A few weeks ago, we presented the first part of a comprehensive report on the mobile and internet context in Latin America. This was brought to us by Vrainz, a business accelerator focused on mobile and technology startups, and Overboost, a mobile accelerator. We now present the second and final part of their report, which focuses on Latin America’s entrepreneurial DNA, highlighting the trends in technology, startup incubators and accelerator models. Enjoy!
Latin America is Becoming one of the Hottest Markets for the Tech Industry
For a long time Latin America has proven to be a pole of creativity and innovation when it comes to technology. The late 1990s, when the first generation of tech entrepreneurs founded the first local startups to become regional, and even global leaders on the Internet market, proved this point. A new generation of entrepreneurs who, despite the many challenges our region represents, are building a new set of world class startups and products are showing it again. This alone should be a great reason to attract the interest of global players, VCs and media to our region. But there’s more: not only its talent makes Latin America seductive; the fact that it has become the fastest growing Internet market worldwide is attracting all kinds of players to invest in our region.
In 2013 alone, the amount of people connected to the Internet in our region has grown a 21% compared to the year before, bringing the total web’s audience to 159 million users. And while this number is still far from the 222 million users who go online every day in the US and Canada, these figures may soon reverse, as those markets are becoming stagnant in term of user growth, increasing at only 1% a year, which can be explained due to market saturation.
Latin America’s Internet users base, on the other hand, is growing thanks to the social mobility that countries like Brazil, Mexico, Peru and Colombia are experimenting, where hundreds of thousands of people are making it to the middle class, and where broadband access is becoming cheaper. At the same time, smartphones are experimenting great growth in the region, reaching a penetration of 28% with over 200 million active devices. In certain countries like Argentina, penetration rises to over 46%.
On the global market, Latin America is still far from regions such as Asia Pacific and Europe which, due to their demographic characteristics (they are far more populated) beat both North and Latin America in terms of users.
What do Latin Americans do on the Internet?
Latin Americans spend, on average, 24 hours hours online every month. This figure is only beat by North Americans, who spend 37.5 hours.
What people do on the Internet is, however, very different in both regions. People in Latam, for example, spend an average of 9.4 monthly hours browsing the social networks. North Americans, on the other hand, do so for just 5.5 hours a month.
This preference for social sites, and especially Facebook among Latin Americans, can also be observed in the high penetration these companies have in the region, reaching 94.1% of users; a huge number compared to the 67% achieved in the US and Canada.
Another major activity Latam’s users is browsing entertainment related sites and applications, especially those related to video viewing, which they do an average of 4.1 hours a month. News sites and portals are also very relevant for Latin Americans, as the average user from this region spends 4.5 monthly hours browsing their contents.
Finally, it is worth mentioning a major trend in the region. E-commerce, which was a niche activity just a few years back, has grown 60.5% in the region between 2011 and 2013, reaching a market size of 69 Billion dollars.
This huge growth the web has experimented in every possible sense, has turned Latin America into a highly relevant region for successful Startups from Silicon Valley and other ecosystems, which are planning their internationalization. It has also become a great incentive for local entrepreneurs who now find in their home countries a market large enough to validate their business models and even monetize before going global.
This way, local startups like the Argentine-born Restorando and Nubelo have managed to grow enough in one single market as to get significant investments in order to expand throughout the region, and especially through Brazil, taking a great leap towards new latitudes.
This process can also be noticed the other way around, as more American and European companies are investing in our region, attracted by its great potential.
- Netflix is, perhaps, one of the best examples of this trend. When, in 2011, the company began its international expansion, it did so by landing in Latin America. The following year, it also expanded to the UK, the Netherlands and Ireland. This has allowed the company to expand its subscribers base from 1.86 million to 6.12 million in only two years.
- Another startup that bet big on our region is the Swedish music streaming app Spotify which, after raising an investment round of over 100 million dollars, expanded to Mexico and, only a few months later to Argentina, walking its first steps in Latin America, where it plans to do a big deal of its future growing.
- WhatsApp, the most successful mobile instant messaging app is another big player in the region, having achieved huge user bases in most of its countries. In Brazil alone it is installed in over 40% of the active smartphones, which has positioned it as one of the most widely recognized startups by Latin American end users.
- The music recognition app Shazam is another emblematic case in the region. After reaching 40 million downloads in Latam alone, the company got a $40 Million investment from Mexican telecommunications tycoon Carlos Slim in exchange for it to focus its future developments in the region.
Other startups such as Airbnb, Pinterest and even Twitter are also very successful in our region, which has become one of their largest users source. It is estimated that five years from now Latin America will have more users than the US, becoming even more influential and important for companies from all over.
How is the Latin American Startup Incubation and Acceleration Model?
Startup accelerators in Latin America have adopted the prevalent Silicon Valley model, which involves providing seed capital, advisorship, and a series of resources in exchange for equity for the startups which enrol in their programs.
These are a few of the most notorious examples:
Wayra Latin America
Founded by Telefonica ventures, this business accelerator is present in seven countries in the region, where it has funded and worked with over 100 startups using the model described above. Wayra provides mentorship, great office space, around $50,000 in funding, and visibility in exchange for an average 10% in equity. And while this model has been successful for a handful of companies, it has failed for the vast majority, and especially for Telefonica when it came to building a solid suite of applications and VAS portfolio that would allow it to innovate and provide new profitable services to its millions of customers.
