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The LATAM market is boosting with new Startups and companies becoming Unicorns. The pace that new unicorns are appearing in this region is impressive. If we take a look at the numbers we can have an idea of how this area is growing. According to CB Insights data Latin America hit an all-time record in venture capital dollars raised and venture capture rounds in 2021. US$14.8 billion in venture capital was injected into the region during 2021. That is a rise of 179% from 2020. In total for 2021, 660 deals were closed – 121 more than the previous year. In the whole of 2020, startups in the region raised $5.3 billion across 526 deals. These numbers are truly impressive, showing the strength of the LATAM and also the potential that it has for new Startups and VCs.
But why is this all happening here?
In 2018, the COO of Softbank Group, Marcelo Claure, realized something quite odd. His fund was making investments of billions in China, India, Southeast Asia, but there were no Latin America-based companies in the group portfolio. At that time, Latin America had some local early-stage VC companies and a few international players starting to get active in the region. But there were almost no firms doing classic growth investments there.
SoftBank investors then decided to visit Brazil and Mexico and they were actually impressed with the quality of entrepreneurs in these countries. The region seemed to have all the ingredients to be a huge tech ecosystem. The Startups there were filled with qualified employees and they needed to develop most of the time their own ways to bypass the region's bureaucracy and obsolete technologies. They also saw that the startups of LATAM had a very aggressive mentality trying to break even quickly, a behavior very different from other markets.
In developed markets for example, there is so much technology and infrastructure in place that most of the companies focus their product on developing a product to solve an incremental solution, for example an add-on on top of an already existing disseminated solution, to make it better or faster for the customers. In LATAM the other way around, most of the players need to focus on solving huge problems for the region without that much support from the region's technology, which boosts their need to innovate and also to build in-house infrastructure and new technologies. A clear example of that is that the payment through cash and physical checks was the major method of transactions a few years ago in Latin America since the network was unreliable and the internet speed was not fast enough. After the appearance of fintech, the democratization of mobile phones, a little bit of modernization, and the push of innovation from startups the scenario nowadays is completely different.
Even though working in a less developed region in terms of technology and infrastructure can be challenging, the impact of the products have much more potential once they are considered a fit for the population. The famous venture capitalist Harry Stebbings said a phrase that illustrates this whole challenge: The awesome thing about investing in LATAM: You are investing in products that make life 90% better for 99% of the population. Largely in Western markets, you are investing in products that make life 10% better for 5% of the population.”
Regions like Latin America have a pool of problems to solve, each country with its own limitations, which sets the landscape for innovation. But once the solution is found with an intelligent product that fits the market, venture capitals allied with startups can really boost the number of jobs of a country, its wealth, and its infrastructure. The payback for investing in LATAM is huge for everyone. VCs are able to enter an enormous market with millions of clients, Startups can expand very quickly, and also the countries profit with innovation and progress.
There is no certain way to predict how many unicorns we’ll have in LATAM this year, but it is definitely one of the hottest markets at the moment! Let’s wait and see, this is only the start.
