Flea market investing in Latin America

I've always been fascinated with the prospect of finding treasures where others don’t think to look. Growing up, my family lived in places like Lima, Peru and Ljubljana, Slovenia; where visits to the local flea markets on Sundays became my childhood Disneyland. I still remember the thrill of walking away with my $10 allowance transformed into a unique jewel worth far more.  

I had a similar feeling last week while interviewing Lorenzo Lara, the founder and President of Negocios Digitales, a Venezuelan early stage investment group. Since 2000, Lorenzo has been leading his firm to invest in companies that as he put it, “have a Venezuelan flavor”. Some are based in Venezuela, while others are headquartered abroad but have Venezuelan founders. Today Negocios Digitales has three active portfolios with over 20 investments. Perhaps most notable is the fact that they have already exited 9 out of the 10 companies in their first portfolio, including the well known “Classified Media Group” which was acquired by Mercado Libre (the LatAm “ebay”) in 2008 for $19 Million.

Few US investors would place their bets in Venezuela’s current environment. A quick search of the country’s recent news will bring up troubling stories of currency restrictions, energy shortages and the nationalization of the private sector. But Negocios Digitales (ND) decided to stay in the country and become its preeminent provider of early stage venture capital. Back to the flea market analogy, ND is now the only one showing up on Sundays to explore the hidden treasures that the Venezuelan entrepreneurial community has to offer. While much of the mainstream venture capital is following competed deals that command premium valuations; ND’s bold investment approach has helped them carve out an uncontested space where opportunities come at accessible prices. As a clear example, they entered the Classified Media Group deal at a $500,000 valuation.

Unlike the traditional VC model, Negocios Digitales doesn’t raise a fund but rather secures commitments from their network of investors. Their role is to find exciting deals, conduct the required due diligence and then take the most promising opportunities back to their group for final approval. When investments are made early, they often take a board seat and become very active in helping the company achieve its milestones. The success of their model has led them to kick off their third portfolio from which they plan to make 20 investments with an average participation of $500,000. And they are moving quickly; four of these twenty slots have already been taken. The first is Music Intelligence Solutions, a Barcelona-based venture with Venezuelan founders that developed a patented technology to help music producers tell if a song will succeed or fail. The service has already been featured in the Economist and Harvard’s Business Review. The San Francisco Chronicle described it as the “FICO score for music”.  

ND’s second investment was Blue Condor Solutions, a developer of aeronautical software solutions for the Latin American market with sales offices in Miami, Vancouver and Mexico City. Their team of developers works out of their Caracas, Venezuela back office.

They’ve also invested in Panama City-based Container Consultants and Systems, a provider of information and management solutions focused on the ocean freight transportation industry. The company got on ND’s radar because of their close ties to Venezuela’s premier business school, IESA.

Their fourth investment is a testament to the group’s category agnostic approach. They decided to fund Ricardo Rodriguez’s career, a local 17 year old tennis player being groomed to become the “future face of Venezuelan tennis”.

ND’s local network of connections and regional know-how gives them an unfair advantage in a market ripe with talented human capital and no shortage of promising business plans. Being the flea market lover that I am, their investment strategy resonates with me. If I had a small fund, say $10-20 Million, I would much rather invest in 10-20 exportable ideas born in overlooked markets than in 1-2 mainstream deals.  

Hopefully ND's example will embolden others to search for the next great idea where others wouldn't think to look.  

Open English Launches Across the Americas

I'm very excited to report that Open English is now available across the entire Hispanic-speaking Americas and in 17 different currencies. In just over a week of regional TV ads, we've started to generate more than 1000 daily leads from people interested in signing up for our online school. Our recently created facebook page is abuzz with questions about the program. I'm including the press release below.

More excitement to come... 

OPEN ENGLISH ONLINE SCHOOL TO DOMINATE LATIN AMERICAN AIRWAVES

Miami, FL—June 7, 2010-- Open English announced today that their revolutionary new approach to English language learning via the internet is now available throughout Latin America.  This month the company began a massive advertising campaign to show Spanish speakers from everywhere in the hemisphere how they can reach fluency with help from native speaking English teachers. 

According to Andres Moreno, founder and CEO, thousands of students have already experienced the power of Open English, liberating them from inconvenient scheduling, long commute times, high tuition, and outdated books and CD-ROMs.  “Although we are internet-based, our focus is on delivering outstanding teaching and exceptional customer service.  No one wants to talk to a computer,” explains Moreno.  Open English uses technology to make human interaction more efficient and effective, not to replace it.  “Language learning products only work if the student uses them, which is why we offer live teachers and on-call study advisors to motivate our students and ensure they reach fluency.”

With the regional launch of its online school, Open English is now accessible to Spanish-speaking students everywhere who want to learn or improve their English.   The course is available to the 100 Million Hispanic broadband subscribers in the Americas and offers local pricing in 17 different currencies.

The company uses a direct-to-consumer sales model and has partnered with a division of Salvadoran-based Grupo TVOffer to help promote the school and enroll students in the region.  Together, Open English and TVOffer have contracted for thousands of advertisements this month on a dozen pan-regional cable television networks.  “We want to get the word out,” says Executive Director Juan Salaverría.  “Open English has been busy preparing to serve a much larger market, and now we are excited to show millions of potential students how they are no longer limited to learning English at traditional schools.  Now the best native-speaking teachers are available any time of day in even the most remote locations.”

