Why Consider Investing in LATAM Startups?
The business world has never been so fragmented, with companies entering new markets in an attempt to compete against global brands and maintain a level of competitiveness. Whether you work in banking or healthcare, being able to diversify your investments and have a finger in many pies is a great way to future-proof your business and guarantee profitability in the coming years, what with the threat of Brexit, the slowdown of the Chinese economy and rising political tensions around the world, particularly those involving the United States, Russia and Korea.
Latin America offers untapped market opportunities
As the owner of Latin American centric business, Biz Latin Hub I know first-hand that Latin America is one of the world’s most exciting economic territories. Of course, there are great differences between countries, and even neighbouring countries can see huge inequalities and changes in terms of their GDP and growth, but generally speaking, Latin America is on the up. Home to more than 625 million people, Latin America has seen enormous growth in the past couple of decades, with a huge increase in its middle-class. This unlocks new potential for businesses offering luxury goods and services and can increase your levels of profitability. And by investing in a LATAM startup, you’ll be able to enjoy a return on an investment without having to worry about doing the hard work and establishing a brand yourself.
The world is becoming more globalised
One of the biggest challenges I see my clients face is the threat of globalisation and how brands such as Google and Amazon can effectively swallow up an industry overnight. The truth is that, unless you have millions of dollars in reserves to spend on marketing and product development, it’s entirely possible to have your business eaten alive overnight — especially if a competitor from another country enters the market. It’s hard to walk down a high street in any corner of the world without seeing the same brands — Starbucks, McDonald’s, H&M; for small and medium-sized companies, however, a global expansion just isn’t always a possibility, and so finding new ways to enter new markets and grab a slice of the action is essential in order to remain competitive.
Of course, there are benefits to globalisation, which include an enhanced division of labour, the ability to make deeper relationships and have connections with markets around the world and benefit from economies of scale, and the reduction of monopoly profits. Globalisation has also helped some of the world’s poorest countries enjoy higher levels of economic growth, including some countries in Latin America where international investment has created jobs and demand.
The LATAM startup scene is exciting
The startup scene in Latin America is particularly exciting, with huge innovations in technology, particularly in financial technology (FinTech). There are some great LATAM startup success stories, including Despegar, which is Latin America’s answer to Expedia and now has a market cap of an eye-watering $1.85 billion. There’s also Nubank, a company that has now reached unicorn status after reaching a $1 billion market valuation. These two companies are just the tip of the iceberg and show that with the right idea and market position, you can invest in a startup that can change the game and offer huge potential in terms of return on investment and resale.
Of course, the hardest part is finding the right startup to invest in. You should look at the market where the startup is hoping to operate and keep a close eye on businesses in the FinTech and green energy sectors, as these are two markets where Latin America is lagging behind. Indeed, the territory is going through something of a revolution in terms of its energy production, and the need for greener, more renewable energy has come about after decades of reliance on oil and using the territory’s natural resources. According to some reports, LATAM accounts for more than 20% of the world’s oil reserves, so whilst it can, in theory, continue to power its countries for decades to come, finding environmentally-friendly, long-term energy sources makes sense.
Other investors are getting in on the action
One of the best ways to determine the market is to see what your competitors are doing — and if you work in a niche where investments are an everyday norm, then the chances are that some of your closest rivals will already have a presence in Latin America. According to a study by Prodem, more than 2,000 startup businesses across Latin America are enjoying growth thanks to investments from large corporations. LATAM’s centre for innovation and entrepreneurship found that there have been 155 financial investments in Latin American startups in the past year, with Brazil coming out on top with 64 such investments by large companies. The report highlighted that the majority of the companies belong to ecommerce, IT, banking and telecom sectors, and that “innovation is the new currency”. Grabbing a slice of the action and investing in a company in your niche makes sense, and gives you more leverage when expanding your own organisation in the coming decades, as you’ll already have the infrastructure and contacts.
Startup accelerators are fuelling a boom in innovation
As well as private investments from large corporations in the Western world, LATAM startups are being fuelled by accelerators, with governments and private businesses investing millions of dollars in new companies across the territory. Accelerators have moved on from being simple business-service providers and now are considered major players in both the public and the private sector. Startup Chile, for example, has been credited as the “spark that ignited Latin America’s startup ecosystem,” and now accelerators and incubators such as Startup Peru, Parallel 18, IncuBAte, Startup Mexico, Ruta N and 21212 exist on the market. As a savvy entrepreneur, you should look to find and invest in companies before they go down the traditional accelerator route to maximise profitability and ensure you have a presence in LATAM.
Finding a LATAM startup that’s ready for investment and has the same values and ethos as your own organisation can be hard work, but the results will pay off once you get there. Invest in the future of your business by pouring money into Latin American startups, and you’ll quickly be on to a winner. Whatever you decide to do, I wish you the very best of luck with your investments.