Rising Impact of “angel” investors in the region

“Angel Investor Networks in Latin America” is the title of a research study conducted by the IESE Business School (IESE) for the Multilateral Investment Fund (MIF) as part of an in-depth study on so-called ‘angel’ investors, that is, organizations or individuals that – financially- support high-potential ventures. 

The report explains that this mechanism is typically used in segments that are still immature for traditional venture capital, which do not receive bank financing due to the risks involved and the lack of guarantees that typically characterize new ventures.

Researchers affirm that ‘angel’ investors act independently from traditional financing institutions. Hence, the majority operates in a relatively anonymous way. In other words, they generally do not have doors open to the public and do not appear in public directories, and in some cases they prefer to carry out these activities discreetly due to the other occupations they possibly hold. 

This mechanism is typically used in segments that are still immature for traditional venture capital

Investor networks receive a limited number of projects that have previously been evaluated and selected by business assistance organizations, such as business incubators.  Experts highlight that these networks in addition to shining light on the investment serve as drivers and promoters of this type of financing. This is why lately they have been receiving increased attention by governments and international organizations.

Using operations data from angel investors in Latin America and the Caribbean between 2005 and 2011, the MIF research study presents information on the magnitude of closed investments, network management structures, strengths and weaknesses to be addressed, among other aspects.

The results indicate that during this period, 99 investments were made for an estimated total amount of $26 million dollars. They also identified the existence of 665 investors grouped into 28 networks. It is important to highlight that in at least 7 networks they were not able to verify whether any activities were taking place.

The report shows that although angel investing is at an early stage of development, it remains unequal among the countries analyzed. While some have multiple networks, others have no presence at all. While there is still a long way to go, experts affirm that the networks will grow exponentially in the coming years due to increased dissemination and implementation of support initiatives from regional government and institutions such as the MIF.

Researchers identified three sources of weaknesses that must be addressed in order for the network ecosystem in the region to operate at its full potential. First mentioned is the institutional strengthening and professionalization of these structures. Second, the active promotion of private investors by disseminating information about their role in the economy and training prospective investors. Finally, the importance of entrepreneur awareness in order to become acquainted with the features and how to access this type of investment.