By Yoke Clara Yansim / August 24, 2021
|In Latin America, the tech industry sees several unicorns make impressive progress in growing their companies and obtaining funding. The pandemic was a key driver for the success of a few startups. However, tedious bureaucratic processes, among other things, continue to present challenges in the startup scene.|
Latin America is a region full of untapped potential. It has a large workforce, its economy had industrialised earlier, but its GDP grows more slowly than other emerging economies today. World Bank data shows that most countries in the region fall under the upper-middle-income range, indicating that the purchasing power is there. Yet, its middle class, though expanding, is still relatively small.
The root of the problem, according to a 2019 McKinsey report, is a lack of dynamism. Latin America suffers from a large gap between the majority of unproductive small firms and a handful of massive firms. The report suggested that investment in new technologies is one solution to achieve inclusive growth.
Fortunately, changes are already underway as the tech industry in Latin America is likely to expand rapidly soon.
Currently, over 1,000 tech companies have raised more than $1 million each. The region saw a record number of venture capital deals last year, receiving $4.1 billion from investors, according to the Association for Private Capital Investment in Latin America (LAVCA).
Tech Unicorns in Latin America
Of all Latin American startups, financial technology (FinTech) makes up the majority of them at 29 per cent.
So, it is no surprise that one of the region’s “unicorns” – that is, startups valued at more than $1 billion – is a Brazil-based digital bank. Founded in 2013, Nubank is now the largest startup in the region, revolutionising the Brazilian banking industry notorious for its poor customer service and high fees.
Rappi, a Colombian delivery app, is another well-funded startup. The company began its services with beverage delivery before expanding to other products, including food, groceries, technology products and medicines. After the pandemic spurred its growth last year, the company is now valued at more than $3.5 billion. In July, Rappi also partnered with Visa Inc to offer financial services in Brazil, which the company believes will complement its delivery app.
La Haus is also Colombia-based, and it just secured $100 million in additional funding, including from Acrew Capital and Bezos Expeditions. Unlike Rappi, La Haus’ goal is to help solve the region’s “extreme housing inequality” by improving the ease of purchasing homes. Ultimately, it hopes to use technology to better match the supply and demand for new housing.
Also worth mentioning is Mexico’s Kavak, a platform that advertises used cars. Many used car transactions in Latin America are informal, which makes them prone to fraud, according to Kavak’s CEO Carlos García Ottati. Kavak thus aimed to solve a problem: the lack of transparency and security in the used car market.
That’s not all. The region’s massive potential has also begun to attract overseas startups looking to expand their consumer base.
Southeast Asia’s largest e-commerce platform, Shopee, recently established its presence in Brazil, on top of launching an “asset-light” pilot programme in Chile and Colombia. Brazil may even overtake Indonesia as the platform’s biggest market in the future, Tech in Asia wrote.
Nevertheless, Shopee’s Argentinian competitor, Mercado Libre, remains dominant in the region. In the second quarter of this year, the company’s net revenue leapt by 93.9 per cent, well beyond analysts expected.
That the company grew despite the uncertainties of the pandemic is no coincidence. Indeed, the pandemic was a key driver for this growth. As physical retail became infeasible, many younger shoppers turned to online shopping and transactions – a trend that benefitted quite a few tech startups in the region.
Still, companies continue to face several challenges in setting up business in Latin America.
For example, bureaucratic processes in the region are tedious due to the lack of digitisation and automation. Business owners can only submit applications and documentation in person rather than online, hindering foreign businesses that seek entry into the Latin American market.
The business environment also favours a longer-term presence, demanding entrepreneurs to adopt a hands-on approach and develop personal relationships.
Additionally, the investment culture is in its infancy, and there is a significant language barrier.
Finally, when some of these startups finish riding the pandemic wave, can they continue to thrive? What should governments do to cultivate the startup scene in Latin America?
This article was written for Loop Media.