Business

VC Investors are unaware of growth opportunities for startups in Latin America, shows survey

A report by WIND Ventures points that VCs view Latin America as the fifth largest growth market outside North America

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  • In July, WIND Ventures surveyed over 50 venture capitalists;
  • Market size and rate of tech adoption are top considerations for growth markets but Latin America’s attributes are unrecognized, says the report.

Venture investors do not perceive Latin America as a high priority region for startup expansion and investments. According to a report by WIND Ventures, the newly formed corporate venture capital arm of Copec, an energy company focused on Latin America and the Southeast United States, only 8% of them see the region as the largest growth market outside North America – which, in practice, puts Latin America behind China (37%), Western Europe (29%), Southeast Asia (13%), and India (12%).

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In July, WIND Ventures surveyed over 50 venture capitalists from a diverse cross-section of professionals including traditional VCs and Corporate VCs to get to know the venture capital community’s view of global growth markets. The majority (70%) of those surveyed were early-stage investors, 19% were seed investors and 11% growth-stage investors. According to the survey, most venture capitalists are unaware of the fundamentals that make the Latin American market an opportunity when it comes to startups.

Source: WIND Ventures report

“Our research confirms a broad misconception about Latin America as an attractive growth market for startups,” said Brian Walsh, head of WIND Ventures. “With double the population and equal urbanization to the United States, Latin America has a large concentrated population that has quickly become highly connected and prolific users of smartphones and digital platforms. The region is experiencing a very rapid cultural shift towards digitalization, which is only accelerating due to the pandemic. It is already a significant growth market for many tech companies, including Uber, Airbnb, Amazon, Facebook, Coursera, and others.”

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Market size and rate of tech adoption are top considerations for growth markets but Latin America’s attributes are unrecognized, according to the survey results. When asked how venture investors typically measure attractive growth markets for startup expansion, 38% of the surveyed chose market size first, while 23% ranked a high-rate of tech adoption as the most important criterion. Other key attributes include a large and growing middle-class (16% chose this aspect as the most important one); supportive local partners (16%), high mobile adoption (6%), and large urban population (6%).

Source: WIND Ventures report

Despite having many of these attractive market attributes, Latin America is not viewed as having the important elements to drive startup expansion with just 6% of investors associating the region with the above.

Source: WIND Ventures report

According to the report, while many venture capitalists did not understand the benefits of the region, a majority of those surveyed said they would view Latin America as an attractive growth market for startups if they knew it had all of the top attributes (100% of seed investors, 68% of early investors and 83% of growth investors surveyed).

The primary perceived challenge for business is political: investors ranked the political environment (90%), followed by economic (54%) and cultural (48%) hurdles, and the impact of COVID-19 (15%).

“While enormous opportunity exists in Latin America, the political, economic, and cultural landscape can be complicated given there are over 20 countries that make up the region, said Walsh. “Having a well regarded and trusted local partner to help navigate the market can mitigate much of these complexities and is key for startups when entering the region.”

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