Even when it has access to hundreds of new products, Telefonica is only working with 5% of the portfolio of companies it has built with Wayra, most of which are not leveraging the VAS market, letting many opportunities slip away.
Other accelerators in the Region
Wayra is far from being the only acceleration program in Latin America. Other accelerators such as Brazil’s 21212 and Argentina’s NxtpLabs offer funding, mentorship, office space and resources to dozens of startups every year.
While this model has been successful in terms of funding hundreds of new companies in the region, it has produced poor results when it comes to creating successful businesses that manage to stand and grow on their own.
This comes from an inherent lack of understanding of the Latin American market. While ecosystems like Silicon Valley, and even some European innovation hubs, offer countless funding and growing opportunities, the investor ecosystem in LATAM is still lacking. With a higher aversion to risk, both from local VCs and largest companies alike, and with little understanding of the region by foreign capital, we believe the biggest opportunities for startups come in the form of partnerships with companies that are in need of innovation, and that can actually leverage their products and bring them millions of users, while empowering their own brands and content.
The Problem of the Funding “Gap” in Argentina’s case
Argentine startups, as well as projects on other markets in the region, have a serious problem when it comes to securing Series A financing. While over the past ten years there have been great advancements in the creation of private and public organizations dedicated to helping entrepreneurs and startups to obtain funding and tools to accelerate their growth, the lack of VCs with enough capital to fund further investment rounds is producing a gap which impedes companies to stall at a crucial point of their growth process.
This forces startups to either travel to Silicon Valley or other more developed ecosystems in the search for funds, which are usually not easy to obtain — as investors in those regions don’t understand the Latin American market, or are unable to provide funding for every venture in the region -, or to waste energy working on workarounds that would allow them to capitalize themselves.
The region is in dire need for a funding infrastructure that allows local startups to grow beyond a certain point, and to become competitive with foreign companies, which see an opportunity in the weakness of the local ecosystem, but which usually don’t understand the market as to seize the opportunities it presents to its maximum.
Movile’s “Leading” Case in the VAS Industry
Movile has managed to, arguably, create the most successful startup acceleration and company building model in the region. Based in Brazil, this company which has been funded by the local fund Naspers, has built the largest mobile aggregator in its country after acquiring the four leading companies in the sector. However, in its day to day operations, the company’s leadership realized the conventional VAS market was unable to deliver the results it had provided in the past, and that an input of innovation was needed in that market.
Since then, they developed a new model, which takes advantage of their massive reach to innovate and create new services, applications, and innovative VAS products. Movile, which today employs more than 500 people and has offices in 11 countries in the region, has become one of the region’s largest developers in the mobile commerce, education, mobile payment, and entertainment businesses. This is possible thanks to a mixed model, on which the company detects opportunities and builds new products around them, and also through the funding of third party startups that are aligned with their goals.
But while this company and accelerator has had great success in Brazil, it is struggling to replicate its model in other Latin American countries, where it lacks the reach it has managed to build in its home country. It is our goal to replicate and adapt this growth model in the Latin American region. Even as Movile is successfully creating and seizing new opportunities, the regional is still vastly unsatisfied.
Argentina alone, for example, has a VAS market potential of over $5 Billion US dollars, which is still mostly unsatisfied by the current offering. This country accounts for only 17% of the whole region’s mobile market, and given that other countries offer a similar scenario, there is still plenty of room for new players to develop their businesses in the region. With the proper funding, and the adequate distribution channels to reach these countries millions of users, these opportunities can be seized.
About
Vrainz Company Builder
Founded in 2009, Vrainz is a business accelerator focused on mobile and technology startups that focus on the Latin American market. Unlike other accelerators in the region, it funds, mentors, and provides tools and resources to startups whose product has been developed and validated, and it uses its wide network of partners within the telecom industry to potentiate those projects. For more than 15 years, the group of entrepreneurs and investors behind Vrainz have been providing services to the mobile sector through different ventures, the most notorious of which was Opticom, a mobile aggregator which became a leader in its sector in the Argentine market, where it was known for its permanent innovation. During that time the company began working with brands and NGOs like UNICEF to provide content, especially through Differential Value Added Services such as SMS. But even back then it started to become clear that the true differential lied in new products in the tech sector. That is why they put together a team, led by Javier Guevara, to bring that innovation to the mobile sector, in the form of what later became a business accelerator or, more specifically, a company builder.
Overboost Acceleration
Overboost is a mobile accelerator founded by Antonio Peña and his team, that summarises their decades of experience in the mobile world, and helps new startups launch their product to market, and become revenue positive in the short term. Rather than following the classic accelerator model, Overboost reaches out to Startups it considers to have a fit with, and becomes involved in its daily operations. Its team works side by side with the founders in order to refit the business plan, and to adequate the product to fit existing opportunities, which are developed in partnership with a network of mobile operators such as Telefonica Movistar, America Móvil, and others in the region; OEMs; Agencies; and major brands.
