The Rise of the Latin American Tech Startup
We are living in unprecedented times for entrepreneurship. All over the world, industries, new and old, are being disrupted by technological developments. In the past decade, Latin America has gained incredible momentum in this field, led by the tech-native generation behind unicorns like OLX and Kavak. In 2017, Global Network Perspectives found that Latin America was the second most enterprising region in the world, and that was before the explosion of tech-enabled startups, a category that tripled in the past four years and multiplied its value 32 times in the past decade to reach $221 billion in 2020 according to a study from IDB Lab.
It took companies like Mercado Libre decades to break the glass ceiling; now, more companies are achieving the landmark $1 billion valuation, according to the IDB Lab study. And they are doing it much faster, thanks to a more mature market and a community of investors eager to contribute to the startup revolution in the region.
The Latin America Opportunity: Diversification, Future Growth And Logistics
Latin America is evolving. The middle class is advancing rapidly, becoming more tech savvy and motivated to generate a positive impact in the region. These changes, coupled with a privileged location and widespread culture, are all exciting factors that entrepreneurs, business leaders and investors in all fields may want to pay attention to.
I believe the boom of the tech ecosystem was accelerated by a widespread change in the mindset of millions of Latin Americans. My story is not very different from many of them; I grew up believing that a banking job in the U.S. was the only gateway to a better future. I was born in Kenya to Indian parents and raised in Ecuador; I moved to the U.S. to pursue a degree in economics and finance. Only six years ago, 14 of my closest friends and I were bankers, and none were in startups. Now, 13 of us are in startups, many with business ties to Latin America, and the last two are trying actively to make the switch.
Untapped Industries And Geographies
As of 2020, IDB Lab found that two sectors represented 72% of the ecosystem value in Latin America: fintech and e-commerce. Historically, most of the ecosystem value in Latin America has been concentrated in two countries: Brazil and Argentina. Though there is great promise in these sectors and countries, the bubble growth has seen players like Mexico, Colombia and Chile gain ground, with at least one tech startup reaching the billion-dollar valuation. The study also showed this trend up close in Mexico, where startup activity has skyrocketed, generating tens of thousands of jobs in the market.
Logistics presents a particularly interesting opportunity as the U.S.-China trade war intensifies and more companies bring their supply chains closer to home. According to IDB Lab, logistics has achieved over $2.5 billion in ecosystem value in the region, a number that is expected to increase rapidly as global supply chain tech investments have grown 2,500% in the last decade, reaching over $50 billion in 2020.
Future Growth Potential
Despite unprecedented growth, Latin America still has a ways to go compared to other regions. The IDB Lab study shows Latin America invests $7 per capita in startups per year — far from what leading countries are investing: Israel invests 117 times more, Estonia 42 times more and China seven times more. From my perspective, though the region is still lagging, it is not unreasonable for founders in the space to expect to reach similar numbers in the near future as conditions align for success.
Latin America's middle class is expanding. Many people are moving to cities and embracing the digital revolution. Latin America has the fourth largest online market and two countries in the top 20 world economies by GDP: Brazil and Mexico. Based on my observations, the surge in purchasing power, coupled with the widespread use of the internet, is making Latin Americans more open to shifting their purchasing patterns to the digital space. Therefore, experts in the IDB Lab study consider it reasonable to expect over $40 billion of venture capital investments by 2030.
Back to the logistics industry, there are currently anywhere from 7 to 11 million truckloads of goods crossing the U.S.-Mexico border each year, with freight providers in North America alone getting upward of $40 billion in yearly revenue. But these numbers are just the beginning as the global supply chain ecosystem continues to shift and Mexico cements its position as the United States’ largest goods trading partner.
What This Means For Leaders
Business leaders hoping to build a startup in Latin America should look for industries with an opening to start innovating — think traditional markets yet to be truly disrupted by technology and industries where the capital markets have shown that you can invest and see growth in the near future. The fact that Latin America is still behind the developed world in many ways makes for an even greater opportunity in virtually every sector, ranging from property technology and health care to logistics and supply chain and, of course, financial services.
Forming a solid team and growth strategy is key for every startup but even more so for those trying to get a head start in Latin America. Before taking the leap, evaluate your ability to build teams and operate locally and your ability to raise capital abroad or with an international mindset. This point is especially relevant considering IDB Lab found that 95% of ecosystem value is coming from the 51% of companies that have some type of internationalization strategy. Therefore, if you lack one or the other, work hard to add these skills and experiences to your founding team.
As part of this new generation of entrepreneurs in Latin America, I cannot wait to see what the future holds and the impact it will have on the life of millions of people in the region and beyond, as local talent previously lured by brighter opportunities abroad sets their sights on the endless opportunities arising back home.
Originally published in Forbes.