A lot of Latam funds are having trouble closing their next vehicle right now. This is a reality I’ve highlighted in several of my recent posts.
First closes are slipping. Some funds are 12, 18, 24+ months past their target. LPs are taking longer to commit. Emerging managers who thought they’d have a first close in 2025 are now hoping for one by end of 2026. Established managers who expected a straightforward re-up commitment from existing LPs are getting more questions than they used to.
That’s not the problem I want to write about. Fundraising is hard for everyone in this market. The macro is what it is. Rate cycles, LP fatigue with venture, the reset of 2021 valuations still playing out on balance sheets. GPs cannot control most of these variables.
The problem is what some of these GPs do with the founders in their pipeline while they wait for their own vehicle to close.
I’ve been watching two patterns play out over the last twelve months.
Firm A keeps founders warm with implied commitments. A close is “weeks away.” The meetings continue. Diligence requests are sent. Updates get asked for. The tone of every conversation suggests the fund is genuinely close to leading. Months pass. The founder builds a fundraising narrative around a check that was never close, because the fund does not have capital to deploy, at least for now.
Firm B handles the same situation differently. When a founder in their pipeline reaches out, the GP is upfront: “We’re not in a position to lead until Q4. But here’s an honest read on your round, two LPs I think you should be talking to, and a founder in the portfolio you should meet.” No commitment to invest. Real value delivered in the moment. Honesty about the timeline that lets the founder make actual decisions.
Firm A is more common than Firm B in Latam right now.
That is worth naming because it does real damage to founders, and because the incentive structure that produces Firm A behavior is understandable but not defensible.
Before I go further, I should say: I’ve caught myself drifting toward Firm A behavior in earlier moments of my career. It’s easier than you’d think. Most GPs aren’t purely one or the other. The question is where you drift when capital is scarce.
I don’t want to write a moralistic piece pretending Firm A behavior is just about bad character. It usually isn’t. It’s about incentives.
A GP who is 12 months into a stalled fundraise has a rational fear: “If I tell founders I’m not in the market, my deal flow will dry up. When I eventually close, restarting the pipeline will be painful.”
There is also a psychological factor. Admitting that your fundraise is stalled feels like admitting failure. GPs are salespeople by nature. The idea of walking into a founder meeting and saying “I’m not sure when I’ll have capital” cuts against every instinct built up over years of positioning.
So Firm A stays vague. Keeps taking meetings. Keeps signaling interest without commitment. Buys time by keeping the pipeline warm.
The problem is that the founder does not know they’re in a Firm A scenario. From their perspective, they’re in an active conversation with a fund that seems close to leading. They allocate calendar time to it. They shape their pitch to match what the GP seems to want. They tell other firms “we have serious interest from X” as a positive signal. They build cash runway assumptions around a check that will not arrive.
Then the check doesn’t come. The firm goes quiet, or the timeline keeps slipping, or the terms get worse than what was implied. The founder loses months. In a market where 12 to 18 months of runway is what most seed and Series A companies have, losing 3 to 4 months to a Firm A scenario is not a small cost.
Firm B is not noble or naive. Firm B is making a different bet about how reputation compounds.
First, founders talk to each other. A founder who was strung along by a firm tells other founders. In an ecosystem as small as Latam, this word gets around faster than most GPs realize. The reputational hit from Firm A behavior is real, just delayed and hard to measure.
Second, LPs are watching. Not always explicitly, but they hear things. When a GP is raising a next vehicle and references from founders come back mixed, it matters. LPs know that how a GP behaves in tough moments predicts how they’ll behave in easy ones. A GP who mishandles founder relationships when capital is scarce is likely to mishandle them in other ways too.
Third, being upfront actually preserves the relationship better than pretending. A founder who is told “we’re not in the market until Q4, but here’s how I can help you” comes away with a different feeling about that GP than one who feels strung along. The first founder respects the honesty and stays open to a future conversation. The second founder feels used and remembers it.
Firm B is not being generous. Firm B is playing a longer game where reputation compounds and honesty about limitations is a competitive advantage.
Being Firm B is not just about saying “we’re not in the market.” That’s the start, but it’s not enough. The value comes from what you do next.
The best version of Firm B behavior includes:
Direct honesty about the timeline. “I expect to be able to lead by Q4, but I could be wrong. If you need capital before then, I would look at other alternatives.”
An honest read on the founder’s round, without positioning. “Your metrics support a $6M round, not the $10M you’re targeting. Here are the two gaps I’d address before you go to market.”
Concrete help that costs the GP something. Introductions to two LPs who might invest directly. Introductions to another GP in the region who might lead. An introduction to a founder in the portfolio who can share what they learned raising in this market.
Follow-through when the founder acts on the help. If the GP made an introduction, they follow up on it. If the founder took the advice, the GP asks how it went.
Firm A behavior signals interest without cost. Firm B behavior delivers value without commitment.
If you’re a founder currently fundraising in Latam, you should assume that a meaningful percentage of the funds you’re talking to are in Firm A mode. This does not mean they’re bad actors. It does mean their signals are less reliable than they appear.
The specific question worth asking in the first conversation with every firm:
“Do you have an active fund? And if not, what’s your LP commitment status right now?”
Specific answers are compatible with real timelines. Vague answers are compatible with anything, including nothing.
This is not a trick question. Legitimate GPs won’t take offense. They may be evasive if they’re in Firm A mode, but that evasion is exactly the information you need.
The way a GP behaves with founders during a stalled fundraise is a signal worth incorporating into your diligence. LPs typically ask GPs for founder references, but the references given are curated.
The interesting references are the ones GPs would not give voluntarily. Founders who passed on capital, founders who were strung along, founders who worked with the GP briefly and did not continue.
I understand these are hard references to source. But the information they provide about GP character and reputation is often more accurate than the curated version.
Latam VC is still a young market. Norms are still being set. The behavior of GPs during this cycle will shape how the next generation of founders and LPs think about the ecosystem.
If Firm A behavior becomes the default, founders will trust GPs less. LPs will price in more risk. The best founders will look elsewhere for capital. The ecosystem will slowly move toward the worst version of itself.
If Firm B behavior becomes more common, the opposite happens. Founders build relationships that last across funding cycles. LPs see the region as a functional market with real professional norms. The best founders stay in the ecosystem because they trust the people funding it.
This is not a moral argument. It’s a coordination argument. Every GP acts in their own interest, but the aggregate of those actions determines what kind of ecosystem we have.
Be Firm B.
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