Latin America: Fertile Ground for Tech Startups

Almost 20 Latin American-based, private equity-backed technology companies have gone public since 2019. While the region was one of the first to feel the massive pullback of investment in 2Q22, it has recovered, suggesting a rebound in venture capital funding.

Given the current uncertainty and volatility in the market, it has been difficult to value startup shares accurately. "This challenge poses a higher level of risk for both companies conducting an IPO and investors interested in participating in the offering," Paola Garcia Barreneche, Executive Director, Colombian Private Equity Association (ColCapital), told Bloomberg. 

Some startups that could go public are choosing not to do so, as a trend emerges in which companies worldwide are preferring to stay private for longer partly due to the fact that more investors are open to investing in private companies, according to Emanuel Hernández, Research Director, Lavca.

Venture capital investment could be affected in 2023 but investors are still interested in some sectors. According to TheVentureCity's latest report, the sectors with growth potential are healthtech, fintech, foodtech and HRtech. Latin America was one of the first regions to feel a massive pullback in investment in the second quarter of 2022. However, the third quarter ended with US$2 million in capital invested in startups in the region, an increase of 5% over the previous quarter. Latin America has recovered and signals a rebound in its quarterly venture capital funding.

Initially, the region suffered from the lack of investment due to market conditions and because foreign investors began to focus on startups in their own regions. After this trend passed, Latin America reported a 5% increase in investment for startups. Interest is expected to continue to grow as the Latin American market increasingly adopts IT solutions at an exponential pace. The region's leadership when it comes to financial technologies has also been recognized. However, talent shortages and skills deficits remain the main obstacles to growth and investment, shows a study conducted by the Harvard Business Review. According to the same report, 90% of companies in countries such as Mexico, Argentina, Brazil, Chile, Colombia and Peru say they will increase their digital infrastructure investment and adopt emerging technologies by 2023.