Wednesday, June 3, 2020

Latin America’s Era of Innovation

Latin America’s Era of Innovation

A brief overview of the continent’s startup ecosystems


Latin America has a population of over 650 million people, where the median age is 29.5 years old (Worldometers). This vast, young continent is made up of avid tech users, representing the fastest-growing market globally for Airbnb, top three cities by ride volume on Uber, and Brazil and Mexico being among the top four audiences globally for YouTube and Facebook (LAVCA). What’s more, around half the population has yet to digitize. These facts, especially the expectation of new users, demonstrate the region’s incredible potential.


The making of


Argentina, Brazil, Chile, Colombia, and Mexico are leading the region’s startup growth. With strong governmental support, Chile created Startups Chile, a program where accepted startups earn equity-free funding, and international startups receive a one-year working visa.


Mexico has benefited from private initiatives such as 500 Startups and Techstars, which have a large presence in the ecosystem. 


Colombia similarly enjoys public and private support, as seen with INNPulsa, which provides business development programs for startups, and notable Latin American accelerator Wayra Colombia.


Argentina has had a prominent presence in Latin America’s startup ecosystem for decades. In addition to the success stories of the early 2000s with MercadoLibre (online marketplace), Despegar (online travel agency) and Globant (software development), the country passed the Entrepreneurship Law in 2017 to encourage startup activity. The law facilitates business setup and development, creates new financing channels, and provides attractive tax breaks for people investing in local startups and venture funds. 


Brazil remains the region’s dominant player and has raised US$4.2 billion in deals from 2012 to 2018, which is nearly seven times that of Argentina with $600 million and Mexico with $570 million (LAVCA). The country fosters its ecosystem through several innovation clusters in San Pedro Valley in Belo Horizonte, Porto Digital in Recife, Florianópolis in the South, and São Paulo in the Southeast. An increasing presence of accelerators, angel investors, and programs connecting innovation with corporates are also contributing to startup success.


The fruition


Last year saw exceptional growth for Latin America’s startup ecosystem: Colombia introduced its first unicorn with Rappi, Brazil saw a record number of unicorns and tech IPOs, and global investors such as SoftBank and Andreessen Horowitz participated in deals throughout the region. 


According to the Association for Private Capital Investment in Latin America (LAVCA), Brazil leads in venture financing, raising more money in the first half of 2018 ($546 million) than all Latin American startups in 2016. LAVCA also found that seven Latin American companies became unicorns last year. The first was Brazilian rideshare app 99, which was acquired by Didi Chuxing for $600 million. 


Other unicorns that took international headlines were Brazilian fintech startup Nubank, which raised $400 million to reach a $4 billion valuation; Stone Pagamentos, the NASDAQ-listed Brazilian payments company with an initial market cap of $6.6 billion; and last-mile delivery service Rappi, which raised over $385 million from the likes of Sequoia Capital and Andreessen Horowitz. 


In 2018, the largest amount of venture capital was deployed into fintech, with over $337 million raised throughout Latin America (LAVCA). Fintech is understandably the fast-growing industry, considering the region’s immature financial landscape, where many still lack access to financial services. This demographic condition provides fintech startups with the opportunity to innovate and provide solutions to real problems. 


The future


Institutional support, liquidity events, and growing numbers of early-stage investors are expected to continue increasing in the coming years. In 2018, there were 8,000 angel investors in Brazil alone, marking an 18% increase from 2017 (LAVCA). The arrival of late-stage, international funds and the growth of local investors will also offer more capital and likely inflate startup valuations. 


Startups are bringing significant developmental changes in Latin America; traditional companies need to adapt quickly should they want to stay competitive in the face of what’s to come. 


          About the Author

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Pedro is an Investment Associate at Babel Ventures, a leading consumer biotech venture capital firm  based in Silicon Valley. Prior to joining Babel Ventures, he worked at Kyvo Design-Driven Innovation–the Brazilian-based representative of GSVlabs–where he was part of the corporate venture team managing the Visa Acceleration Program, one of the largest fintech acceleration programs in Brazil.

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