Earlier this week Magma Partners, a venture firm with offices in Los Angeles and Santiago, Chile, announced the close of its second, $15 million fund, to back early-stage fintech and blockchain companies in Latin America. Last year in a provocative ImpactAlpha post, Lustig wrote “supporting almost any forward-thinking, technology-based venture in Latin America is a form of impact investing.”
Is that impact? We reached out to Lustig and asked him to clarify his belief that almost any Latin America investments are impact investments. “Most investments in Latin America should be considered impact investments if they’re creating jobs, training employees, and seeding the next generation of entrepreneurs, while not creating an extractive business model,” Lustig told ImpactAlpha. Those are big “ifs,” but provide better context.
He continues. “We believe that the founders we support will be able to build real, sustainable businesses with teams in Latin America, not only helping stop the brain drain, but also taking the best parts of global entrepreneurial culture like stock options, flexible schedules and working on cutting edge technologies, and helping make them more common in Latin America.”
The full exchange:
Brain Gain: Impact investing in Latin America’s new wave of startups
ImpactAlpha: Explain the idea that almost any investment in Latin America is an impact investments, in the context of the new fund.
Nathan Lustig: I believe most investments in Latin America should be considered impact investments if they’re creating jobs, training employees, and seeding the next generation of entrepreneurs, while not creating an extractive business model.
We’ll be investing $15 million into 60 companies across Latin America with Magma Fund II and our goal is for all of them to build teams in countries across Latin America, while targeting clients from around the world.
We believe that the founders we support will be able to build real, sustainable businesses with teams in Latin America, not only helping stop the brain drain, but also taking the best parts of global entrepreneurial culture like stock options, flexible schedules and working on cutting edge technologies, and helping make them more common in Latin America.
Technology has the ability to help bend the arc of the entire region for the good.
ImpactAlpha: What specific types of companies will the fund invest in?
Lustig: Magma II will follow Magma I’s investment thesis, supporting two types of companies: startups with their tech and or sales teams in Latin America, but that target the world (ideally the US market), and fintech, insurancetech and blockchain startups that target the Latin American market.
ImpactAlpha: How will they have an impact?
Lustig: They will have impact by building teams, creating good, high-paying jobs, and most importantly, transferring tech industry knowledge from global markets into Latin America by allowing entrepreneurs and team members to work on cutting-edge technology.
We also believe that many of the companies we’ve invested in are solving real problems for both the region and the world, even if they wouldn’t be considered an impact investment by all traditional standards.
We hope to be able to support more companies like Magma I investments such as: GroupRaise, Deenty, Keteka, Jooycar, and Portal Finance. These companies are not only great businesses, but also improving lives.
ImpactAlpha: Would Magma consider a company that employs and attracts local talent, but let’s say, fails to dispose of waste properly, an impact investment?
Lustig: We look at tradeoffs, but I don’t believe disposing of waste properly is a likely scenario for the types of tech startups that we invest into. If we’re talking about dumping toxic waste into rivers or neighborhoods, then no, it wouldn’t be an impact investment, or even a morally justifiable investment.
We think about scenarios like this fairly often: We wouldn’t want to invest into a payday loan company that had extremely high interest rates, even if it employed hundreds of people, as the overall impact would be negative, even if it was a lucrative business. There are plenty of fintech companies and others that provide investor returns, but aren’t abusive to invest into.
ImpactAlpha: Magna says it will invest in “U.S. incorporated startups with technology and sales teams based in Latin America.” Does that refute or support the local talent thesis?
Lustig: No. Our companies generally have most of their teams in Latin America, supporting a small office in the US. Great examples are:
1. GroupRaise — 15 people in Santiago, supporting an 8 person office in Houston, TX
2. PropertySimple — 16 people in Santiago, supporting 4 people in California
3. Keteka — 1 cofounder + 4 people in Santiago, supporting 1 cofounder in Chicago
4. Portal Finance — 20 people in Colombia, 4 in Chile, which will support a smaller US office in 2018
Companies like these have their high tech and sales jobs in Latin America, generally headed by a co-founder, and then a smaller office headed by a cofounder in the US. They’re helping create jobs, train talent and transfer knowledge between Latin America and the US.