The Venture Capital Market in Argentina
Argentina
One of the most powerful tendencies in venture capital investments at the moment is focusing upon merging markets. Countries from Latin America and Argentina, that are still in a development process, have been preferred by venture capital investors during the period of the financial crises as Argentina is a market still evolving and there are numerous sectors of demand that have not yet been uncovered. Expert venture capitalist Efraim Landa and his company Effi Enterprises are very capable of cultivating Argentina’s market. Moreover, the prices needed for start-ups or expansions in emerging markets are considerably lower than in other regions. This can explain why the Argentina venture capital market has increased 30 percent in 2010 despite the world wide situation in venture capital investments. As the VC market is still at an early stage of development, an active participation in the running of portfolio companies is required. This actually means that venture capital investors like Efraim Landa have to behave like entrepreneurs when investing in this region. They have to provide not only the know-how, the experienced managers, but also its database of global contacts. If you want to invest in a start-up business in Argentina, you should be prepared to make good use not only of your money, but also of your contacts and marketing planning resources.
Industry Focus
VC in Argentina has primarily focused its attention on industries such as technology, software, e-commerce and biotechnology. Investments in IT-related activities are channeled to the development of software and video games, and outsourcing of business processes. The local entrepreneurial community remains very active in creating business opportunities. However, lately, deal volumes were reduced due to the slowdown in the Argentine economy and the uncertainty over government economic policy over the next few years. The nationalization of the oil and gas companies created concern for the possibility of future nationalizations in sectors such as utilities, oil and gas, mining and infrastructure. However, the Argentine economy still benefits from high commodity prices, GDP growth, and an educated workforce that remains a constant in Argentina.
Funding Sources
Argentine venture capital funds are mainly made up of foreign funds. As such, they raise funds outside Argentina in accordance with the market practices of the country the funding is coming from. The global market has an influence on the amount of money foreign investors will invest. The few local VC funds typically raise funds from relatives or acquaintances of the fund organizers. There are certain non-governmental organizations acting locally that help in linking foreign VC funds with local entrepreneurs. Only rarely do VC funds raise funds from local financial institutions or other local players. However, there are several local efforts aimed at developing venture capital in Argentina and it is likely to continue to grow steadily.
Legal and Tax Structure
The most common structure in Argentina is a foreign limited partnership. Such a partnership is typically created offshore in jurisdictions that have double taxation treaties with Argentina through which the investment is made into Argentina. Investment vehicles are often in Spain, Chile, and Austria or, to a lesser degree, Switzerland, because the tax treaties with these countries granted an exemption from personal assets tax, an annual tax on equity held by individuals and foreign entities. However, these treaties were terminated in the first half of 2012. It is likely that future special purpose vehicle structures will be similar but this will depend more heavily on the relevant foreign domestic legislation of funding sources. For local investors, a simple holding company structure is used, since dividends are exempt from income tax. Capital gains, however, are exempt only if the seller is an individual.
Industry Focus
VC in Argentina has primarily focused its attention on industries such as technology, software, e-commerce and biotechnology. Investments in IT-related activities are channeled to the development of software and video games, and outsourcing of business processes. The local entrepreneurial community remains very active in creating business opportunities. However, lately, deal volumes were reduced due to the slowdown in the Argentine economy and the uncertainty over government economic policy over the next few years. The nationalization of the oil and gas companies created concern for the possibility of future nationalizations in sectors such as utilities, oil and gas, mining and infrastructure. However, the Argentine economy still benefits from high commodity prices, GDP growth, and an educated workforce that remains a constant in Argentina.
Funding Sources
Argentine venture capital funds are mainly made up of foreign funds. As such, they raise funds outside Argentina in accordance with the market practices of the country the funding is coming from. The global market has an influence on the amount of money foreign investors will invest. The few local VC funds typically raise funds from relatives or acquaintances of the fund organizers. There are certain non-governmental organizations acting locally that help in linking foreign VC funds with local entrepreneurs. Only rarely do VC funds raise funds from local financial institutions or other local players. However, there are several local efforts aimed at developing venture capital in Argentina and it is likely to continue to grow steadily.
Legal and Tax Structure
The most common structure in Argentina is a foreign limited partnership. Such a partnership is typically created offshore in jurisdictions that have double taxation treaties with Argentina through which the investment is made into Argentina. Investment vehicles are often in Spain, Chile, and Austria or, to a lesser degree, Switzerland, because the tax treaties with these countries granted an exemption from personal assets tax, an annual tax on equity held by individuals and foreign entities. However, these treaties were terminated in the first half of 2012. It is likely that future special purpose vehicle structures will be similar but this will depend more heavily on the relevant foreign domestic legislation of funding sources. For local investors, a simple holding company structure is used, since dividends are exempt from income tax. Capital gains, however, are exempt only if the seller is an individual.