The personal qualities of typical startup founders coupled with structural dynamics of startup investing, ensure that mutual trust pays dividends.
Here are some reasons why it makes sense to trust startup founders:
Persistence. They will stick it out. Look no farther than Pedro Callirgos of Mesa 247 or Alonso Mujica of Silabuz. Both launched their startups prior to 2017. They are pioneers of the Peru startup community, having successfully joined accelerator programs early on and raised capital from local angel investors. Both built revenue generating businesses with a clear purpose to offer technological solutions to people and businesses across multiple countries. Then, their business models faced a huge shock during Covid-19 lockdowns. The last two years have turned their business models upside down, but they have pivoted and found new paths to growth. Why did they do all of this? Part of their DNA is constantly adapting and seeking solutions that meet user’s needs. Maybe they feel some obligation to investors to stick it out. Also, probably the future economic incentives are in place for them. Mostly, however they are entrepreneurs who believe in what they are doing, and have a natural tendency to stick it out until the end. They aren’t giving up anytime soon.
Alignment. Founders generally want the same things investors do. And more. They have the most to lose and the most to gain from different startup outcomes. While part of being a good investor is diversification, part of being a good founder is having a singular focus. Investors, as minority shareholders, can gain comfort that what is in the best interest of founders is likely in their best interest as well. A new funding round could result in dilution? Guess what, founders get diluted also. An exit scenario seems like a low price? Well, this is the price founders will be selling for as well.
In 2019, a startup we invested in with AVP Seed Fund I, Culqi, led by Amparo Nalvarte, was sold to BCP, a local bank in Peru. When Amparo and her co-founder decided to sell, it perhaps wasn’t an outcome that the investors hoped for, but in the end, I felt Amparo weighed all the factors and this was the best step for everyone at the time. It wasn’t a clean, easy transaction, but it was a net positive for all parties and a success story for the Peru startup community.
Autonomy. Startup entrepreneurs are self-starters and self-taught. They operate in a world in which they are forced to constantly learn and adapt. In this instance, the reason for trusting founders is less about avoiding negative outcomes than it is about about giving founders freedom to explore and learn. If investors put too many controls in place, it reduces maneuverability and closes avenues to success. Instead, investors should encourage growth and creativity in order to maximize postive outcomes. The founder of Peruvian startup Fitco, Andrea Baba, is a great example of a founder that has taken it upon herself to seek out new challenges. In doing so, she has gone way above and beyond the resources and support her local investors could have provided. It has led her to move to Mexico, enter the Techstars accelerator in Boulder, Colorado, and attend the Saastrs conference in San Francisco, California. She and her co-founder did this all on their own, to the great benefit of their investors.
Perspective. Startup founders see the entire playing field. They are the ones constantly talking to their employees, clients and to potential investors. They are keenly, sometimes obsessively, aware of their competition. Great founders are highly attuned to their own motivations and sources of energy, as well as those of their co-founders and team members. This perspective puts them in the best position to weigh the options and make hard decisions.
When Sebastian Otero decided to sell his startup, Freshmart, to Justo he weighed the opportunity to sell with the feasibility of raising capital to expand the business and compete on his own. The personal factor of teaming up with Justo was also important. In the end, part of the decision was cultural, something it would be hard for investors to see.
Pedro, Alonso, Amparo, Andrea and Sebastian, like the great majority of startup founders in Peru can be trusted. Not only because they are good people, but also because their personal drive and willingness to learn, along with the startup structure, sets them up to succeed – and take investors along for the ride.