LatAm Founders Beware: Not All US Accelerators Offer Same Value

Tech accelerators tend to generate a lot of buzz among entrepreneurs, acting as cultivators and mentors for startups, and helping them achieve significant milestones. Silicon Valley is a well-known …

silicon valley

Tech accelerators tend to generate a lot of buzz among entrepreneurs, acting as cultivators and mentors for startups, and helping them achieve significant milestones. Silicon Valley is a well-known source of accelerators, largely due to the region’s wealth of capital and talent, but Latin America is also in the mix. Initiatives in Chile, Brazil, Colombia, Mexico, and Argentina have grabbed headlines, but for these accelerators to really succeed, many experts believe they have to work within the US market.

“The US is a huge market, and joining as an accelerator is a great way to penetrate it,” said Eugene Vyborov, a technical associate for Techstars Boston, and CTO at YayPay Inc. “One of the biggest values is collaboration with other startup founders, as you can get a lot of ideas and practical knowledge.”

Accelerators in Latin America know this, so some are double-ending their approach to cover both the US and Latin American markets. On example is Tayrona Ventures in Colombia, which has partnered with Silicon Valley-based i/o Ventures, a small firm that invests an average of $25,000 in each startup, but has a solid pedigree, having mentored the co-founders of YouTube, Yelp, Digg, and TechCrunch. The downside to the proliferation of accelerators is the fact that validating the quality of the support has become increasingly challenging. LatAm founders, therefore, have to be increasingly cautious about promises accelerators make, and the hard-core, commercial benefits that are actually offered.

Startup Challenges in LatAm

“Creative people are everywhere around the world, but the difference is the availability of resources,” said Rosibel Ochoa, Associate Vice Chancellor for technology partnerships in the Office of Research and Economic Development at UC Riverside. “In Silicon Valley resources are quite abundant – that’s not necessarily the same elsewhere. You need access to early stage capital and operational executives.”

Ochoa, who is originally from Honduras, is a member of the Investment Committee for the Triton Fund. Her opinion is that many accelerators face challenges when attempting to validate business models.

“A lot of individuals and startups are strong in the software space – you can iterate quite fast – but there are other parameters,” she said. “In industries like medical technology and clean energy, there are regulatory and policy issues, and that takes longer than two or three months.”

Shifting the SME Focus

These challenging parameters could be the reason why many accelerators in Latin America are focused on the consumer and SME space. Brazil’s first accelerator, called 21212, was founded in 2011 and has a heavy focus on new media, marketing, and web-based applications for SMEs. It made headlines in 2015 when Intuit acquired ZeroPaper, the US software company’s first Brazilian purchase.

In Mexico, some startups are under the wing of larger players, such as Wayra, which is the startup accelerator for telecom giant Telefónica. Coca Cola also has an accelerator in Mexico City, although it’s been accused of lacking focus, which is not uncommon for many accelerators in Latin America. In order to shed that reputation, they have to leverage the best skills of local talent.

“Engineers and developers in Mexico want to innovate and they want to build in-country capacity,” said Ochoa. “These are creative people who don’t want to be stuck doing repetitive tasks. They want their ideas to improve processes and products.

Large Corporations Entering the Accelerator Space

Europe has been embracing the accelerator boom for some time, with pundits complaining that Berlin has been overflowing with Y Combinator-style boot camps. The formula is always the same: give a young entrepreneur three months, a mentor, a bit of cash, and a workspace. From there, the magic is supposed to happen. But it doesn’t always work that way.

“These organizations are looking for a pipeline – the next big product, the next big opportunity – but the challenge is that a win is one in a hundred,” said Ochoa. “How are they going to scale up, and build infrastructure? What is the market, and the competition? That’s more fuzzy, and complicated by the fact that so many people are doing different things.”

In effect, accelerators have created a market in virtual competition, in which early-stage concepts must perform due diligence against incubators and VC-funded startups in the same game. This is where accelerators under the wing of larger corporations with a specific focus have an advantage. A prime example is the recent news that automotive giants Ford and Mercedes-Benz are joining competitors like Volkswagen, Hyundai, BMW, Nissan, GM and Toyota, and setting up shop in Silicon Valley.

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“It’s important for an accelerator to focus on a given area of expertise or specific vertical,” said Vyborov. “They need to curate their networks based on the line of business or set of expertise. Over time, they create a stronger – even the strongest – network, and a higher level of trust.”

Successful LatAm Accelerators

Is that happening in Latin America? Not to the depths seen in Silicon Valley – or even Berlin. But there are success stories. NxtpLabs, which has a presence in Argentina, Chile, Colombia, Mexico and Uruguay, touts itself as “the most active early stage fund for tech companies in Latin America”, offering mentorship, office space, and resources to dozens of startups every year. Its success comes partly from having an industry focus, not only in horizontal digital solutions, but also in verticals such as health, agriculture, and financial services.

“Many companies that are accepted by accelerators are in the learning phase,” said Vyborov. “But one of the biggest values of accelerators is their industry expertise, which allows them to understand the actual direction a company should follow.”

The money counts, too, with accelerators in Latin America being more generous than many realize. This is in part because, although the VC capital cannot match that in the US, the corporate generosity of multinationals does not discriminate by jurisdiction. Telefónica’s Wayra, for example, offers funding of up to $50,000.

Accelerators as Catalysts for New Business

“Large companies want to train their workforce to be entrepreneurial and innovative,” says Ochoa. “But the way their organizations are structured, it makes it difficult for them to be lean and fast moving. An accelerator can be a cost-effective way of seeking new market opportunities.”

And increasingly, software development is part of that equation. In the automotive industry, for example, it is estimated that between 10% and 25% of manufacturing cost is linked to software. Even McDonald’s is getting into the game, by tapping into the Techstars Mobility accelerator in Detroit. With Internet of Things, in which smart products are connected to networks, and wireless access is a must, the argument for tucking a technology accelerator into a major business is making more and more sense, wherever you are in the world.

“These kinds of programs are becoming the norm for governments, academic institutions, and businesses,” says Ochoa. “Accelerators are now an established and powerful tool. And Latin America is no exception.”

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