Hiring in Latin America: the sensible choice for startups in the U.S.
By Sebastián Vidal, Parallel18 Executive Director
It is a fact that the innovation capitals of the U.S are getting irrationally expensive. It is also a fact that talent is getting harder to find in a competitive scenario. I mean, with salaries that exceed the $100K in an entry level position, many cities feel free to rise the market prices till the point that it starts to affect the quality of life. These facts only lead to the conclusion that the USD 42 billion are simply less efficient than what it was several years ago.
However, there’s no need to panic. Good entrepreneurs know they can look around the corner for opportunities that help them make better, more efficient use of this working capital. If you’re one of those, keep reading (and do so carefully) because industry experts give some advice on how your can take your company further using investment more efficiently. And, if you’re an investor, these insights will help you understand if your money is being used the right way.
“It represents a conjunction between both regions that I did not expect to see before: that in the end we don’t have to compete or replicate, we can collaborate.”
I have seen companies using funds more efficiently first hand during the last year and a half. In this time I have worked with more than 100 startups mostly from Puerto Rico and Latin America, all of whom have participated in Parallel18. It has been wild to witness how founders start figurin out how to be strategic and tactical with their resources. They know that, in order to compete in the U.S., they need to be smart. And to be smart, they know that it’s common sense to leverage operations in Latin America (including Puerto Rico). This knowledge is not exclusive to Puerto Rican and Latin American startups, companies from the U.S. are also catching on. This is an interesting development, since it represents a conjunction between both regions that I did not expect to see before: that in the end we don’t have to compete or replicate, we can collaborate.
To prove this, I gathered several opinions and recommendations from very talented founders and investors that are working hard to promote this mindset.
Andrés Barreto
He founded GrooveShark, PulsoSocial, and SocialAtom. He is one of the gurus of this concept and an angel investor. This is what he has to say about the subject:
“Targeting the U.S. market first helps reach the largest number of possible customers, that have the most money, that will give it to you faster (shorter sales cycles, everyone has a credit card). In essence, you can grow larger faster in less time, with less investment than starting outside of the U.S. where you have less possible customers, with less money, and they take longer to give you their money.
Building their teams in Latin America enable companies to hire more senior people that stay in the company longer — if you compare them to the Bay Area, New York, or Boston, even at their earliest stages of development when there is less funding.
These teams are then able to build a better product faster than their competitors. Likewise, engineers in Latin America are able to easily make 2X-3X local market rate without giving up most of their income to rent and taxes. Like in traditional U.S. startup hubs, and since they are full-time employees working at these startups, they also participate in the stock option pool.
In short, sell where you can make the most money the fastest, and hire better more senior software engineers faster that will stay in the company longer. This helps build a better product faster than your competition and to grow more valuable in less time with less capital.
As a founder of an early stage startup if you do decide to build a team in Latin America, Do not hire average because ‘it’s cheap’. It is tempting to make this mistake because how cheap average salaries are, but average pay gets you average talent, you need to go for extraordinary.
Do not “save money” by paying someone with three years experience $24K/yr in Latin America what in the U.S. is $90K/year. Instead still spend the $90K/yr but get an engineer with 10+ years of experience. A small number of senior software engineers is better than a large number junior engineers. You’ll get more done in less time because there is little, if any, management overhead.
Your first hire should be someone very senior than can build software independent of stack or platform, that has experience hiring, managing, and firing employees. When you raise more money, this leader will help you scale your team quickly with the best talent.
“Do not “save money” by paying someone with three years experience $24K/yr in Latin America what in the U.S. is $90K/year. Instead still spend the $90K/yr but get an engineer with 10+ years of experience.” — Andrés Barreto
Hire your team as full-time employees with a local subsidiary in LATAM if possible to offer full benefits by local law, but also sign IP agreements with the Delaware C-Corp to be protected in both jurisdictions.
Always grant equity, at the same level you would in the U.S., even though it’s still early in talent witnessing the value of equity, grant it anyway because it will help in the future with retention. Option can be granted with NSOs or RSPAs independent of geography.
Having a team outside of the U.S. does not mean it’s remote or outsourcing — technically it’s offshoring — but the only remote person is the founder and sales team, the engineering team can be together in the same office in the same city in Latin America.”
