5 Reasons North American Investors Should Consider Latin American Tech and Startups.
Recently Emmersion's Managing Director, Stephen Marks, had the chance to chat with Claudio Barahona Jacobs, Country Manager - Wayra Chile, about recent activity in Venture Capital and tech in Latin America and why this is important for North American companies and investors.
Wayra is a global technological innovation hub, which was started in Latin America and Spain as an initiative of Telefónica, one of the world's largest telecommunications companies, to connect the world's technological innovators by supporting their projects as strategic partners to accelerate the businesses. Wayra operates through 11 hubs in 10 countries within Telefónica’s footprint: Argentina, Brazil, Chile, Colombia, Germany, Mexico, Peru, Spain, the United Kingdom and Venezuela.
In Claudio's words, here are 5 reasons why North American companies and investors should diversify their portfolio and consider opportunities in Central and South America and why now is the time to invest:
1) LATAM is the “next rising star", but it's still an underdog:
It's becoming more difficult to find good investment deals in the US as many investors are trying to be part of one of the “wannabe unicorns” and the fight to be in the cap-table of one of those companies is hard. When you are in the deal, it is possible that the returns are not as large because of the high valuations and overcrowded investor scene. So you have to look to other regions.
So, where? Everyone may say China. Good idea, but you are 5 years late. All the big firms are already in China and if you are not, then you have missed the train. And with the current political situation, it will be even more difficult. So, what other regions do you have? Europe of course, a consolidated region, but business as usual. Africa? Oceania? Too many countries, different cultures and languages, maybe too risky.
Latin America? One language for the whole region (except Brasil) and with a population of 650 million habitants, the region is growing the fastest in terms of digital consumption. Today, the Pacific Alliance (México, Colombia, Chile & Perú) is the 8th largest economy in the world with a GDP of $18,921 USD per capita. And a total blue ocean for new investors in innovation: in 2018, just $2B USD of $255B worldwide venture capital investment went to Latin America (source LAVCA).
2) Latin Americans are consuming more digital services than some European countries:
In Chile alone, Spotify users listened to 62 million hours of music, making it one of the most active user countries in the whole world. If you look at Spotify’s report you can see that LATAM has 22% of all of its users, just 7 points behind North America (29%).
Here is another amazing stats of digital consumption: Chile has 1.9 million Waze users versus 2.1 million in the UK. Now compare population: 18 million Chileans vs 66 million in the UK. In Chile, 10% of the population use Waze vs 3% in the UK. Why? Because there is a very aggresive and big telecomunication infrastructure in Latin America. Last year, mobile data usage (GB/month per user) in Chile was 9.3GB, the highest in the world, far ahead of South Korea with 6.4GB and the US with 4.6GB.
3) There is talent and good deal-flow:
There are a lot of very good technology and early stage companies, with real revenues, proven business models and big companies as costumers. Since there is not a lot of VC investment in the region, the entrepreneurs need to earn money by selling their products!
So the Latin American entrepreneur does not waste too much time raising money because there is no other option than selling their solutions. Because of this, you will find very good startups with a nice growing revenue chart and a costumer-centered strategy, which is not fundraising-centered. And talent? Just look at companies like Rappi, Nubank, NotCo and you will find amazing teams. There's a reason Softbank, Sequoia Capital and Jeff Bezos have invested into these companies!
4) Valuations are lower:
As I mentioned, a region with a lot Venture Capital and mainly Series A rounds, there is a big opportunity for series B and C investors. Valuations are lower and you can find a company, in similar conditions of product market-fit, team and revenue with an valuation in the US for $50MM USD. The same company in LATAM will cost only $10MM USD in terms of valuation. Why do you think this year has seen big VC funds like Sequoia Capital, Andreessen Horowitz and Softbank are making their first investments in Latin America?
5) You are at the right moment:
It is now! The window of opportunity is open right now. The big ones are coming, valuations are still low, good startups and tech companies are still hungry for investors and digital consumption is growing. If you wait 2 or 3 years, you may be late to the party.
Join early stage and middle market companies from Latin America at the Access Forum in Chicago this September. Click here to connect with Claudio Barahona Jacobs to learn more about his views on investment opportunities, technology and startups in Latin America.