500 Startups is increasing its commitment to global investing with a new Latin America fund, targeting $10 million, going by the name of Luchadores II, the Spanish word for wrestlers. The fund is 500’s second aimed at the region and one of a growing number of its seed investment vehicles targeted at underserved markets across Europe, Asia and the Americas.
The accelerator has been investing in Latin America in one form or another since 2010. Santiago Zavala, managing partner of the new fund, is targeting approximately 120 companies for investment with the fresh powder in hopes of pushing the number of Latin American unicorns into the double digits.
Dave McClure, founding partner of 500 Startups, has long been bullish on the arbitrage opportunities made available through international investing. Deals in the United States, particularly in Silicon Valley, are often priced at a premium because of their competitiveness.
“We’re seeing ten to one leverage on additional capital Invested,” said McClure of some international bets. 500’s investments in Latin America have gone on to raise more than $95 million in follow-on capital.
But the challenge of investing in Latin American startups is that they lack strong ecosystem support. Larger B, C and D rounds are hard to find in the region, and local acquirers that anchor an entrepreneurial ecosystem are limited.
This is why the International Finance Corporation (IFC) is joining 500 as a limited partner in its new fund. The IFC has traditionally invested in later-stage companies, but over the last two years it has been involving itself in seed-stage funds as a limited partner.
“We’re trying to find a best of breed microfund managers in all developing markets,” said Nikunj Jinsi, global head of VC investments for the IFC.
McClure points to Accel Partners, Index Ventures, Sequoia Capital and Tiger Global as funds that are doing their part to create international pipelines for startups from inception to exit.
“Other funds are starting too late and expecting developed companies,” added McClure.
Some regions within Latin America have grown faster than others. Mexico City, where 500’s operations are located, has matured, but other cities still lack strong mentor networks and other necessary resources.
500 Startups tries to maintain a strong relationship with its international affiliates through seed programs. The firm regularly sends partners to different geographies to mentor startups and offers foreign companies the opportunity to visit the Valley.
Though McClure wouldn’t commit to it, today’s Latin American fund announcement hints strongly of things to come in Asia. The firm recently rekindled its presence in China, though it has yet to announce a dedicated fund in the region.