Although still not an innovative or disruptive force, the Colombian software development ecosystem is producing a few strong contenders who are leading the way in technologies that are new to Latin America. When assessing potential projects, investors look at innovation, if the company has had rapid growth, traction and how easy it is to monetize the business model. Many have looked to Endeavor Global, a “leading high-impact entrepreneurial movement” that spans 20 countries, to help find companies that meet very strict criteria and are primed for the next stage of development.
“We feel that we need to focus on the few that can make a difference,” stated Adriana Suarez, Managing Director of Endeavor’s Colombian office, “We support them with development, then they will invest in and mentor other companies. Sometimes we can have a Mercado Libre that gets sold for millions of dollars.”
With that in mind, Endeavor has set a very high standard for the companies that are able to be part of their network: the company must already by very established in any business for at least three years; it must report annual sales of – at minimum – $1 to $20 million USD; and the company must be growing at least 20% per annum (but Suarez reported that 22 companies in Colombia have grown 45% per annum).
Once an entrepreneur is accepted, Endeavor supports them by giving them access to an international network of other entrepreneurs, mentors and investors. It also provides training in how to manage the daily operations and sustain growth, thus helping the company become a leader in its field. Even though there are a lot of early-stage tech companies in Colombia, Endeavor has had difficulty in finding ones that qualify for its services.
The Colombian government has been active in trying to promote the country’s tech industry through the Ministry of Technology (MinTic), but Suarez sees these efforts as lacking in vision with its apps.com program. “MinTic is effective but do we need more that the development of apps and we need more disruptive technologies. Apps will not make Colombia the place for technology,” she observed.
Currently there are seven tech developers under the Endeavor Colombia umbrella that have met the strict criteria and are active in encouraging other entrepreneurial firms: WideTech develops software that enables client companies to use GPS technology when tracking company vehicles, cargo and field personnel from offices in Colombia and New York; SIIGO develops financial, accounting and management software enables specifically for small businesses; Bunny, Inc. with offices in Colombia and San Francisco, brings together casting directors and international voice over talent; WeHostels, a combination hostel booking and social media platform which was sold three-months ago to Student Universe; Pay U Latam, formerly PagosOnline, known as the PayPal of Colombia; Puntored (formerly Conexred) which allows people who don’t have access to traditional financial services to make financial transfers, purchase mobile minutes and access other services through its PuntoRed network; and Aranda Software, a developer of systems management software.
Expectations and Growth
Jorge Osorio, a partner at Aranda, explained that Endeavor helped his company with educational initiatives and training programs that enabled the management team to develop a more specific expansion plan, with a high-level concentration on human resources. “We developed a strategic plan around compensation, development and performance,” he recalled. Although Endeavor was also ready to help Aranda with finding investors, that wasn’t something the company was really interested in at the time they were selected.
“We were not prepared to take those calls because we were able to talk about vision, plan, but we were unable to talk about financials and we weren’t looking for funds at that time. We put that on hold for two years and had enough money to fund our expansion plan. We are a very healthy company without debt.”
That expansion plan resulted in a footprint across Latin America where they currently have 11 offices and 150 distributors. The decision to concentrate on the company’s HR department was also key in enabling them to scale-up and manage the current staff of 130 employees, most of whom are Colombian – some that have been sent to other countries.
Another important aspect that Endeavor helped Aranda with was the development of a network of local entrepreneurs that includes companies across a wide range of industries. “It was very interesting to share our experience with other entrepreneurs and areas outside of technology,” said Osorio.
Started on a shoestring by two engineers with the specific goal to challenge the big players in this space, the company attracted the attention of the market and got big wins quickly. But management soon realized that rapid growth comes with increasing responsibilities and challenges, and that operating in one country is quite different than operating in another. The bigger challenge came when, “The big brands started looking at us as a competitor and have attacked us because we are the number one leaders in Central America and the Andean region for systems software according to IDC report,” explained Osorio. But, Aranda is holding its own and there are plans to expand to Mexico and Brazil in the short-term, with the possibility of entering other markets in a few years.
Strong but Investment Lacking
In a comprehensive study, Building an Entrepreneurship Ecosystem in Bogota’s Tech Sector, Endeavor found that the tech ecosystem in Colombia’s capital is strong, with 150 new companies being added between 2007 and 2013, and that a “dense network of 319 connections” had been built through mentorship, inspiration, investment, former employees and serial entrepreneurship. The study also found that even though there are 90 serial tech entrepreneurs in Bogota they face the challenge of scalability, mostly due to a serious lack of angel investors. And part of the reason why angel investors shy away from Colombia is due to the lack of big wins in the tech center.
The Private Equity (PE) and Venture Capital (VC) industry has been developing over the last seven years in Colombia, and the evolution accelerated after specific legislation was enacted in over 2006/2007. Endeavor doesn’t work with PE or VC firms since those firms are focused on investing $20 to $30 million USD into companies.
Companies like Aranda gained early and consistent successes and were able to lay a strong financial foundation, therefore allowing for the luxury of turning away investors. That is not the case with the majority of entrepreneurial enterprises as funding sources are difficult to find in Colombia. “There aren’t many angel investors in Colombia and it is very difficult to attract angels from other countries if Colombians aren’t investing,” stated Endeavor’s Suarez.
Part of the reason for this seeming lack of interest is that risk aversion is part of Colombian culture, and according to Suarez, there are five “traditional” families who control Colombian industry who are not very interested in technology. “The traditional families or those people that have sold their companies are a bit removed from technology. There is a great deal of risk aversion, and the need more great ideas.”
More than a great idea, a truly disruptive software and a global win coming out of Colombia will be required to shake-up the malaise of those people and companies who are in a position to invest.
That is not to say that the field is entirely empty. On the contrary, VCs have increased over the last three years, according to Suarez, and Endeavor Colombia currently works with several funds that are interested in technology. One in particular, Promotora: Fondo de Capital de Riesgo Progresa Capital, is uniquely focused on the industry.
However, there are nine others that look at multiple sectors and include technology as one of the target sectors: Aureos Colombia, Acess Seaf, Altra Fondo de Capital Privado II, Capitalia Colombia, FCP Innovación SP, Fondo MAS COLOMBIA-LATAM, Velum, Nazca and Axion.
But, above all, Suarez reiterated, it is most important that successful Colombian companies reinvest funds and other resources into smaller Colombian companies in order to truly build and strengthen the tech ecosystem.
A good example of this is when serial entrepreneur Alex Torrenegra, creator of Bunny, Inc., invested in Wehostels, which – as noted above – was recently sold. Torrenegra also mentored the creators of TAPPSI, Bogota’s most widely used taxi app with more than 200,000 downloads. As illustrated in the chart called The Multiplier Effect in Endeavor Colombia’s report, it is this kind of investment that can be more powerful, and more effective, in the long-term, than only funding a new initiative.