Latin America is booming: Startups raised $9.3billion in the first six months 2021 and the region has seen a record number unicorns such as Nubank, Rappi, and iFood. SoftBank announced its Latin America Fund II, which will invest $3 billion in tech companies in the region.
Latin America is in the spotlight for startups. Players there must consider how their startup growth can lead to self-sustaining economic development and social development.
Venture investment is a broad category that goes beyond business. In the United States, venture capital accounts for 0.2% GDP while revenue from VC-backed businesses accounts for 21%. A greater contribution to GDP means that there is more potential to drive a new era in development where more people can access employment, wealth, and education. This scenario is only possible if Latin America prepares now.
Schools and businesses can partner to incubate the next generation of talent.
Latin American companies may be able to access financial capital but they need to find senior positions and technical jobs as they grow and develop products more efficiently. Latin America is home to the largest skills gap in the world. More than 7 out 10 companies say they struggle to find workers with the right skills.
There are many companies that raise significant funds quickly, so it is difficult to find high-quality workers.
Latin America's most prominent AI companies received $862.6 million in funding this year. However, AI documents and programs are written in English. Latin America has a proficiency rate of 56%.
This means that AI cannot be developed and used to its full potential in the area at the moment. Governments should encourage bilingual policies in schools and businesses. They should also offer more funding and support for IT professionals who are learning English.
In Latin America, there must be a greater collaboration between businesses and educational institutions when it comes down to upskilling people. This could be in the form of mentorships, work experience, or courses. SoftBank's Operator School is a school where portfolio companies and members of SoftBank's network share their tech skills.
Parallel18, a startup accelerator, has partnered up with NASA to provide startups access to its technology and the opportunity to commercialize their products. Parallel18 also released a talent application for students, professionals, and freelancers to help them find local startups. These platforms will be a great way for talented talent to come together and drive the region's economic growth if they can be scaled throughout Latin America.
Innovation hubs can be built using tech infrastructure beyond capital cities
Despite the remote revolution, Latin America is still less than half of the country with broadband access. The majority of those who have access live in capital cities.
The Inter-American Development Bank estimates that digitized public services could drive 5.7 percent growth in Latin America's GDP over the next 10 year. This would translate into $325 billion in income. Imagine how much GDP growth would be possible if more companies invested in digital inclusion. Consumers could have access to digital goods and services online, while more people could set up 100% digital businesses.
While Argentina, Colombia, and Uruguay have begun testing 5G networks in order to improve connectivity services, rural governments need more support and resources to acquire the infrastructure and expertise necessary to increase internet access. This requires more opportunities for public-private partnerships that can encourage innovation in the most remote areas.
Local communities would benefit from more opportunities to launch small online businesses. This will create new streams of income to support their families. It could also be used to facilitate digital cash transfers and distance learning. Online advocacy groups could be started or joined by more people, giving those who are not represented a voice to speak up. Connectivity can lead to a greater quality of life and allow individuals to create and innovate.
Businesses and governments can also use digital inclusion to create coding schools in other countries. Nation can teach critical tech skills far from their cities and help them grow local smart tech solutions. For example, traditional rural industries such as agriculture have much to gain by increasing their AI literacy. This could improve harvest quality and accuracy.
Internationalization should be facilitated by governments
Latin America has 33 countries. Each country has its own entry requirements and laws. This makes it difficult for businesses to expand beyond their home markets. Companies face difficulties in internationalization because of this hurdle.
Latin American governments could work together to create an open passport for entrepreneurs that will allow individuals more freedom to start and run businesses in Latin America.
The upcoming African Union passport could be used by governments to inspire them. It would allow for seamless travel between 55 countries. This passport could be a boon for Latin America by making it easier to create international teams and a stronger overall ecosystem. It could allow startups to become globalized from the beginning and then move to other continents.
It is important to lower the barriers to publicizing companies.
Latin American companies have traditionally only represented a small percentage of companies that are listed on stock exchanges. Latin American entrepreneurs are not the first to IPO, and have little experience in the process.
But, Uruguayan fintech dLocal had its IPO on Nasdaq in June. This new spark could be a catalyst for other businesses, and encourage governments to support their public-sector journeys by lowering the bar.
There is also room for government-run entities that prepare businesses for an IPO. Start-Up Chile, Chile's public accelerator, has helped 42 exits, including Glamit and Cabify, in just eight years. These organizations could also have special departments for public offerings that support companies in steps such as choosing an investment bank, filing regulatory paperwork, pricing, stabilization, and transition to market concurrence.
More entrepreneurs will be able to make the public leap if they have access to more government-backed, IPO-focused resources.
The capital flow from Latin America can be a great asset in the long-term, but it is not possible for governments and businesses to distribute it to those who will create and sustain progress. This will transform the region's recent investment boom into a real driver of social and economic transformation.
The author is former executive director of parallel18.
