12 August 2009

Equity Financing: The Only Choice for Argentina Small Business

In Argentina the only realistic way to obtain start-up funding for any kind of business venture is through equity financing or through some other vehicle that brings investors into your company. Luckily this type of financing is readily available for small businesses that have professional management with good contacts.

Why Equity Financing is a Realistic Option
The main reason equity financing is available in Argentina is that many individuals here would prefer to invest with friends, family, and business associates than with investment funds, professional money managers, or even banks. It all comes down to trust.

In Argentina, nobody trusts anyone. And if you don't trust anyone else, you certainly won't give them your money. That's why so often you'll see people investing with their brother-in-law, best friend from college, or parents putting money in a son's business. The financial companies here have a horrible reputation (justly or not) of being happy to take your money but not no friendly when it comes to giving it back. The State exercises such complete control over the financial industry that in times of crisis, the banks are converted into mere branches of the Central Bank, taking in deposits and transferring all liquidity to the State.

This type of scenario means that the average man on the street puts a lot more trust in people he knows than in some banker who needs to respond to the orders of the Government of the day.

Business Plans
Entrepreneurs should put some effort into building a realistic and well-thought out business plan, with realistic financial estimates. Just doing this will put them head and shoulders above the thousands of other wanna-be entrepreneurs who are making the rounds looking for funds. It sounds crazy, but in the years I've been here, I've met with all the following entrepreneurs seeking funding for their venture:
  1. A mining outfit in Neuquén seeking $500,000 USD to restart a closed operation.
  2. An entrepreneur looking to make consumer loans to police / military officers.
  3. A landowner raising funds for a boutique hotel.
  4. An entrepreneur raising funds for an ice cream factory.
  5. A real estate agent looking for funds to convert a failing hotel into a timeshare.
I'm certainly not the biggest angel investor in Argentina, not by a long shot. I don't have a finance degree and I am by no means a professional financial analyst. However, not one of these people who presented their idea to me came prepared with any kind of figures or estimates. Not one had a business plan written down on paper. The mining group even suggested that I send my own geologist and team of analysts to evaluate their project, but that they were not going to pay anyone to put together any kind of estimates. I have no doubt that they still haven't found any funding with that kind of attitude.

In almost all cases that an entrepreneur arrived with clearly thought out figures, a solid plan, and recommendations from advisers I trust, I've invested. Sometimes it was a good investment, other times it didn't go as planned, but I've always believed in the entrepreneur who was running the business and confident that they were prepared to lead with a clear vision of where they wanted to go.


  1. Just stumbled across this blog.haven't gotten a chance to read all the posts yet but thank you for your insight.

    My question for you is do you think it's a good idea to get involved now with the wine business in Argentina?

    Thank you for your time.

    Gracias :)

  2. I appreciate the labor you have put in developing this blog. Nice and informative.