Promotora considers second VC fund

In December, Colombia-based private equity and venture capital firm Promotora invested in data collection software company PrimeStone.

The deal marked Promotora’s sixth investment from its $22 million debut venture capital fund Progresa, which is approaching the end of its investment period. The firm is eyeing a larger fundraise for Fund II – closer to $50 million – which it plans to launch in the first half of 2014. The fund will continue Promotora’s strategy of investing in the biotechnology and information technology sectors.

However, the venture capital industry in Colombia is still struggling to gain traction: most local limited partners see it as too much of an unknown quantity, while those with allocations to alternatives typically gravitating toward private equity.

“Local investors have been afraid of venture capital because they don’t know how it will perform in Colombia,” says Juan Andrés Vásquez, Promotora venture capital investment manager.

Because of the lack of a developed investor market in Colombia, Promotora will target North American LPs in addition to the investors that committed to the firm’s Progresa fund, the majority of which were local family offices. Promotora says that it anticipates a high re-up rate – but it doesn’t expect to attract commitments from local pension funds, the vast majority of which are not interested in venture capital.

“It isn’t the level of risk they are looking for”, says Vásquez.

As of September 2013, only eight venture capital and seed funds had been raised in Colombia, totaling $537 million, compared to 30 private equity funds totaling $3.1 billion, according to data from Colombian development bank Bancóldex. There were only four raised in 2013, and just one in 2012.

But while private equity may seem more appealing to Colombian LPs at the moment, some local pension funds are still waiting to see the returns from their first private equity investments. When they do, they may be more inclined to consider venture capital investing, according to Isabella Maria Muñoz Méndez, executive director at ColCapital, the Colombian association of private equity funds (and ‘Bancoldex’ affiliate).

Indeed, some accounting firms in Colombia are already optimistic about the prospects for domestic venture capital.

“The [Colombian] venture capital industry has significant opportunities to grow and participate in several sectors of the economy”, says Andres Gavenda, EY transactions managing partner in Colombia. “As the market is dominated by the private equity funds, there is a lack of resources for companies that are still in the initial growing stages”.

It may take time, however. “I don’t think this year will be the year for venture capital,” says Muñoz Méndez. “All of the venture capital funds are in the early stage process, the first four years of the investment period.”

Promotora expects two more venture capital-focused funds to launch this year – a development that Vásquez sees as being beneficial to Promotora’s portfolio, rather than a source of unwanted competition.

“If there are more funds, it’s better for [the whole] ecosystem,” Vásquez says. “It’s more common that two or three funds are invested in the same company.” Indeed, part of Promotora’s strategy for its second fund will be to co-invest alongside the newly-launched venture funds.

That said, the firm needs to exit more companies from its first fund before launching a follow-on fundraising process. So far, Promotora has completed two exits from Progresa, with another two expected during the first quarter of 2014.

It’s clearly still early days. But Promotora’s Vásquez believes the hardest work is already behind them.

“We have shown that investing in Colombian venture capital is possible and can produce high returns”, he says.