There has been significant hype surrounding the success of startups in Latin America. For good reason, too: startups raised $ 9.3 billion in the first half of 2021 alone, almost double the amount of all of 2020, and mega-towers are a growing trend.
But while the industry hails the region’s booming ecosystem and its growing fleet of unicorns, the history of startups in Latin America has a much longer past. And that’s a question we need to keep in mind as entrepreneurs and investors around the world shape the region’s future.
People often ask me: how are consumers different in Brazil? How is the Peruvian market behaving compared to the United States? These questions don’t really see each country for its intrinsic value, but rather prepare people to expect the unexpected from a historically economically disadvantaged region.
In fact, the evolution of businesses has far more similarities between countries than one might expect. The Latin American market has evolved over a very long period, as long as Silicon Valley and any other hub. This region has a global outlook, spectacular universities, a diverse population and an army of entrepreneurs.
It’s important for investors outside of Latin America to get involved in fundraising at an early stage, when the founders need extra support from everyone.
That’s why unicorns and mega-chords should come as no surprise: they’re the natural evolution of the ecosystem, with more capital generating more success after years of hard work.
As Latin America has developed, competition has become even more intense in the United States. Venture capitalists have more money than ever before and it is getting more expensive to invest in North America. They are therefore seeking to diversify their investments with high potential opportunities abroad. The big funds are now devoting resources exclusively to targeting Latin America, with SoftBank creating a region-specific fund in Sequoia saying it will pay more attention to the region.
These new investors need to bring in more than money to ensure entrepreneurship continues to grow in a healthy way, rather than throwing it out of balance. Investors must bring a local strategy that makes it an asset for the ecosystem of Latin American startups.
Investors should look for younger markets
Most Latin American companies reaching unicorn status and going public were started around 2012. This is not much different from the timeline of companies in other markets such as the United States. For example, e-commerce giant MercadoLibre was launched in Argentina around the time eBay was emerging.
What this tells us is that foreign investors would do well to keep a close eye on emerging opportunities beyond heavily hedged markets like Brazil and Mexico. There is a huge opportunity to do what local investors did in Brazil and Mexico years ago, and play an important role in the next chapter of countries with thriving markets like Colombia, Peru or Uruguay. .
American investors remain timid
The amount of venture capital funneled to Latin American startups has increased since 2017, closely followed by angel investors. However, much of this investment comes from local and regional investors. Every major university in Brazil has a pool of angels. Investors from the Andean region cover Peru, Chile and Colombia. Much of the reason today’s ecosystem is thriving is because Indigenous investors are igniting the spark.
Meanwhile, the presence of early stage US investors is still weak and risk averse. It is much more difficult for a pre-seed or seed start-up to attract the interest of foreign investors than when they have already reached Series A or B. Investors also tend to enter on a base. ad hoc or as outliers caused by mutual contact. Foreign investors are the exception, not the rule.
It’s important for investors outside of Latin America to get involved in fundraising at an early stage, when the founders need extra support from everyone. Investors must pursue a long-term strategy that will bring more coherence to the local ecosystem as a whole.
Money is not enough, investors must bring dedicated resources
Much of your contribution as an investor is about the resources you can offer. This is particularly difficult for a foreigner who understands the local industry less well and who lacks the network and people on the ground.
While investors may say their usual supply of value is sufficient – network and US customers – in truth, that won’t necessarily be of much help. Your recruiting network may not be ideal for a Latin American business, and your in-depth understanding of the American market may not reflect developments in Latin America.
Keep in mind that the region has a plethora of venture capital organizations that have worked with local startups over the course of a decade. Latin America is a very welcoming and open market, and local investors and accelerators will be happy to work with foreign investors, including through business sharing opportunities.
Creating incentives within the ecosystem is crucial, which, like in the United States, largely means matching founders with unique opportunities. In North America, this often happens organically, as people are on the ground and actively involved in what is happening in the region, from networking events to awards, grants and partnership opportunities.
To create this in Latin America, foreign investors must dedicate a team and money to their regional engagements. They will need to understand the local industry and be available to mentor founders with diverse perspectives.
In my experience helping EA, Pinterest, and Facebook to land in Latin America, we’ve always had someone on the ground or working remotely but fully dedicated to the region. We had people focused on product localization, and we had research teams that were studying the similarities and differences in user behavior. This is how companies land their products; this is how VCs should land their money.
Only disrupt when it adds value
The idea is that foreign investors strike a balance locally while creating disruption when helping startups look outward rather than attempting to reshuffle stable, positive internal growth. This can mean encouraging companies to incorporate in the United States to make it easier for investors from anywhere to invest or to prepare the business to go global. Local investors can help investors new to the area understand the balance of things that should and should not be upset.
Don’t be surprised when the apparent “boom” in Latin America begins to occur in other emerging markets like Africa and Asia. This is not a secret hack from the outside. It is simply a matter of creating an environment for local talent to flourish and ensuring that they maintain healthy growth.