About Open English

Open English, based in Miami, is an on-line school created to reinvent the English learning experience.  Through live language instruction with native English speaking teachers and multi-media learning content, all provided over the internet, Open English empowers students on their customized path to English fluency.  Grupo TVOffer is the leading direct to consumer marketing company in Central America, operating 44 retail outlets, and call centers in El Salvador and Panama which serve the entire Central American market.  For more information on Open English, a FoxyP2 Inc. company visit: www.openenglish.com

Media Contact: 

Thomas Wenrich

Open English

+1-305-443-3979 
tigre@openenglish.com

The Outsider’s Dilemma to Early Stage Fund Raising

I just read a great post from Naval at Venture Hacks about why private investors are like herd animals. He compares private investing to a “Keynesian Beauty Contest” where investors choose to finance companies that they believe are most likely to get financed in the future.

The problem with this approach is that it leaves behind a number of promising business concepts that are well positioned to disrupt markets where VCs are traditionally less familiar. Although it’s understandable that VCs in Menlo Park see opportunities in Santiago, Chile or Cairo, Egypt as distant; it’s also in these markets where they will find many of the key factors that likely define their investment approach. Let’s take Latin America as an example; most every country in the region has by now built up an educated and aspirational middle class that demands new services adapted to their local tastes and realities. Only entrepreneurs with a local viewpoint can fully monetize these opportunities and drive innovation.  Successful ventures with deep local roots are perhaps some of the most defensible business concepts. As an example we can look at UOL in Brazil. Since it’s conception in 1996 and after successfully battling the launch of AOL Brazil in 1999, it’s become Brazil’s largest internet company reaching almost 30 Million unique viewers every month.  Could UOL have achieved this success without the watchful eye of its local founder Luis Frias? Probably not. But it also probably wouldn’t exist if it weren’t for the fact that Luis and his brother Octavio inherited one of the largest media empires in Brazil, the Sao Paulo based newspaper Folha de Sao Paulo. Nothing wrong with that, Luis Frias deserves enormous credit for his vision. The point is he had access to the necessary capital and connections to fuel his move to the internet. Without this critical piece, the world’s largest Portuguese-language internet portal would likely have another name.

Dozens of these opportunities are there for the taking. In the case of Latin America and internet enabled businesses, the numbers speak for themselves: Almost 200 Million internet users, 33% internet penetration and a 925% increase in users from 2000-2009. So when I see that this week Accel partners funded another location-based start up with $20 Million entering a space already crowded with well funded competitors such as  Loopt, Gowalla and Foursquare; I can’t help but think about the value that could’ve been created managing a $20 Million fund for Latin American early-stage ventures. The valuations and the investment amounts would certainly be more reasonable. If only the determining factor in successful fundraising weren’t a company’s ability to generate buzz within the US-centric VC community…

Open English Raises $5M for Expansion

After over 3 years of development and a very successful roll out of our online school in our pilot market, it was time for Open English to start its regional expansion. Thanks to the folks at VentureWire for the coverage. Check out the press release below. 

Onwards and upwards!

Open English On-Line Language Learning School Raises $5M in Capital

MIAMI, FL, April 7, 2010-- Open English announced today that it has successfully closed a $5M series A financing round. Funds will be used to expand the Internet-based English language school across all of Latin America and the United States Hispanic market. The company offers a revolutionary new approach to English language learning which combines live instruction with native English speaking teachers and multi-media learning content customized to each learner. Its students study from home or office and avoid inconvenient scheduling, long commute times, high tuition costs, and outdated books and CD-ROMs. 

"Open English has had tremendous commercial success in our test market this past year," said Andres Moreno, the company's Founder and CEO. "This capitalization will provide the resources we need to bring on-line education to places like Brazil, Mexico, and even right here in the USA. In today's global economy, English is an absolute necessity. Open English helps students at any level improve their English on their terms -- any time, any place."

Investors in the round include the families who control El Salvador's Grupo TVOffer, the largest direct to consumer marketing company in Central America. In connection with the financing, Open English also signed a marketing agreement with TVOffer, which will help launch the on-line school throughout the region. Said Grupo TVOffer's President Luis Armando Salaverria, "Personal advancement is the basis for our region's development, and learning English plays a key role. Open English allows students to break the compromises of traditional English learning and their customers have already seen how effective and convenient the program is. We are convinced that this is the product which the Latin American English learning market has been waiting for." 

At the same time, Open English's parent company announced the appointment of five new board members: Luis Armando Salaverria, Juan Salaverria, John Oxendine, Chairman John McIntire, and the company's CFO Thomas Wenrich. Said McIntire, former Latin America CEO for Goldman Sachs, "This is a ground breaking transaction on many levels -- an on-line venture created by Latin Americans, funded by Latin Americans, selling to Latin America. We are thrilled at the prospect of working with Grupo TVOffer, a company with tremendous marketing expertise in the region." 

Tags / Keywords: 
Open English, internet based English language school, learn English, on-line school, language learning, on-line education, on-line school, English fluency, e-learning, ESL. 

Links / URLs: 

•Open English Blog 
•Open English LinkedIn Profile 
•Follow Open English on Twitter
•Become a fan on Facebook

About Open English 

Open English, based in Miami, is an on-line school created to reinvent the English learning experience. Through live language instruction with native English speaking teachers and multi-media learning content, all provided over the internet, Open English empowers students on their customized path to English fluency. Grupo TVOffer is the leading direct to consumer marketing company in Central America, operating 42 retail outlets, and call centers in El Salvador and Panama which serve the entire Central American market. For more information on Open English, a FoxyP2 Inc. company visit: OpenEnglish.com