Buying a used car, renting an apartment, opening a bank account: All the nightmares that repeat in Latin America due to a series of paperwork, lethargic bureaucracy, and legal pitfalls.
Start-ups set up to address these issues are putting the region at the forefront of the technology boom in emerging markets. Last year, $ 4.1 billion in venture capital investment flowed into Latin America, surpassing $ 3.3 billion in Southeast Asia and more than Africa, the Middle East, Central and Eastern Europe combined, according to the Global Private Capital Association.
Earlier this year, Latin America raised $ 6.5 billion in venture capital, well below India’s $ 8.3 billion.
Hernán Kazah, co-founder of Kazhek Ventures, Latin America’s largest early-stage fund, said: So far, more than $ 2 billion has been raised. “Today, Latin America has finally reached a critical mass in almost every market.”
Nubank is an example of a new breed of Latin American start-up. Co-founded by Colombian entrepreneur David Vélez in 2013 after six months to move to São Paulo and open a bank account, it has grown exponentially and is now more than any other stand-alone digital bank in the world. I have a customer.
Future IPOs could value Brazil’s FinTech at over $ 50 billion. According to a recent report.. This is compared to the $ 79 billion value of Mercado Libre, the region’s answer to the most valuable companies in Amazon and Latin America, founded in 1999 in the first wave of technological activity.
The latest work by Latin American start-ups has caught the attention of some of the most well-funded investors in the tech industry. Bolivian-born SoftBank Chief Operating Officer Marcelo Claure unveiled its second Latin American technology fund last month, committing $ 3 billion in addition to the $ 5 billion allocated to the first fund in 2019. Did.
“I was so surprised by the quality and quantity of a good company that was short of capital that I started investing,” Claure told the Financial Times. “Latin America has plenty of room to improve people’s lives because all systems are inefficient and plagued by bureaucracy … A great opportunity for technology to mess up.”
Kavak, Mexico’s first unicorn, is one such destroyer. Equivalent to $ 8.7 billion In last month’s funding round, the company aims to improve the often dangerous experience of buying a used car. We provide buyers with mechanical checks, 3-month warranty, quick online credit and courier.
Brazil-based Quinto Andar simplifies the challenge of renting an apartment by eliminating brokers and providing scrutinized tenants with their own insurance, eliminating the need for large deposits, guarantors, or high insurance. I’m eliminating it.
Chilean start-up NotCo has introduced innovative AI to develop a rare combination of milk, mayonnaise, ice cream and plants that mimic the taste and texture of meat. Worth $ 1.5 billion in the July funding round, NotCo is currently expanding to the US and Canada.
Kavak, Quinto Andar and Nubank emphasize that the most successful start-ups in Latin America are dedicated to addressing issues in the region.
“This story of bringing Silicon Valley and trying to make it tropical didn’t work,” said Ivonne Cuello, former CEO of LAVCA, a private capital association in the region. “The role model that began to succeed was as follows:’There are structural problems in the region that new companies can solve … Designed solely for the needs of the region.”
The Kazakhs of Kazakhstan said Latin American innovators are now the envy. “I see companies outside the region saying,’I want to be Nubank in Germany.’ That didn’t happen before.”
Financial services dominate the Latin American startup scene, with about 40% of private funding up to last year going to FinTech, according to LAVCA data.
Prior to the pandemic, more than half of the citizens of the area did not use banks. It is said that 40 million people opened bank accounts in just a few months from May to September last year. Survey from Mastercard..
Fintech start-ups such as Nubank and Ualá in Argentina have played a key role in driving expansion. In Brazil, the central bank has launched Pix, a high-speed money transfer system via mobile phones with 110 million registered users.
“It’s clearly the first hit, as Brazil and Mexico have some of the most profitable banks in the world,” said Softbank’s Crowley. “These banks are very inefficient and have many branches, long queues, etc … So we started with FinTech.”
As in other regions, pandemics are accelerating digital change. Latin America has the highest per capita coronavirus mortality rate in the world and has some of the worst recessions, but Covid-19 has been forced to do much more economic activity online.
Pierpaolo Barbieri, who founded Uara in 2017, said: Now it’s a common catch-up and everyone is in a hurry to see what the opportunity is. ”
In some areas, the area is still lagging behind. “70% of China’s commerce is online, almost 50% in the United States … It’s still 20% in Latin America, so the process of digitizing the economy still has a long way to go,” Barbieri said. He added.
Julio Vasconcellos, co-founder of Latin American venture capital fund Atlantico, compared the market capitalization of technology companies in the region as a percentage of GDP of the same proportion in Asia.
“Looking at the evolution of the US market, the Chinese market, and the evolution of Latin America today, the curves tend to be very similar over time,” he said. “Go slowly and slowly until you finally reach the inflection point and actually start accelerating.
“Latin America has passed this inflection point about 10 years after the United States and about 7-8 years after China.”
Latin America has a market capitalization of technology of 3.4% of GDP, compared to 30% in China and 14% in India, he said. Latin America has reached the Chinese level of technological participation in the economy. “We’re talking about the equivalent of creating over $ 1 trillion in market value.”
It is unknown how long it will take. Francisco Alvarez-Demalde, co-founder of US-based Riverwood Capital, has been investing in Latin American technology since 2008. He states that the region is experiencing “a lot of excitement” and that as revenue growth in the tech sector grows stronger, funding will decline and flow.
“Capital availability has increased significantly in the region and has accelerated at a very fast pace in the last few years,” he said. “It’s hard to say where we are in the cycle [ . . .] In that respect, we need to be prepared for volatility. “
The region faces other challenges. As a major exporter of commodities, it tends to be an economic boom and bust, and its politics is unstable. The ongoing election cycle is throwing a wave of dissident candidates and demanding greater state intervention in the economy.
There are also practical issues. With the exception of Brazil, there is a shortage of software engineers and universities do not produce graduates with sufficient technical knowledge. Fixed broadband connections are lacking in many areas.
On the other hand, Softbank’s Crowley is not reluctant to increase technical bets. “Today, the IRR of Latin American funds is over 100%. [internal rate of return] It is managed in the local currency and is probably the best performing fund of today from an IRR perspective. “
Success of three Latin American startups
Nubank It claims to be the biggest success story of the Brazilian startup scene. Since launching a credit card with no annual fee in 2014, FinTech has gained more than 40 million customers in its home countries, Mexico and Colombia.
This year’s funding round gave Unicorn a $ 30 billion valuation and is currently aiming for an initial public offering in the United States. The São Paulo-based group has challenged the Brazilian banking industry, renowned for its high fees and bureaucracy, with a focus on technology and customer service.
Nubank also offers personal and business accounts, loans, insurance and investment products through smartphone apps.
Online used car platform Kavak Founded in Mexico in 2016 by Venezuelan entrepreneurs. The company recently raised $ 700 million in Latin America’s highest $ 8.7 billion funding round. Investors include General Catalyst, SoftBank and others.
Customers can buy and sell used cars on-site, the company acts as an intermediary, inspects the vehicle, and provides loans, guarantees, and courier services. The company currently has operations in Brazil and Argentina and is aiming for further expansion.
Lucky The success of Colombia’s outstanding startup. A local entrepreneur set up a company to deliver groceries in 2015, but has since expanded into areas such as financial services. We aim to expand to more than 200 cities in 9 countries and become a “super app” in Latin America.
Among Rappi’s innovations is the TurboFresh service, which aims to deliver the most requested products to customers within 10 minutes using sophisticated “last 1 km” logistics. The company name is a word game of “rápido” which means “fast” in Spanish.
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