The Venture Capital Market in Venezuela
Venezuela
Introduction
Latin American countries are faced with a complex economic situation caused
by lower growth and the prevailing uncertainty in the global economy. Although the
region has solid macro-economic foundations to withstand possible storms in the short term, the medium-term outlook is less favorable than in the previous decade. Weaknesses in their economies will impede higher, more inclusive economic growth in the coming years. To meet these challenges and consolidate recent setbacks, (especially in reducing poverty and inequalities) support must be given for a structural change to boost diversification of the economy, raise productivity and narrow
technology gaps. To achieve these objectives, the region’s governments ought to
focus their efforts on designing and implementing more and better policies in the
areas of development, innovation, finance and education. Cooperation and
economic integration among the Latin American countries can also be effective tools to create the mutual respect and catalyst needed.
Venezuela
Venezuela may be soon longing for the early years of Hugo Chavez. The socialist leader passed away this year but left Venezuela in worse shape than when he came into office. These aren’t the worst of times for the South American oil giant, but they are far from the best. Inflation is running out of control at 27.3% this year (2013). According to the International Monetary Fund (IMF), Venezuelans can’t quite figure out how much food will cost them from month to month. What is certain though is that it will cost more than last month’s bill. If that wasn’t bad enough, the country is now heading into a recession. Economic activity in Venezuela pretty much ground to a halt in the first quarter of 2013. Given the surrounding factors and dim outlook, the economy will most likely contract this year.
The energy sector in Venezuela is flailing. Political and economic uncertainty will likely continue to deter foreign investors from fully committing the necessary cash, resources, and expertise that are desperately needed to effectively tap the nation's wealth of oil reserves. Whoever takes over the reins of the nation (since Hugo Chavez passed) will need to dismantle the past policies, structures, and rhetoric that have made investing in Venezuela very scarce
Looking Ahead
Venezuela’s VC industry has had limited activity in the recent years. Hence, not many investors have been drawn to enhance their economy. A venture capitalist wants a business plan where an exit strategy is foreseen around 7 years from their initial investment. Without this possibility, expert venture capitalists, like Efraim Landa, will look at countries other than Venezuela in Latin America. There is a growth potential in Venezuela, they just need to find an expert way to market and sell their strengths. While the entrepreneurial spirit is there, the government will have to meet them halfway in the sense of regulation and legislation. A “global compass” must be used to navigate the economies of the world in order to determine a growth strategy.
Moderate growth has taken place in the region in 2012 amid high uncertainty and
Volatility, primarily from the external sector. According to the latest growth projections,
the region’s gross domestic product (GDP) will grow by around 3.2% in 2012 and 4.0% in 2013. These are good figures for the region compared to previous years and especially when compared to projections for more developed economies, where far more sluggish growth is expected. We must remember these figures are highly uncertain and subject to complex risks that make it hard to evaluate and quantify what impact they will have on the region’s economies. The level of risks that venture capitalists will be exposed to must be mitigated and brought to an acceptable level. Risk assessments must be continually performed before the badly needed cash infusions will take place.
Latin American countries are faced with a complex economic situation caused
by lower growth and the prevailing uncertainty in the global economy. Although the
region has solid macro-economic foundations to withstand possible storms in the short term, the medium-term outlook is less favorable than in the previous decade. Weaknesses in their economies will impede higher, more inclusive economic growth in the coming years. To meet these challenges and consolidate recent setbacks, (especially in reducing poverty and inequalities) support must be given for a structural change to boost diversification of the economy, raise productivity and narrow
technology gaps. To achieve these objectives, the region’s governments ought to
focus their efforts on designing and implementing more and better policies in the
areas of development, innovation, finance and education. Cooperation and
economic integration among the Latin American countries can also be effective tools to create the mutual respect and catalyst needed.
Venezuela
Venezuela may be soon longing for the early years of Hugo Chavez. The socialist leader passed away this year but left Venezuela in worse shape than when he came into office. These aren’t the worst of times for the South American oil giant, but they are far from the best. Inflation is running out of control at 27.3% this year (2013). According to the International Monetary Fund (IMF), Venezuelans can’t quite figure out how much food will cost them from month to month. What is certain though is that it will cost more than last month’s bill. If that wasn’t bad enough, the country is now heading into a recession. Economic activity in Venezuela pretty much ground to a halt in the first quarter of 2013. Given the surrounding factors and dim outlook, the economy will most likely contract this year.
The energy sector in Venezuela is flailing. Political and economic uncertainty will likely continue to deter foreign investors from fully committing the necessary cash, resources, and expertise that are desperately needed to effectively tap the nation's wealth of oil reserves. Whoever takes over the reins of the nation (since Hugo Chavez passed) will need to dismantle the past policies, structures, and rhetoric that have made investing in Venezuela very scarce
Looking Ahead
Venezuela’s VC industry has had limited activity in the recent years. Hence, not many investors have been drawn to enhance their economy. A venture capitalist wants a business plan where an exit strategy is foreseen around 7 years from their initial investment. Without this possibility, expert venture capitalists, like Efraim Landa, will look at countries other than Venezuela in Latin America. There is a growth potential in Venezuela, they just need to find an expert way to market and sell their strengths. While the entrepreneurial spirit is there, the government will have to meet them halfway in the sense of regulation and legislation. A “global compass” must be used to navigate the economies of the world in order to determine a growth strategy.
Moderate growth has taken place in the region in 2012 amid high uncertainty and
Volatility, primarily from the external sector. According to the latest growth projections,
the region’s gross domestic product (GDP) will grow by around 3.2% in 2012 and 4.0% in 2013. These are good figures for the region compared to previous years and especially when compared to projections for more developed economies, where far more sluggish growth is expected. We must remember these figures are highly uncertain and subject to complex risks that make it hard to evaluate and quantify what impact they will have on the region’s economies. The level of risks that venture capitalists will be exposed to must be mitigated and brought to an acceptable level. Risk assessments must be continually performed before the badly needed cash infusions will take place.