Environment in Latin America (full report).
Two regional emerging trends captured my attention: the growth potential of the PE/VC industry due to legislation improvements, and the state of an entrepreneurial growth culture in Latin America. Both are relevant to Colombia’s sixth place in the ranking and to the status of the PE/VC industry in Colombia.
First, despite the turmoil in the financial markets, fundraising in Latin America has grown 3.4 times in two years, from $1.3 USD billion in 2005 to $4.4 USD billion in 2007. This is largely due to political initiatives that draw attention to the monetary and ancillary benefits of a robust venture capital and private equity industry, and to legislation improvements that eased restrictions on institutional investors interested in alternative investments such as equity capital.
In Colombia, the national government, private-public entities, membership organizations, and multilateral financing organizations, have promoted legislation to facilitate PE/VC fund formation and operation. The Decree 2175 of 2007 suggests that the establishment and operation of a PE/VC fund requires a minimum of two investors and capital commitments of at least 600 current monthly salaries, which account to approximately $276.9 million COP or $144,562 USD at today’s exchange rate. As a result, investment officers at pension funds and insurance companies have proposals of fund formation piling on their desks, pending to be reviewed. (To read more about the dynamics in the insurance sector in Colombia, click here)
Second, LAVCA’s 2008 Annual Scorecard incorporated entrepreneurship as scoring criteria. I agree with the report that the makeup of a healthy PE/VC business environment in Latin America is highly impacted by an increasing growth-rate in the creation of new firms. However, the report seems to ignore those small medium enterprises (SMEs) interested in growth that with advanced management training, coaching, or networking opportunities, may be poised to access private equity or venture capital in short-time and grow their business significantly. For instance, I compiled some numbers from the Orbis Global Database and found out that Colombia has approximately 12,250 companies with annual revenues between $1 million USD and $30 million USD, and over 60,000 companies with annual revenues of less than $1 million USD.
Despite not having evaluated their equity-capital readiness yet, I am curious to know how the numbers above compare with other Latin American countries, and how a significant number of existing SMEs, not startups, contribute to the developing of the PE/VC industry.
Do you know what it is like in Chile, Brazil, Mexico, Uruguay, Costa Rica, Ecuador, Panama, Argentina, Peru, El Salvador, or Dominican Republic? Please share!