Ricardo Ibarra
A Colombian 500 startups San Francisco grad shares his opinion on the subject.
“As you know, founders need to maintain a clear company and product vision, build and empower the team to deliver on that vision, and manage cash flow (i.e. not running out of money).
These are not easy tasks. To address the last point, entrepreneurs can either raise more capital, generate revenue, and/or manage their burn rate. Most first-time entrepreneurs will struggle with the first two, therefore, managing your burn becomes the main trigger to give your startup ‘oxygen’/runway.
“Communication and constant feedback is critical. And I highly recommend spending time with the team.” — Ricardo Ibarra
There is amazing talent in LATAM, so being able to build a rockstar team, scaling your business in the U.S., and having a positive impact in your company’s burn is an amazing combination for entrepreneurs.
The LATAM tech ecosystem is growing and many potential hires have had some exposure to startups, but most have not. This creates challenges on two fronts; your ideal hires might be too risk adverse to join the journey and/or the idea of the “cool” startup life is not really a reality at the beginning of the journey.
So, communication and constant feedback is critical. And I highly recommend spending time with the team. Yes, Skype, Slack, Hangout, Trello, etc., and all the other productivity tools help, but nothing beats spending time as a team.”
Nathan Lustig
A serial entrepreneur from the United States that a couple of years ago created MAGMA (probably the most active) investment fund in Chile.
“Building a team in Latin America is an incredible opportunity for startups. Our portfolio companies have been able to attract senior level engineering talent at prices that helps them extend their runway and gives them a massive competitive advantage competing in the U.S. against startups that need to pay their engineers 5–10X more than in Latin America. And it’s not just tech, there are highly qualified native English speaker expats all over Latin America, but especially in Chile and Colombia, that can energize a sales and marketing team, allowing them to compete in the big leagues in the U.S.
“Latin American tech workers are not always motivated by money and stock options like many U.S. tech workers. They tend to value stability, having a contract, and being able to work with top people.” — Nathan Lustig
Everyone knows about working with development talent in Eastern Europe and India, but most founders haven’t ever looked at Latin America. Founders building teams in Latin America is an incredibly interesting opportunity because LATAM offers top talent that’s in the same time zones as the U.S.: Chile is on Eastern Time half of the year, Colombia is on Central Time.
One thing to understand is that Latin American tech workers are not always motivated by money and stock options like many U.S. tech workers. They tend to value stability, having a contract, and being able to work with top people. It’s unlikely that throwing high salaries around will attract the best talent. If you’re thinking of working with LATAM talent, it’s best to work with someone who’s experienced in doing it or get that experience yourself.”
Devin Baptiste
Is the Co-Founder and CEO of Groupraise, if there’s someone that knows how to manage international teams and be efficient with limited resources…that is Devin Baptiste.
“We have a back office in LATAM and the U.S. is our main market. Having an office in LATAM is a powerful way to work with some of the best talent and keep burn low.
“Surprisingly, having an office in LATAM has also been a huge plus in recruiting talent in the U.S.” — Devin Baptise
We are passionate about our Chilean office. There is an amount of hustle and a skill level you can find in LATAM that is hard to be able to afford if we were doing it as a startup in the Valley. So the amount of money needed to scale is fundamentally different in this structure.
Surprisingly, having an office in LATAM has also been a huge plus in recruiting talent in the U.S. We recently sent down one of our employees from the U.S. to work out of our offices in Chile and it allowed her to both work at GroupRaise and live her travel dreams. This is a powerful tool when hiring millennials globally.”
So guys, here you have free advice, perspectives, opinions, and resources if you’re planning to scale your business in a smart way. I will suggest two extra things:
1) Follow what we are doing in Puerto Rico with Parallel18 and Latin American companies. Puerto Rico is an attractive place to be because it looks like home (for Latin founders) but it’s part of the U.S. Besides the talent is affordable and the lifestyle is cheaper when compared with some of the main innovation capitals of U.S.
2) If you’re around Austin for SXSW, go to our panel on Saturday. In it we’ll be talking specifically about this topic. I hope to see you in Se Habla Spanglish: a bridge for latino startups. Don’t miss it!
