We live in unprecedented times for entrepreneurship. All over the world, industries, new and old, are being disrupted by technological developments. In the last decade, Latin America has gained incredible momentum in this field, led by the generation of tech natives behind unicorns like OLX and Kavak.
In 2017, Global Network Perspectives discovered that Latin America was the second most entrepreneurial region in the world, and that was before the explosion of tech startups, a category that tripled in the last four years and multiplied its value 32 times in the last decade to reach $ 221 billion in 2020, according to a study by IDB Lab.
Companies like Mercado Libre took decades to break the glass ceiling; Now, more companies are reaching the $ 1 billion valuation milestone, according to the IDB Lab study. And they are doing so much faster, thanks to a more mature market and a community of investors eager to contribute to the revolution of startups in the region.
The Latin American Opportunity: Diversification, Future Growth and Logistics
Latin America is evolving. The middle class is rapidly advancing, becoming more tech-savvy, and motivated to make a positive impact in the region. These changes, coupled with a prime location and pervasive culture, are exciting factors that entrepreneurs, business leaders and investors from all walks of life may want to pay attention to.
I believe that the rise of the technological ecosystem has been accelerated by a general change in the mentality of millions of Latin Americans.
My story is not very different from that of many of them; I grew up believing that a job in banking in America was the only gateway to a better future. I was born in Kenya to Indian parents and raised in Ecuador; I moved to the United States to study economics and finance.
Just six years ago, 14 of my closest friends and I were bankers, and none were in startups. Now 13 of us are in startups, many of them with business ties to Latin America, and the last two are actively trying to make the change.
Untapped industries and geographies
As of 2020, IDB Lab found that two sectors accounted for 72% of the ecosystem value in Latin America: fintech and e-commerce. Historically, most of the ecosystem value in Latin America has been concentrated in two countries: Brazil and Argentina.
Although there is great promise in these sectors and countries, the growth of the bubble has seen players like Mexico, Colombia and Chile gain traction, with at least one tech startup reaching a billion dollar valuation. The study also showed this trend closely in Mexico, where startup activity has exploded, generating tens of thousands of jobs in the market.
Logistics presents a particularly interesting opportunity as the trade war between the United States and China intensifies and more companies bring their supply chains closer to home.
According to IDB Lab, logistics has reached more than $ 2.5 billion in ecosystem value in the region, a figure that is expected to grow rapidly, as technology investments in the global supply chain have grown by 2,500% in the last decade, reaching more than 50,000 million dollars in 2020.
Future growth potential
Despite unprecedented growth, Latin America still has a way to go compared to other regions. The IDB Lab study shows that Latin America invests $ 7 per capita in startups per year, a far cry from what the leading countries invest: Israel invests 117 times more, Estonia 42 times more and China seven times more.
From my point of view, although the region continues to lag behind, it is not unreasonable that the founders of the space hope to reach similar numbers in the near future, as conditions align for success.
The Latin American middle class is expanding. Many people are moving to cities and embracing the digital revolution.
Latin America has the fourth largest online market and two countries among the top 20 world economies by GDP: Brazil and Mexico. According to my observations, the increase in purchasing power, coupled with the widespread use of the Internet, is making Latin Americans more open to changing their purchasing patterns to the digital space. Therefore, the experts in the IDB Lab study consider it reasonable to expect more than $ 40 billion in venture capital investments by 2030.
Returning to the logistics sector, there are currently between 7 and 11 million freight trucks that cross the border between Mexico and the United States each year, and the freight transport providers in North America alone they earn more than $ 40 billion in annual revenue.
But these numbers are just the beginning, as the global supply chain ecosystem continues to change and Mexico consolidates its position as the United States’ largest merchandise trading partner.
What does this mean for leaders
Business leaders hoping to build a startup in Latin America should look to industries with an openness to start innovating – think of traditional markets that have not yet been truly disrupted by technology and industries where capital markets have shown that it can be done. Invest and see growth in the near future.
The fact that Latin America continues to lag behind the developed world in many respects creates an even greater opportunity in virtually every sector, from real estate technology and healthcare to logistics and supply chain and, of course, financial services.
Forming a solid team and a growth strategy is key for any startup, but even more so for those trying to start in Latin America. Before you make the leap, assess your ability to team up and operate locally and your ability to raise capital abroad or with an international mindset.
This point is especially relevant considering that the IDB Lab discovered that 95% of the ecosystem value comes from 51% of companies that have some type of internationalization strategy. So if you are missing one or the other, work hard to add these skills and experiences to your founding team.
As part of this new generation of entrepreneurs in Latin America, I can’t wait to see what the future holds and the impact it will have on the lives of millions of people in the region and beyond, as local talent, previously attracted For brighter opportunities abroad, set your eyes on the endless opportunities that arise at home.
