December 09, 2008


Venture capitalists attempting to conduct business in Latin America often find themselves hindered by numerous vexing obstacles due to the region's overall lack of governmental and cultural support for what they do.

Conversely, venture capitalists throughout most of Asia are warmly and eagerly welcomed by governments, entrepreneurs, and cultures that grasp the substantial value they bring.

"Latin America just doesn't offer the foundation for entrepreneurial activities that Asia does," says Dr. Garry D. Bruton, a professor of management at the Neeley School of Business at Texas Christian University and an authority on entrepreneurship and international venture capital.

This stark contrast was among the findings of a new study of the differences and similarities in venture capital activities in the two regions, conducted by Dr. Bruton and researchers from both Asia and Latin America: Dr. David Ahlstrom of The Chinese University of Hong Kong and Tomas Puky, a native of Venezuela now with VA Tech Hydro Corporation USA in North Carolina.

"In Latin America economic power is concentrated among a few large families, so the necessary support mechanisms in society for entrepreneurs and venture capitalists just aren't there," Dr. Bruton says. "This has a definite negative impact."

The atmosphere in Latin America can be so frustrating that entrepreneurs sometimes depart for more accommodating areas of the globe, leaving private equity investors with a dearth of Latin American ventures to fund. There are many strong managers in Latin America but the opportunities for entrepreneurs and venture capitalists in the region are severely constrained.

The study, "Institutional Differences and the Development of Entrepreneurial Ventures: A Comparison of the Venture Capital Industries in Latin America and Asia," will be available later this year on the Web site of the prestigious Journal of International Business Studies ( ) and in print shortly thereafter.

For Latin America, the researchers looked at Argentina, Brazil, Colombia, Costa Rica, Guatemala, and Mexico, as those were the countries exhibiting the majority of that region's venture capitalist activity. In Asia, the researchers examined China, Hong Kong, Malaysia, Myanmar, the Philippines, Singapore, Taiwan, Thailand, and Vietnam.

The in-depth examination looked at 13 venture capital firms in Latin America and 13 in Asia. One member of top management from each firm was interviewed; also interviewed were four venture capital experts from each region, bringing the total number of people interviewed to 34. Various printed materials about each company were also examined.

The companies were a mix of internationally based and locally founded firms, and included those with investments both in early and later-stage ventures.

Studied were the differences and similarities between the two regions regarding the basic venture capitalist activities of deal identification, deal selection, investment monitoring, and deal exit.

The major findings were that the vast majority of wealth in Latin American countries lies in the hands of a few powerful family groups who in turn wield great influence with their governments, while wealth in Asia is more dispersed and Asian business people have fewer close ties to their governments.

Asian countries that had once been staunchly communist or socialist are now actively promoting business achievement and experiencing booming economic growth outpacing that of Latin America.

"Even Cambodia and Vietnam are moving very quickly toward market economies," says Dr. Bruton.

In contrast, while Latin America possesses enormous economic potential, the region is hampering its own growth.

The informal alliance between money and government in Latin America leaves entrepreneurs and venture capitalists with little regulatory, legal, or cultural support. Incentives are few, and governments may even interfere if a business shows signs of becoming too independently successful for the comfort of the families in power.

"The way for the region to address this is to transition from concentrated wealth toward more diffuse wealth, or somehow allow people to work around the concentrated power. Latin American countries want venture capitalism because they want to create jobs and keep their economies going, but they don't know how to promote it," Dr. Bruton says.

"Now parts of Latin America are even moving away from market economies back toward socialism. They didn't have the necessary elements in place for market economies to exist. It's a failure not of the market economies but of the region's economic structure," he says.

"Venture capitalists who still want to do business there need to understand that time frames will be longer and the process more difficult than in more developed economies or other emerging economies such as Asia," Dr. Bruton adds. "They will also have to try to create the institutional support they need, such as favorable regulations and standards. It won't be easy, and may not be sufficient to bring about the depth and breadth of change necessary to foster high-value entrepreneurial success."

The study provides significant insights into how venture capital activities are affected by the differing legal, regulatory, and societal institutions in emerging economies, as well as how those institutions can be shaped toward better outcomes. Future research could examine these effects in greater detail and include additional regions such as Africa and the Middle East.


Elaine Cole
Public Relations Manager
Neeley School of Business at TCU