At this year’s Web Summit our team was lucky to meet up with Diego Berrio – an investor, startup mentor, strategic planning coach, and the founder and managing partner at BrightSky Ventures. We asked Mr. Berrio about what he, as an investor, looks for in startups, how to attract a VC, and what red flags can stop VCs from investing in your project.
Read on or watch the interview below.
Interviewer: Hi, Diego! In a few words, tell us about what you do and why are you here at Web Summit 2018?
Diego Berrio: I’m the managing partner at BrightSky Ventures. We invest in early-stage companies and help companies expand to new markets.
We have a partnership with Starta Ventures, and with them, we help companies enter the U.S. market. We run a joint program, which is LatAm Expansion Track, with which we help international companies, but mainly European and U.S. companies, access Latin America. At this point, we already have local teams in Brazil, Colombia, and Peru.
I: What would you say is the main difference between the US market and the Latin American market?
DB: The U.S. market is highly competitive. One million startups are being created in the States every year, whereas, in Latin America, it’s a younger market, and there are many opportunities for companies to expand to this region. Basically, that continent is a Blue Ocean.
As an investor, you want to see that your portfolio company can actually defend its position on the market.
I: Does it matter for you as an investor what country a startup comes from?
DB: Most [venture capitalists] historically try to have the companies in their own cities, sometimes even within a one-hour driving distance. But we are a global investor and we are totally comfortable with companies in our portfolio being in the States, Europe, or Latin America. We have the tools, and we were born as a global company, so we don’t need our companies to be close.
I: Here, at Web Summit, we’ve heard a lot of pitches from startups. In your opinion, what is the secret to the perfect pitch?
DB: I think there are at least three things a startup should be able to present during their pitch.
One is the opportunity: what is the problem that they are tackling and why they are unique in tackling or assessing this problem. [The second point] is what is the opportunity in terms of market size. The third point is explaining why not only the solution or the tech they are using is [going to work], but also why the team they have is the best team to do this. For example, if one founder has a business vision and another one is very strong in tech, showing this complementarity between the founders is a big plus.
From my perspective, I believe the key is giving the investors a clear roadmap, [a clear view of] the current stage of the company, and where they’re going to be in the next 6, 12, or even 24 months. You have to explain how you are going to make money, what is your business model, who’s the customer, and what are the barriers to entry once you create your own product because, as an investor, you want to see that your portfolio company can actually defend its position on the market.
If there’s no consistency between value and price, that is a big red flag for me.
I: What are the red flags for you when you’re looking at startups?
DB: One red flag that I’ve been seeing lately is that startups are trying to start their sales at a low price. For me, it’s a red flag because it indicates that there’s either no confidence in the product or that they need to lower the price to reduce the perception of the costs. But in the end, the startups need to understand that it’s not about costs, it’s about the value they’re offering. It’s not about how much cheaper they are compared to competitors, but what is the additional value that they’re bringing to the table. So, if there’s no consistency between value and price, that is a big red flag for me.
I: We know sometimes things don’t go quite as planned. How many failed projects have you invested in? What are the lessons you’ve learned in all these years as an investor?
DB: That’s a good question. I wouldn’t say failed projects, but definitely, sometimes things don’t go as you expect. Some companies don’t grow as fast as you’d hoped they would. Sometimes you are very excited about the product or the problem that is being solved but the team is not the right one even if they have a great idea and a great solution.
In the end, everything is about execution, so [that also involves] business development. You need to be consistent and very strong when you go through these hard moments, so the mental strength is also very important. And it’s difficult to check that when you are making investments in an expedited way.
So, my advice, in that case, would be, go through extensive due diligence, try to understand not only the tech side but also the mental strength and emotional intelligence of the founding team.
This interview has been edited and condensed for clarity.