Harvard Case - Altos Ventures (A)
"Altos Ventures (A)" Harvard business case study is written by Jo Tango, Alys Ferragamo. It deals with the challenges in the field of Entrepreneurship. The case study is 16 page(s) long and it was first published on : Aug 1, 2022
At Fern Fort University, we recommend that Altos Ventures (A) pursue a strategic pivot towards a venture capital (VC) model with a focus on early-stage tech startups in the emerging markets of Latin America and Southeast Asia. This strategy will leverage Altos? existing expertise in entrepreneurial financing, international business, and technology and analytics to create a sustainable and scalable venture capital business.
2. Background
Altos Ventures (A) is a successful private equity firm with a strong track record in emerging markets. The company is facing a critical decision regarding its future direction. While the current business model of investing in mature companies in developed markets has proven successful, the partners are seeking new opportunities for growth and impact. The case study focuses on the decision-making process of the Altos partners as they consider expanding into venture capital and technology-driven startups.
The main protagonists are the four founding partners of Altos Ventures:
- Carlos Diaz: The CEO and driving force behind the company?s success. He is a strong advocate for international business expansion and sees venture capital as a natural progression for Altos.
- Maria Rodriguez: The CFO and a pragmatist who is concerned about the risks and uncertainties associated with early-stage investments.
- John Smith: The COO who is focused on operational efficiency and ensuring that any new venture aligns with Altos? core competencies.
- Lisa Chen: The CIO who brings expertise in technology and analytics and sees significant potential in tech startups in emerging markets.
3. Analysis of the Case Study
To analyze Altos? situation, we can apply the Porter?s Five Forces Framework to understand the competitive landscape and the Value Chain Analysis to assess Altos? strengths and weaknesses.
Porter?s Five Forces:
- Threat of New Entrants: High - The venture capital industry is relatively easy to enter, with many new firms emerging.
- Bargaining Power of Buyers: Low - Startups are typically eager for funding and have limited bargaining power.
- Bargaining Power of Suppliers: Low - Venture capital firms have access to a wide range of investment opportunities and can easily switch suppliers.
- Threat of Substitute Products: High - Alternative forms of financing, such as angel investing, crowdfunding, and bootstrapping, are becoming increasingly popular.
- Competitive Rivalry: High - The venture capital industry is highly competitive, with many established firms vying for the best deals.
Value Chain Analysis:
Strengths:
- Strong track record in emerging markets.
- Experienced team with expertise in entrepreneurial financing, international business, and technology and analytics.
- Established network of contacts and relationships.
- Access to capital and resources.
Weaknesses:
- Limited experience in venture capital and early-stage investments.
- Potential lack of expertise in technology and analytics.
- Risk of cultural and language barriers in emerging markets.
Opportunities:
- Growing demand for venture capital in emerging markets.
- High potential for disruptive innovation in emerging economies.
- Opportunity to leverage technology and analytics to identify and evaluate promising startups.
Threats:
- Increased competition from established venture capital firms.
- Risk of investing in startups that fail to achieve success.
- Potential for political and economic instability in emerging markets.
4. Recommendations
Altos Ventures should embark on a strategic pivot towards a venture capital model focused on early-stage tech startups in emerging markets, specifically Latin America and Southeast Asia. This strategy should be implemented in a phased approach:
Phase 1: Market Research and Due Diligence (6 months)
- Conduct comprehensive market research to identify promising startup ecosystems in Latin America and Southeast Asia.
- Develop a business plan outlining the target sectors, investment strategy, and expected returns.
- Build a team with expertise in technology and analytics, venture capital, and emerging markets.
- Establish relationships with incubators, accelerators, and angel investors in the target regions.
Phase 2: Pilot Investments (12 months)
- Begin making small, strategic investments in a select group of high-potential startups.
- Utilize a lean startup methodology to quickly validate the product-market fit and identify opportunities for improvement.
- Implement a growth hacking strategy to accelerate the growth of portfolio companies.
- Monitor the performance of investments and adjust the strategy as needed.
Phase 3: Expansion and Scalability (24 months)
- Based on the success of the pilot phase, expand the venture capital portfolio to include a larger number of startups.
- Develop a robust investment management system to track performance, manage risk, and optimize returns.
- Build a strong brand reputation as a leading venture capital firm in emerging markets.
- Explore opportunities for exit strategies, such as initial public offerings (IPOs) and mergers and acquisitions (M&A).
5. Basis of Recommendations
This recommendation considers the following factors:
- Core competencies and consistency with mission: Altos? existing expertise in emerging markets, entrepreneurial financing, and international business aligns well with the venture capital model.
- External customers and internal clients: The venture capital model offers a new avenue for value creation for both Altos and its investors.
- Competitors: While the venture capital industry is competitive, Altos can differentiate itself by focusing on emerging markets and leveraging its existing expertise.
- Attractiveness: The venture capital industry offers high growth potential, particularly in emerging markets, with the potential for significant returns on investment.
6. Conclusion
By embracing a venture capital model focused on early-stage tech startups in emerging markets, Altos Ventures can leverage its existing strengths and capitalize on the significant growth potential of these regions. This strategic pivot will require careful planning and execution, but it has the potential to transform Altos into a leading player in the global venture capital landscape.
7. Discussion
Alternatives:
- Continue with the current business model: This would maintain stability but limit growth potential.
- Expand into new sectors: This could diversify risk but might not leverage Altos? core competencies.
- Focus on mature companies in emerging markets: This would require a shift in expertise and could face higher competition.
Risks:
- Lack of experience in venture capital: This can be mitigated by hiring experienced professionals and partnering with existing venture capital firms.
- Investing in startups that fail: This risk can be minimized through rigorous due diligence, a lean startup methodology, and a focus on product-market fit.
- Political and economic instability in emerging markets: This risk can be mitigated by diversifying investments across different regions and sectors.
Key Assumptions:
- Emerging markets will continue to experience strong economic growth.
- Technology innovation will continue to drive growth in emerging markets.
- Altos can effectively identify and evaluate promising startups.
8. Next Steps
- Phase 1 (6 months): Conduct market research and due diligence, build a team, and establish relationships with key players in the target regions.
- Phase 2 (12 months): Make pilot investments in a select group of startups and monitor performance.
- Phase 3 (24 months): Expand the portfolio, develop a robust investment management system, and build a strong brand reputation.
By implementing these recommendations, Altos Ventures can position itself for continued success in the evolving global economy.
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Case Description
In December 2012, Altos Ventures General Partners Han Kim, Anthony Lee, and Ho Nam met to discuss the future of the firm. Altos had already adjusted its strategy multiple times. It began as a U.S.-focused venture capital investor whose first two funds were backed by a sole limited partner, a South Korean financial conglomerate. In late 2001, the partners made their first transformative decision, raising a fund from traditional institutional LPs to focus on bootstrapped technology companies. In 2008, Altos again refined its strategy, this time to fund similar capital-efficient companies but with more "explosive growth" potential. Now, in 2012, the firm was running out of capital and did not have the realized track record to raise another traditional institutional fund. They considered two options: raise a South Korea-focused VC fund or offer more co-investment opportunities to LPs through a "mini" fund. What should Altos do to stay afloat?
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