Overview of the Tech Startup Space in Latin America

Craig Dempsey  |

Latin America may not be the first destination you consider when looking for a new space for a technology startup, but the territory is becoming an increasingly popular choice. Indeed, LATAM is in a unique position; not only is its internet and mobile growth increasing at speeds ahead of the United States, but the territory can offer lower running and labor costs, and bring to the table a whole host of entrepreneurial talent that’s ready and waiting to develop new technology. In short, there’s never been a better time to get involved in Latin America’s technology scene, either as an investor or an entrepreneur, and below we explain why.

Venture capital funding

Perhaps one of the biggest reasons why the Latin American technology scene is entering its golden years is because of the vast swaths of foreign direct investment. Indeed, countries are welcoming and open towards investment in LATAM startups, with many incentivizing the practice to bring in an influx of capital and new infrastructure in their countries. That makes sense - countries in Latin and South America have lagged behind markets such as China in the past twenty years or so; Asian and European markets receive trillions in investment for technology projects, and Latin America has had to work hard to show the world that it wants to be a part of the ever-changing global landscape. With its newfound confidence, it can…

In 2017, investment in technology across Latin America hit an eye-watering US$1.1 billion (according to NXTP Labs), a significant increase on the previous years’ investment figures, which had never topped US$500 million. Investment in LATAM tech was expected to hit US$2.5 billion by the end of 2018, and in 2019 those figures will only continue to climb. Investors looking to enter into the market before everyone else will be advised to act fast, as would-be unicorn brands are cottoning on to their unique position and demanding more from investors when raising capital. If you’re too slow, you’ll miss out on the booming tech market.

Huge success stories

Venture capital is only part of the success story of Latin America’s technology scene, but it does help to paint a picture of the market. 99, for example, was one of the first ride-hailing apps in Latin America - an Uber competitor, if you will. A few years ago, Chinese ride-sharing giant Didi Chuxing acquired the brand to expand its presence in the Americas, and it is expanding from 99s Brazilian territory to compete with Uber in Chile, Peru and Colombia. Nubank and Rappi are two other huge brands that have secured hundreds of millions in investment.

These tech giants aren’t few and far between - they’re becoming more common as Latin American entrepreneurs understand the differences in culture, language, and technological abilities and make applications that connect with real Latin Americans. Why download an American gaming app like Candy Crush when you can play Pixowl games that are made in Argentina and localized to your language and culture? Pixowl is just one of many Argentinian startups to watch in 2019 and beyond, a game developer churning out new titles, attracting more than 35 million players around the world in the process. The studio has also secured deals with major Western brands, licensing their IPs to create games for Western audiences. The next King or Epic Games could be homegrown in Latin America, so watch this space.

Market Penetration

One of the primary reasons why venture capitalists are turning their attention to LATAM is because of market penetration in other territories. Smartphone and internet use in the region is fast catching up to that of the United States, but there’s still a way to go, and many avenues that are yet to be touched. Colombian startup Celucambio, for example, offers a marketplace for users to trade in their old phones and receive a credit towards a new one, making devices much cheaper and enabling more people to gain access to the booming mobile market.

The more people that can access a smartphone and an app store, the more potential clients and customers are available to local and international firms. Amazon  (AMZN), for example, has been working on an aggressive marketing push across Latin America after it faces a tough battle with MercadoLibre  (MELI), the leading e-commerce giant across the region. Indeed, Amazon has announced plans to expand operations in Brazil and hopes to become the one-stop-shop for everything in the market. Amazon still has a long way to go, however, as, according to Portada, 47% of Latin Americans who have spent money online did so on MercadoLibre, compared to just 17% on Amazon. Could this be a case of Amazon biting off more than it can chew, or are Latin Americans loyalists when it comes to homegrown brands, preferring not to support the giants trying to take over the world? Only time will tell whether Amazon’s gamble will pay off.

Untapped Potential

One of the most exciting areas of growth in Latin America is in fintech, as the territory is significantly behind more developed nations when it comes to banking and personal finance. It is incredible to learn that 210 million Latin Americans - almost half of all citizens - do not have a bank account, either out of choice or because they’re not able to access mainstream lending services based on their financial history, or because of their local market. Remember that some Latin American countries are still developing, and others have faced years of austerity and economic challenges, which has dissuaded banks from lending to citizens.

However, now that launching a fintech company is easier than ever, disruptors are entering the market and not only offering citizens access to personal bank accounts (which in turns allows them to spend money online, unlocking significant new revenue streams), but access to other financial products, like personal loans, business loans and mortgages. With Near Shore America forecasting that by 2022, 180 million will be registered with an online bank account, the sector could single-handedly transform the way Latin Americans spend money.

Afluenta, Alegra, Geru, Gestor, and Seguro Simple are just some of the fintech brands that are making a splash in the market, and whilst competition is fiercer than ever before, there is still a demand for quality financial service products, so consider entering into the market sooner rather than later to take advantage of the territory’s unique positioning. It won’t be a gold mine forever, and as fintech adoption increases, you’ll have to work harder to impress.

Latin America’s tech startup space has never been more exciting, whether you’re a local that is looking to launch a new product or an international investor ready to penetrate the market. Whatever you decide to do, we wish you the very best of luck with your LATAM tech venture!

DISCLOSURE: DISCLOSURE: I have no financial interest in any of the companies mentioned.


The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

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