Hola a todos! Having worked in Mexico for the past year, visited Brazil, Peru, Chile, Argentina, and worked with Mexicans, Colombians, and Brazilians, I’ve witnessed the tech growth in LATAM. Between research and firsthand experience on the ground, I believe there are 5 key forces driving the recent growth and years to come.
Demographics are fundamental to its growth. There are currently 658M people in LATAM, of which 454M (69%) have access to the internet, which has grown 2411% from 2000 to 2019, adopting technology much faster than before (Internet World Stats). With access to internet, learning to code could be done more quickly and remotely, without formal changes to the education system. This story has been told before, but why now?
- Increase in demand for “daily upgrades” for growing middle class
As a proxy for standard of living, GDP for LATAM has been on a run for the past 70 years. While recently it had hit a speed bump in the past 5 years, IMF projects that there will be more than 2x the GDP growth. With a higher standard of living, middle class Latin Americans will be able to make “daily upgrades,” which is not necessarily massive purchases (house and car), but actually affordable, premium consumables that are either at the margin whether to purchase, better quality, or more convenient. Examples are being able to spend more on apparel, convenient transportation, or order food delivery.
Since the middle class is making these “daily upgrades,” and the middle class itself is made of those who are able to earn income through traditional or technology jobs. Below we see that Mexico’s age group is pyramid, where the massive base of about 50% is from the age of 0–30, and in the next decade, children will enter the workforce, many of whom will earn enough to become part of the growing middle class. So if the working class is growing, then we have a compounding effect of these “daily upgrades.”
2. Increase in supply to meet demand enabled by technology platforms
In order to meet the increase in demand, technology platforms have capitalized on these opportunities by providing a scalable way to make e-commerce (Mercado Libre $27B), ridesharing (Uber $51B, DiDi), and food delivery (Rappi) more accessible every individual through their mobile app. In order to deliver their services, they’ve built the appropriate supply chains, logistics, and payment infrastructure to support the scale. Since fraud due to cash payment is a serious issue for LATAM, these platforms have not only made services more convenient, but also safer, thus educating and instilling confidence in consumers. Below is Rappi’s exponential growth in the past two years that reflects an increase in consumer demand and supply, driven by venture capital.
3. Increase in existing regional and global venture capital
As many of the above tech companies have reached a level of maturity where their talent have left to start businesses that will continue to further build infrastructure or services on top of existing ones, these founders begin to seek out venture capital to build scalable companies. Hence, existing VC’s like Monashees (Brazil) and Kaszek (Argentina) have been able to double down, while outside VC’s like GGV Capital (in Yellow), General Atlantic (in Clip), Sequoia (in Rappi), and DST Global (in NuBank) have been proactively entering LATAM. Even global accelerator’s have accepted more Latin American founders than before. Y-Combinator accepted Grin (S18), while MassChallenge, Techstars, and Startupbootcamp also made LATAM investments.
Despite its recent controversies, Softbank allocated $5B to invest in LATAM led by Marcelo Claure to focus on fintech, e-commerce, healthcare, and mobility. This is effectively an announcement to founders that they should pursue these massively impactful areas, and indirectly to early and growth stage funds around the world that there are massive investable opportunities. Softbank immediately poured $1B into Rappi to scale across LATAM, while growing their share and services in existing markets, hoping it will be a hybrid of Alibaba and Meituan of the region.
4. Chinese companies have expanded aggressively into LATAM
LATAM has similar demographics and tech adoption as Southeast Asia, where Chinese tech companies have already found success (Grab, Gojek, Tokopedia), and have identified LATAM as the current growth region. In late 2017, DiDi bought 99app for $1B the largest tech acquisition to establish its presence in Brazil, the largest LATAM market. In late 2018, Tencent further invested $180M in Nubank, valuing it at $4B. Now, as the largest messaging and payments network, Tencent is able to guide Nubank in giving access to many of the unbanked. Traditionally, Tencent makes small bets to partner and grow its network, and sometimes acquires. With $27B in cash, acquisition is certainly an option for its payment network at the right price. Also in late 2018, Tencent’s other half Ant Financial (Alipay) committed $100M to Brazil-based online payments platform StoneCo, and Mexico-based OpenPay to connect local merchants with the growing Chinese population that prefer to use Alipay. This year, Tik Tok (parent ByteDance $75B) and other similar apps have also made key hires and expanded into Brazil and Mexico.
5. Key countries Brazil, Mexico, Colombia, and Chile are leading the way
Though LATAM has a population of 658M, investors have prioritized the largest markets — Brazil (210M) and Mexico (130M), where 76% of LATAM venture capital have been invested. Large rounds have already been invested in Brazil in mobility logistics (iFood, Loggi, CargoX), fintech (Creditas, Nubank) and in Mexico in fintech (Clip, Konfio, Credijusto, Bitso). However, healthcare has been an under-invested opportunity area, where Softbank’s thesis has not been fulfilled. In the next 3–5 years, there will be more founders outside of Brazil and Mexico capitalizing on their large market, like Cornershop founded in Chile and expanded to Mexico.
Strategically located between Brazil and Mexico with relatively smaller 50M population, Colombia has already made a name for itself with Rappi, and will continue to do so in the coming years due to the wave of founders post-Rappi and its demographics. Israel has been known to create global companies due to its restrictively small population 8.7M; though Colombia is much larger and dense enough to test consumer marketplaces, its market is still too small to create unicorns on its own, so it’s forced to think more broadly for LATAM, hence Rappi expanding to Brazil and Mexico. As early employees are leaving Rappi with their international expansion experience, they’ll be equipped with the vision and ability to build teams and raise capital.
Lastly, though Chile is only 18M population, it’s GDP per capita is 2.5x Colombia’s, meaning consumer products can be charged higher. Walking around Santiago feels like I’m back in Los Angeles with well-paved streets, highways, and office buildings. Also, there is the “Groupon mafia,” after Groupon acquired a bunch of copycats including Chile-based ClanDescuento, whose founders started Cornershop. Also, Chile is proud of its accelerator Start-Up Chile, who’s supported by Groupon’s Founder Andrew Mason. Finally, its government has given out high incentives for startups as much as $40k equity-free seed capital, 1 year visa, and other extra benefits to make it easier to do business. With these resources and talent, Chile has the potential to produce a few more Cornershop’s.
Many have said LATAM is a “hot market,” displaying many of the characteristics of Southeast Asia 2–3 years ago, and China 4–5 years ago, where super apps, payments, and logistics are already built at scale. The key challenge will be for entrepreneurs to create not only single country companies, but at least LATAM scale, and maybe even global scale. LATAM scale will always have localizing challenges of language between Brazil and Spanish-speaking countries and organizational leadership. But I’m optimistic, because at the end of the day, LATAM countries have more similarities than differences when it comes to lifestyle, family, music, and consumer spending. However, those similarities also include challenges like logistics infrastructure, cash payments, and corruption that are true opportunities but also speed bumps that can slow down the growth. With that said, LATAM tech will further establish itself on the map, as there will be more regional unicorns built in the next 5–7 years, attracting both global talent and capital.
Since my experience and especially language in LATAM has its limits, please let me know if you have any ideas or thoughts from inside or outside of LATAM.
Gracias y Saludos,
P.S. India tech is often an overlooked region for its growth in the next few years, while Africa tech is not too far off in the distance.