Latin America's startup success has received a lot of attention. There is good reason too. Startups raised $9.3 Billion in the first half 2021, nearly twice the amount in 2020. Mega-rounds are also a growing trend.
While the region's ecosystem has seen a rise and a growing number of unicorns, the startup story of Latin America is far more complex. It is one that we must remember as investors and entrepreneurs around the globe forge the region's future.
I am often asked by people: How is Brazil's consumer market different? What is the Peruvian market like compared to the United States? These questions don't really view each country as an intrinsic value. Instead, they prepare people to anticipate the unexpected in an economically disadvantaged area.
Actually, there are more similarities in the evolution of business between countries than you might think. Latin America's market has been evolving for as long as Silicon Valley or any other hub. The region boasts a wide range of universities and a large number of entrepreneurs.
Investors from Latin America should get involved in fundraising earlier, as founders often need additional support.
It's not surprising that megadeals and unicorns are the natural evolution of an ecosystem. More capital generates more success after years of hard labor.
The United States has become more competitive as Latin America grows. It is becoming increasingly difficult to invest in North America as VCs have more capital than ever before. They are looking to diversify their investment portfolios with high-potential opportunities overseas. Large funds have begun to focus their resources exclusively on Latin America. SoftBank has created a fund that is region-specific, while Sequoia says it will be paying more attention to the region.
Incoming investors should bring more than just money to ensure that entrepreneurship grows in a healthy way, and not disrupt it. Latin America's startup ecosystem needs investors who have a local strategy.
Investors should seek younger markets
Most Latin American companies that have achieved unicorn status and are now going public were founded in 2012, when most of them became publicly traded. This timeline is similar to that of other countries, such as the United States. MercadoLibre, an e-commerce company that launched in Argentina at the same time as eBay emerged, is an example.
This shows us that foreign investors should be alert to emerging markets beyond those in Brazil and Mexico. It is possible to replicate the success of local investors in Brazil and Mexico many years ago and play a key role in developing markets such as Colombia, Peru, or Uruguay in the future.
Investors in the United States remain cautious
Since 2017, angel investment has been increasing in Latin America. The amount of VC capital that is being channeled to startups has increased by a lot. But, most of this investment comes directly from regional and local investors. Each top university in Brazil has an angel pool. The Andean region includes Colombia, Chile, and Peru. Native investors are the reason today's ecosystem is flourishing.
The U.S. investment presence in the early stages of a venture is still very low and risk-averse. Pre-seed investors are less likely to be interested in seed startups or pre-seeds than those who have reached Series A and B. Investors are more likely to be interested in a pre-seed or seed startup if they have not reached Series A or B. Foreign investors are not the norm.
Investors from Latin America should get involved in fundraising earlier, as founders often need additional support. Long-term strategies should be pursued by investors to bring greater consistency to the local environment.
Investments should not be limited by money.
The resources that you have available will determine how much of a contribution you make as an investor. This is especially true for foreigners who have less knowledge of the local market and are not connected to the people and networks that exist.
Investors may claim that their regular value offering includes enough U.S. customers and sufficient network. However, this will not necessarily prove to be useful. Your U.S. market knowledge might not reflect the changes in Latin America, so your network of hiring might not be ideal.
There are many VC firms in the region that have collaborated with local startups for over a decade. Latin America is an open and welcoming market. Local investors and accelerators are happy to work with foreign investors in deal-sharing opportunities.
It is crucial to incentivize the ecosystem. This, like the United States, largely means that founders are offered unique opportunities. This is often possible in North America because people are present and engaged with the local events.
Foreign investors must dedicate money and a team to Latin America to create this opportunity. They must be able to mentor founders from diverse perspectives and understand the local market.
My experience with helping EA, Pinterest, and Facebook land in Latin America was that we always had someone there, or remotely, who was fully committed to the region. We had localization specialists and research teams that studied user behavior and similarities. This is how corporations land products, and it's how VCs should land their cash.
Only disrupt when it adds Value
Foreign investors should seek to balance local growth and create disruptions. This will allow startups to look outward, rather than trying to reverse steady, positive internal growth. This could mean encouraging companies to be incorporated in the United States, which will make it easier for investors to invest from all over the world. It can also help prepare the company to go international. Investors new to the region can benefit from the expertise of local investors who will help them understand what should and shouldn't be disturbed.
You shouldn't be surprised if Latin America's boom begins in other emerging markets such as Africa and Asia. This is not about some secret trick coming from the outside. It's about creating the right environment that allows local talent to thrive and ensures it continues to grow.
