Venture capital is flowing to Latin America for new businesses
At first, I couldn’t believe it when I read this new — and little-known — statistic: Latin America is the fastest growing region in the world when it comes to startup funding.
According to Crunchbase, a leading business information firm, venture capitalists poured a record $19.5 billion into Latin American-based startups last year. That was more than triple the amount invested in startups in the region in 2020, making Latin America “the world’s fastest growing region for venture capital funding in 2021,” the company said. .
As for this year, Crunchbase added that in the first two weeks of 2022 alone, Latin American startups raised more than $450 million and investors “are optimistic the numbers will continue to rise. “.
Indeed, experts tell me that the last year was not a statistical anomaly and that funding for startups in the region has been steadily increasing in recent years. But what they are seeing happening now goes far beyond their earlier expectations.
“We’ve never seen anything like it,” Mauricio Claver-Carone, president of the Inter-American Development Bank, told me. “Last year you had more venture capital in tech investments in the region than you had seen in the last 10 years together.”
Most of the investments in Latin American startups have gone to large companies in late-stage fundraising and already operating in multiple countries. These include companies such as Brazilian online bank Nubank, Colombian delivery services company Rappi and a Chilean company that pays people for the calories they burn while walking or cycling with the money he collects from thousands of businesses.
But while Latin America already has at least 27 known “unicorns” — companies that have a market value of over $1 billion — there’s also been a huge increase in startup funding.
There are an incredible number of small, socially driven startups popping up all over the region. I’ve interviewed several of their founders over the past few months for a segment called “Innovator of the Week” on my TV show on CNN en Español, and they’re doing some amazing things.
Laboratoria, a Peruvian startup co-founded by Mariana Costa Checa, offers free six-month computer programming courses to women in disadvantaged areas and then places them in tech companies.
Pachama, a startup led by Argentinian entrepreneur Diego Saez, is fighting climate change by selling “carbon credits” to companies that pay other companies to plant trees or help conserve forests. Nilus, an Argentinian company co-founded by Ady Beitler, takes food that farmers normally throw away because it doesn’t look the perfect supermarkets demand – but is otherwise fine – and sells it at prices below those of the market to the needy.
The bad news, however, is that fast-growing Latin American startups are almost always individual success stories, succeeding once they move to California or Florida. The region is teeming with talent, but most countries – with a few exceptions, such as Chile – fail to provide financing, know-how or international contacts to young entrepreneurs starting their businesses.
The amount of money the region invests in innovation is pitiful. While Israel invests 4.9% of its annual gross domestic product in research and development of new products, South Korea invests 4.5% and the United States 2.8%, the average country investment from Latin America in research and development is only 0.6%, according to the World Bank.
Equally serious is that, while China and other Asian countries have benefited from massive American and European investments, many Latin American governments are scaring away foreign investors, instead of welcoming them with a red carpet.
Largely because of pre-globalization ideas from the 19th century that are still peddled by populist leaders in the region, only 54% of Latin Americans think foreign investment is good for their country. according to a new IDB study.
In summary, Latin American startups are growing faster than anywhere else in the world, yet they receive only a small fraction of global new business investment.
If countries in the region harnessed their talent and put innovation at the center of their political agendas – investing funds and providing global contacts to young entrepreneurs – the region could significantly increase its economic growth.
What are they waiting for?
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