A Year of Challenges, Opportunities for Latam Startup Ecosystem
STORY INLINE POST
2023 represents a new context of challenges in the venture capital world, both in Latin America and on the global stage. In this new ecosystem, we often hear that this will be a challenging year for the startup ecosystem. So, is 2023 a good time for founders and investors, or is the current landscape too risky?
No one can deny that the last three years have been dramatic in our industry and the world in general. 2020 saw the world grind to a halt due to the COVID-19 pandemic. Consequently, the flows of capital investment in startups in Latin America began to slow, becoming more cautious and, in most cases, of a reduced amount.
Fast forward to 2021, with COVID still at large in many places worldwide, and we experienced a complete turnaround, with momentum in the region attracting unprecedented levels of capital investment.
In 2022, Latin America entered into a new macroeconomic global context, with the recession resulting from the pandemic and the war in Ukraine starting to take effect around the world. This represented another challenging moment regarding capital flows to the region, with less than half the amount of capital being invested in Latin American startups compared to 2021, although still considerably higher than in 2020.
Despite this challenging context, here at 500 Global, we believe 2023 remains an exciting opportunity for startups and investors. We are seeing the rise of new companies that have the potential to become major players in our region over the next five to 10 years, with the ability to shape the industry's landscape. We are undoubtedly seeing the beginning of the stories of the emerging and most relevant companies in our region, which will be writing the game's rules for the next five to 10 years.
If we go back to 2013, one year after 500 arrived in Latin America, we saw the arrival of several of the most relevant companies in the region today, such as Clip, Konfio, and 99Minutos. These pioneering companies were born in an even lower capital flow and investment ecosystem. Nevertheless, the founders of these companies were able to acquire capital and, through dedication and hard work, managed to grow their businesses into the successes that we see today. They were not scared off by the idea that 2013 was a “bad moment” to invest or start a company, even though levels of capital and investment were different from what we experience today. The past has shown us that there will always be capital for those who are prepared to work hard and deliver results.
What Can Be Expected From the Ecosystem?
2023 presents a new context of challenges to which existing and new companies must adjust. Unlike in 2021, this is not a time when you can build a company based on the premise that capital is abundant. Ten years ago, we would look for ways to do more with less. However, in Latin America, we are familiar with constant change and challenges, as we have a resilient culture all over the region. That's why Latin American entrepreneurs are the perfect founders for today's global context.
Sectors Offering Good Opportunities for the Next 10 Years
In the coming years, some of the most attractive sectors in Latin America will largely be those related to essential universal services that are recently emergent or other public services that are currently inadequate or have gaps, like education and health.
Fintech will continue to be crucial, in large part because it is a facilitator for other industries. For example, one of the significant ways fintech companies have contributed is by boosting the adoption of credit cards and online transactions among citizens in Latin America. As online shopping continues to surge, it has become increasingly necessary for other industries to digitalize and enhance their performance. Consequently, the logistics sector is witnessing significant growth and opportunities.
Unfortunately, Latin America is a region where private healthcare is the most reliable but least accessible to most of the population. Public healthcare largely lacks adequate infrastructure, resulting in inefficiencies and low access.
Many entrepreneurs and startups have been watching this gap in the social infrastructure for a few years now, and several have begun to fill it.
Some startups are increasingly adopting a focused approach to address specific needs through tech-based solutions. For instance, CLIVI specializes in providing diabetes support, while Plenna is improving women's health.
This sector is another public service that must be improved across the region, creating business and investment opportunities. We have already seen the arrival of several pioneering companies, such as Platzi, that address this need, but there is still a long way to go in filling the gaps in education in our region.
Time is a fundamental aspect of the venture capital industry. Building a successful startup takes time. Decisions to start a company or invest in one should not be based on the expectation of easy money or results. Instead, founders should focus on creating long-term value, developing a sustainable business model, and nurturing customer relationships.
2023 is indeed a challenging moment for entrepreneurs to raise capital, but also a fantastic time to take the risk and build. Being an entrepreneur is an inherently risky enterprise. Find conviction and take a leap of faith. That's how many entrepreneurs have disrupted many industries in the past. We should all keep that in mind in 2023.