The venture capital industry is still small in Latin America but we see that changing over the next decade. Although small, at about $2 billion dollars, the VC market is 4x larger than it was just 5 years ago. For example, in Brazil, where as noted above, startup investment is up 81%, it is still just .04% of the economy where it is 0.43% in the US (10x).
In the past, the VC community operating in Latin America was fairly local but this has changed. Several International VC’s and corporations (Sequoia, Naspers, Didi, and Alibaba) are already heavily investing in the region. In fact, co-investments with local VC’s represent nearly 60% of all LATAM investments. As more international VC’s enter Latin America we can expect to see more activity at higher valuations. These investors continue to bring access to global markets and increased sophistication so that LATAM startups can begin to compete in several markets at once.
The major selling point for VC’s to invest in LATAM startups is the high smartphone penetration. This means that startups in this region can create companies that tap into this consumer base and grow fairly quickly through social channels. Mobile first technology is a real advantage for Latin America startups that build companies that can scale into this large consumer base.
Fintech is the major sector we are following because the smartphone penetration is high yet the use of financial products remains low. A key hurdle in scaling fintech startups has been coordinating the various regulatory issues across the region. Every country wants to entice investment in local startups but governments will need to get rid of longstanding red tape that is inhibiting investment attraction. As each country makes doing business easier, I expect these laws will eventually lead to regional standardization of fintech laws.
In 2020, LATAM’s tech scene is set for another year of double-digit growth. In particular we expect these trends:
Increased joint investing partnerships between regional LATAM VC’s and international VC’s
An increase of partnerships between universities and startups & incubators
Government continuing to streamline fintech regulations
Look for logistics startups to reach higher valuations in 2020, especially those that link several LATAM countries together