US dollars on the map of South America. Photo: Shutterstock.

What’s next for Latin America’s investment boom?

A report from the recent conference by Latin American Business Associations (LABA) at NYU Stern and Columbia Business School on investing in Latin America followed a blockbuster 2021 for the world’s fastest-growing region for VC funding. Here are some of the event’s insights about what to expect next.

There’s never been a better time to launch a Latin American startup than now. That’s was the general agreement by major VC investors at the recent LABA VC conference, an annual event by the Latin American Business Associations (LABA), in New York City. However, there is still much work to be done to improve investments in the region, and the bottleneck now is in finding talent.

The conference featured prominent VCs known for their LatAm investing prowess such as Paulo Passoni, who leads the giant $5 billion Softbank‘s fund for the region. Also speaking: Kevin Efrusy from Accel, Mariana Donangelo from Kaszek, Sebastian Mejia from Rappi, and Claudia Belmont from Propel, among others.

All the speakers seemed pretty happy and why not?: 2021 has been a blockbuster year for investing in LatAm companies with VC investments totaling $15.7 billion – more than in the previous ten years combined – and private capital as a whole reaching a new record of $29.4 billion in the region.

READ ALSO: Brazilian govtech startups have attracted at least BRL 48 million in the last two years, and this is just the beginning

A tipping point?

The latest report from the LAVCA (Latin American Private Equity Investment Association) showed a big jump in VC share of private capital investments – up by 54% last year compared with a more modest 25% in 2020 and marking an exceptional year.

It has all the markings that some type of a tipping point has occurred with LatAm especially since it has become the most active VC sector in the world in terms of growth.

Most of the speakers said that the pace of VC investing will continue to be good, but the rate of growth will slow somewhat. This is partly to do with the fact that Latin America still lacks a lot of the entrepreneurial infrastructure that startups need –  such as more seed investors.

LatAm is not one country. Kaszek partner Mariana Donangelo pointed out, ”We’re all at different stages. Mexico is starting to really take off.”

Colombia‘s startups are doing well, too, yet for many years it is Brazil’s startups that have won all the publicity and they lead with more than 90% of the region’s listings of private, VC-financed companies with a valuation of more than $1 billion commonly known as unicorns.

The search for talented teams

The biggest issue for LatAm’s startups is no longer access to capital – but it is the perennial issue of finding talented teams. For example, there are big shortages of software engineers around the world, and this means global competition for local IT talent.

This is also true for business professionals  – there are many top Brazilians in senior positions overseas in large multinational companies. Management and engineering talent will continue to be in short supply in LatAm for many more years.

READ ALSO: Lots of jobs, but few candidates: workforce shortage puts the expansion of startups in Brazil at risk

Innovative and creative: what explains Latin American companies’ success

“The startups need to be more creative,” said Sergio Monsalve, partner at Roble Ventures. Innovative startups are not copycats of U.S. ventures. “We need original ideas with an original approach, and we often find that local companies can outperform a larger U.S. competitor.” An example is Mercado Libre which has managed to succeed against online auction giant eBay. 

Monsalve believes that the talent exists, but it hasn’t been fully found, or fully developed. 

READ ALSO: Global hiring by tech companies in Latin America increases by 286%

World’s fastest-growing VC sector

Panelists said that the LatAm region deserves to be the fastest-growing VC sector because it has huge populations that need to be brought into the world with digital services such as banking and so much more. And the digitization of society is happening very quickly, especially in Brazil.

In 2021 Brazil’s tech companies were signing up more than 315,000 users to digital accounts of various types. 

Brazil is rapidly becoming LatAm’s most advanced tech-literate society. It currently averages 1.6 cell phones per person,  with a large e-commerce market and very friendly bank policies from the Central Bank which is very encouraging to fintech startups – a category that continues to lead in VC investments.

The enthusiasm of Brazil’s population for technology can be seen in this statistic: Brazil’s 250 million digital services accounts exceed its total population by 37 million.

While Brazil continues to eat up the majority of VC investments, the speakers praised other countries such as Columbia, Chile, and Mexico for attracting higher levels of investments. 

Another sign of an improving startup infrastructure is that LatAm is now producing serial entrepreneurs, and they are heading new startups or becoming investors in new ventures.  

There was some good news regarding talent. The panelists noted that Brazilian execs who had left the country to work at large multinationals were beginning to return to head up new business ventures and that this will start happening in other countries in the region. 

Professional management is essential as startups mature because it is the smart-capital allocation that is key at that stage.

READ ALSO: Startups from Chile and Brazil make Y Combinator Top Companies list for the first time

More seed money

However, there is still a long way to go in improving the entire process of investing.

For example, there needs to be more seed investments made. Daniela Izquierdo, co-founder of Foodology said there was a lack of seed funds overall and they took far too long to respond.  

Ian Lee, co-Founder and CEO of Examedi shared a story about raising money in the U.S., which took just two days versus several weeks in the LatAm region. “We were lucky in the U.S. because we had gotten into Y Combinator and so people just wanted to pour money into us.” 

LatAm seed-round investors aren’t used to the risk and so they take too long to respond. Joao Thompson co-founder and CEO of Z1, said, “VCs need to be quicker to respond and be more transparent about their interests.”

Local knowledge

There can be local issues such as corruption that have to be avoided. Knowing the local scene and how it works is vital to a startup and gives it tremendous advantages over better funded competitors from elsewhere. 

Several of the speakers mentioned that they have invested in successful companies that have been founded by people from other LatAm countries other than the country it is founded. Panelists said there is considerable benefit from an outsider viewpoint, even though local expertise is vital.

READ ALSO: With the “Kinder Egg” strategy, startups attack food waste in Latin America

Think big

To be a success, the right motivation is important. The panelists speaking about success stories said that it was essential to think big; bigger than their country or region. Also, it is necessary to be doing something that makes the lives of people, of communities, better.  

“Being kind is a key value,” said Patricia Pomies, COO of Globant. “And have fun.”  She leads more than 23,000 people and diversity is very important. Her company finances scholarships in IT.

The big fish’s take

Paulo Passoni, managing partner of Softbank’s Latin America Fund was the final speaker and he echoed many of the earlier speakers in their comments about the need for more talent and that LatAm investing has entered a new phase. 

Softbank has had some big VC investment failures in other regions, such as WeWork in the U.S. but that doesn’t seem to be affecting its LatAm plans. Passoni said the pace of investments will slow but there are still plenty of great opportunities ahead. He said there was reorganization coming into the new year and he was looking forward to an active 2020.