Paulista Avenue, Sao Paulo, Brazil
Paulista Avenue, Sao Paulo, Brazil. The largest economy in the region is also the one with more startups turned into unicorns. Photo: Thiago Leite/Shutterstock

IDB Lab: Latin America and the Caribbean startup ecosystem has the potential to reach over $2 trillion by 2030

IDB Lab's CEO Irene Hofman told LABS that this potential also means impacting citizens across the region, improving their lives and livelihood, besides allowing radical access to goods and services

Latin America’s entrepreneurs demonstrate world-class vision, business skills, and courage, generate jobs at a large scale, and deliver massive value for their investors. Furthermore, the region’s startup ecosystem (including the Caribbean) is set to reach $2 trillion in value by 2030. This is what a new report by IDB Lab, Inter-American Development Bank’s innovation laboratory, says. 

The publication, made in partnership with Surfing Tsunamis, shows that there are 1,005 technology companies born in the region that raised over $1 million. These companies are collectively worth $221 billion and have raised a total of $28 billion. IDB notes that 28 of them are unicorns, which means, they are worth more than $1 billion and have over 245,000 employees. 

The new edition of the Tecnolatinas report emerged out of IDB Lab’s work under Irene Arias Hofman and Yuri Soares’s leadership. In talks with LABS, Hofman said that even though she has been working with the Latin America and Caribbean innovation ecosystem for three decades and knows the ecosystem’s trends, it was fascinating to learn about what the sector can deliver in coming years.

READ ALSO: Number of players in all funding stages grows in Brazil, but only some of them lead the largest rounds

“[And] Not only that but the potential impact of the startup ecosystem on citizens across the region, improving their lives and livelihood, allowing radical access to goods and services. This is a great promise to the region and makes the case that innovation and digital transformation are key to the region’s recovery,” says Hofman, IDB Lab’s CEO.

Ecosystem value and annual VC investment estimates by 2030. Source: Tecnolatinas 2021 report, by IDB Lab and Surfing Tsunamis.

Indeed, these tech companies have been playing an important role in helping Latinx amid the COVID-19 pandemic. Rappi and MercadoLibre, for instance, enabled hundreds of millions of people to access food, groceries, clothes, and other needs safely from their homes and allowed hundreds of thousands of shop owners to continue operating despite the crisis. According to Tecnolatinas report, over 600,000 people live from selling in MercadoLibre. Rappi connects over 150,000 independent couriers and serves more than 350,000 businesses, mostly local SMEs.

But to achieve this trillionaire potential and more than $30 billion of annual venture capital investments by 2030, the ecosystem needs to be consistent with international benchmarks and LACs current trajectory.

IDB Lab highlights eight levers to achieve this potential: igniting unactivated countries, activating Deep Tech, activating medium-sized metropolitan areas, facilitating internationalization, strengthening corporate VC, scaling immature digital sectors, increasing focus on inclusion and regeneration, and increasing female representation.

READ ALSO: LATINAS IN TECH – Latin American female entrepreneurs against all odds

Startups from Latin America are becoming unicorns way faster than before 

IDB Lab’s report has shown that LAC’s startups can grow and prosper even in difficult contexts: while their value grew from $7 billion to $221 billion in the last decade, the leading 40 publicly-listed traditional companies from across the region saw their market capitalization fall by $489 billion.

The time to achieve a unicorn valuation status has been steadily decreasing with digital technologies and solutions, such as mobile and cloud computing, and more mature ecosystems. While it took decades for pioneers such as TOTVS to achieve that value, the latest unicorns achieved that status less than three years after they were founded.

READ ALSO: TOTVS’s CEO: M&A strategy is an important focus of the business

Yet, to scale faster is a more easy task for Brazilian firms than those across LAC. Due to Brazil‘s continental size, they focus mainly on their local market, while startups from the rest of the region are forced to internationalize to scale. The report notes that 83% of the region’s startups have local growth strategies for Brazil and represent 74% of the ecosystem value.

Outside Brazil, 49% of the Tecnolatinas have local footprints. Still, they only represent 5% of the ecosystem value, with the other 95% of the value coming from the 51% of companies with regional or global strategies. 

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According to IDB Lab, the need for internationalization partly explains the asymmetry between Brazil and the rest of LAC. It represents a challenge for entrepreneurs and local policymakers that calls for regional collaboration.

Irene Arias Hofman, CEO at IDB Lab, Inter-American Development Bank’s innovation laboratory. Photo: Personal Archive/Courtesy.

Supporting the private sector in reaching its full potential through innovation and digitalization is a top priority; we view this as key for recovery and growth in the region

Irene Arias Hofman, CEO at IDB LAb.

IDB Lab sees a huge untapped potential in deep tech startups in the region. In 2019 LAC invested less than $300 million in venture capital (less than 7% of VC investments in that year) on Deep Tech startups. It is a tiny amount compared to Israel (with 9 million people versus 650 million in LAC).

Capital raised by sector during 2019. Source: Tecnolatinas 2021 report, by IDB Lab and Surfing Tsunamis, and LAVCA.

“IDB Lab has been supporting the growth of deep tech through our deployment of financing, knowledge, and connections for early-stage, deep tech startups, as well as strengthening our global connection and support from leaders in this field like Korea and Israel. For example, our LAC Deep Tech Exchange program launched in Oct 2020, has mobilized over 128 deep tech/tech-based startups from both LAC, Korea, and other more developed deep-tech ecosystems like the US and Europe,” Hofman added. 

According to her, IDB Lab also hopes to foment a deep tech ecosystem further in the region, by actively looking for venture capital funds that invest in deep tech companies in LAC and also in high-impact deep tech startups. “One example of our investment in such a company is Satellogic, an Argentina-born global company specialized in Earth-observation satellites and vertically integrated geospatial analytics. Satellogic has recently signed a contract with Space X for multi-launch through the end of 2022.”

On March 8, IDB Lab and Surfing Tsunamis made a live broadcast about the report: