Is LATAM more exciting to start a company than Silicon Valley?By Courtney McColgan | Fri, 08/28/2020 - 13:30
What is the first word that comes to mind when you think of Latin America?
For me, it’s technology. I see Latin America as the next technological frontier. Over the next 10 years, I firmly believe that we will see 10x the number of unicorns than in the last 10 years.
Venture capitalists poured US$4.6 billion of funding into Latin America last year. That may be a fraction of the US$130 billion invested in the US but it is an amount that has consistently doubled every single year since 2016 (Source: Lavca).
What makes Latin America so attractive?
First off, it hosts an incredible market opportunity. There are 620 million people and over 17 million businesses across the region. Even if you are just focused on Mexico, which hosts 126 million people and over 4 million businesses, you have the ability to build a billion-dollar business by just capturing a tiny fraction of the market.
There are also a lot of real problems to solve in Latin America.
Before moving to the region, I worked in venture capital in Silicon Valley. Often times when founders pitched their businesses, we would ask ourselves: is that a feature or a business? What did we mean by that? In the US, most of the major problems have been solved already. It is a developed society with widespread technology adoption. Therefore, most startups end up being incremental improvements on already pretty efficient ways of doing things. While they may increase the slope of the curve, they do not move the line.
I found quite the opposite situation in Latin America. Every startup I have invested in is solving a real problem, with the opportunity to move the line. Take Beek, which is bringing Audiobooks to Latin America. It turns out Audible has a very limited selection, so there is a wide-open space for Beek to put every single book into audio form across the region. Let’s look at Nowports, Nuvocargo and Liftit – these are all startups revolutionizing the commercial transportation of goods. Before they existed, companies had to track their shipment from point A to point B on paper, across multiple providers. Today, companies can use their software and track and pay everything online.
Our company Runa also falls into this category. We aren’t doing anything crazy; we are just automating payroll. But before Runa, payroll was a long, manual process. Companies had to calculate their monthly payroll using excel (or 20-year-old software), pay their payroll on their bank website and then report their payments to the government on a government website. Today, companies can do all of that in just four clicks on Runa, without ever having to leave the platform. While this may be revolutionary for Latin America, this is old news for the US. There are 50+ startups and 30+ public companies in the US doing what Runa is doing.
I have also found amazing comradery among Latin American founders. It’s as if there is a “we are in this together” attitude. The community is small and startup founders all know each other. They look out for each other and share their #hacks on how to acquire users, recruit talent or raise capital. I did not find nearly as much openness and support during my time in Silicon Valley.
A great example of this community is the Y-Combinator (YC) network in Latin America. Y-Combinator (YC) is one of the world’s most renowned incubators, producing companies such as Airbnb, Stripe and Dropbox. I had the pleasure of participating in YC’s Winter 2018 batch. When the session started, I immediately became part of the YC’s Latin America WhatsApp group, which included all YC Latin entrepreneurs past and present. That group has been an incredible network for me as I have built my company. Even the Y-Combinator operators themselves have noted that the comradery among their Latin America YC founders is much stronger than any group of YC founders from around the globe (including the US).
Lastly, when you get technology right in Latin America, you have the opportunity to win big, I mean really big. Take Mercadolibre for example. Mercadolibre set out to build the eBay of Latin America, a marketplace where buyers and sellers could purchase and sell goods electronically. Once Mercadolibre was successful at that, they then went on to build a payments platform and eventually a digital wallet. Today, Mercadolibre has a market capitalization of over US$60 billion, which is actually 20% more than its US counterpart eBay.
You are seeing the same phenomenon with Rappi. You can order your groceries, buy your spin classes, take cash out and pay for things, all without leaving the Rappi app. This allows Rappi to become an Amazon+++ for Latin America. This would never happen in the US where there is a huge volume of high-quality technology companies with billions of dollars behind them attacking each and every vertical covered within the Rappi app. It is frankly too hard for one app to do it all and do it well.
With the incredibly large market, amazing startup community and ability to build super companies, there is no doubt in my mind that Latin America is the next startup frontier. I am proud to be a member of it and look forward to joining the unicorn club and the super company club soon.