Riding The VC Tsunami: How LatAm Startups Are Carving New Successes

Gonzalo Costa from NXTP Labs reveals market realities that have matured Latin American startups, as support from VC funds and national institutions create a new opportunity for the region's entrepreneurs.

tech tsunami latin america

Latin America is currently going through the maturity phase of a technological revolution started by the Internet, which has created a unique opportunity to develop the next generation of globally relevant technology startups.

These startups are on the cusp of a wave like no other in the world, attracting levels of funding that provide them with a chance to carve their own line to the shores of success.

According to Carlota Perez’ work, this level of maturity is the moment when core markets, like Mexico, Argentina, and Brazil, can start to become saturated, resulting in technologies and financial capital moving towards the periphery of less advanced countries.

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Recent changes in the regional investment landscape suggest this is already happening.

Notable Economic Impacts

In 2017, VC tech investment in the region hit an all time high of US$1.1 billion, which is a major breakthrough when we compare it to the five previous years’ steady US$500 million, and the trend continues today, with over US$600 million already invested during the first quarter of 2018.

startups image 2The region as a whole has a GDP of US$9.5 trillion, which is bigger than India and almost the same as China, and market conditions surrounding internet and mobile internet user growth is already outpacing the US, positioning LatAm to step up as a top-level contender on the World Stage.

We could argue that these are obvious assumptions and that not much has changed, but there is definitely something in the proverbial waters and the ecosystem is shifting in a new direction.

Mega Round Maturity

The funding records noted above can be partially explained by the appearance of mega rounds in the region.

For the first time, companies are raising rounds of more than US$100 million, with companies like 99 (acquired by Didi Chuxing), Nubank, and Rappi all raising mega rounds in the past two years. Others have raised large rounds, such as Selina and Movile, with plus US$90 million or more, as well as Auth0 with rounds of more than US$50 million in 2018.

The increase in dollar amounts is not only driven by mega rounds. In fact, there were more than 30 transactions of US$3 million or more in 2017, which is triple the amount of rounds in 2016.

This shows market maturity that has never been seen before in Latin America.

International VCs and The Ecosystem

While global VC firms have been timidly investing in the region for the past years, their interest has been growing steadily. In 2017 alone, more than 25 new global VC firms entered the region.

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There are now several players, both old and new, all looking for opportunities in LatAm, including Andreessen Horowitz, Sequoia Capital, Accel Partners, and Softbank, not to mention strategic investors such as Didi Chuxing.

However, in order to make the most out of the maturity phase of technological revolutions, VC dollars are not enough. Other complimentary conditions must be met to amplify the impact of a new flow of capital.

As Perez’ says, physical, social and technological infrastructure and the existence of competent and demanding local clients must also be met. It’s great that conditions such as Internet usage and wealth are a reality, as well as growing levels of smartphone users and e-commerce buyers, but one other condition has changed: institutional support.

Institutional Support

In past eight years, regional ecosystems were traditionally boosted by the appearance of new VC firms and accelerators. Together they created a fertile ecosystem that gave birth to a new class of Latin American startups.

As time passed, support from local governments and institutional investors also became a reality. Through different programs, funding lines and regulatory changes, they now support the development of local ecosystems.

A few examples of this are Startup Chile, Mexico’s Fund of Funds, Brazil’s BNDES, and the recent Entrepreneurs Law bill passed in Argentina.

Also, institutional investors such as IADB or CAF are active in the region, both as LPs, as direct investors, and through different lines of credits and grants. 

All of this is evidence of a unique era for Latin American startups, and a new level of maturity that was previously out of reach. Increased funding, liquidity events, a solid entrepreneurial base, and increased institutional support are a reality, and the region is poised for a new wave of tech companies to become market leaders. The Latin American startup tsunami is only just forming.

 

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