A recent article in PEhub by M.Christopher Johnson (see complete article here) analyses the reasons why Latin America should experience a boom on technology startups in the coming years.
I strongly recommend reading the post, but here are some highlights:
- The appearance of a gaggle of entrepreneurs from Latin America at TechCrunch Disrupt San Francisco in mid-September surprised and maybe even enlightened a few people. Over two dozen companies from Argentina, Brazil, Chile, and Mexico showed up to display their ideas next to their counterparts from Silicon Valley.
- Great companies are being made in Latin America — right now — and investors and entrepreneurs that ignore the region today may regret it tomorrow.
- Local investment: While Silicon Valley firms still command the largest venture funds worldwide, Latin America is not without sophisticated indigenous technology investors. All the major emerging regional tech hubs (Buenos Aires, Mexico City, Rio de Janeiro, Santiago) have both individual angels and VC firms that make regular investments. While still relatively few in number, their ranks are growing quickly.
- Returning natives: Latin American entrepreneurs that have been successful in the United States and elsewhere are returning to their home countries to provide this much-needed service.
- Shifting success models: The career success model for elites in Latin America in the twentieth century was straightforward: use family connections to get work in a large enterprise — either state-owned or a private monopoly — and ride the wave to personal wealth and political influence. As governments become more transparent and privatizations proceed, that model is going by the wayside as it has in other parts of the world. Students’ eyes are being opened to the possibilities that entrepreneurship brings, and the startup business model is becoming “cool.” And people outside elite circles have greater opportunities than ever before.
- Government support: Chile, Mexico, Argentina, Brazil, Colombia, Panama, and other countries in the region have significant — though frequently under-the-radar — governmental commitments to supporting the development of knowledge economies.
- Maturing markets: While the startup scene in Latin America has been percolating for a number of years, until fairly recently “exits,” as understood by Silicon Valley, were relatively rare. In truth, they still are — IPOs remain an unusual occurrence, and acquisitions are frequently initiated by an outside party. However, there have been recent signs that the trend is changing: startups are buying competitors, and graduates of indigenous startup accelerators and incubators are wielding financial influence in their own local markets.
- Beyond clones: It’s not unfair to argue that up until fairly recently, startup companies in Latin America were often clones of business models found elsewhere. Indeed, there still is no shortage of “cloned” companies, for one major reason: they succeed. Translating a tested business model to Spanish or Portuguese is still a respectable way of achieving commercial success. But Latin American entrepreneurs are also moving beyond the low-hanging fruit: unique, clever, and widely applicable business models are being conceived and executed effectively. It’s only a matter of time before one hits it big — in fact, that may already be happening.
- Enthusiastic beginners: As more conferences, hack-a-thons, pitch contests, and Startup Weekends take place, more Latin Americans will choose to take the path of entrepreneurship. This stimulates competition among event hosts to provide the best experience, which is ultimately better for the community.
- Educated participants: The various education systems of Latin America do produce graduates with technical skills; for example, nearly a third of over 700,000 university students in Mexico are enrolled in either engineering or technology courses. But beyond mere technical skills, entrepreneurs in Latin America increasingly understand how business really works.
- Growing mass adoption of technology: In some parts of Latin America (e.g. Chile and Argentina), technology adoption rates are comparable to those of the United States and Western Europe. But even in less developed parts of the region, stable economies and growing middle classes are bringing huge upticks in technology adoption. And Latin Americans, whether in the technology industry or not, are “social” on a world-class scale, using Facebook and Twitter with wild abandon.
Latin America is not monolithic, and each country has unique challenges that investors and entrepreneurs have to overcome to achieve success; reliable local partners can smooth this transition. But many of the local ecosystems are approaching a critical mass that will shortly — if it has not done already — allow them to be them self-sustaining. Some companies will fail, to be sure, but brilliant ideas, executed correctly, will be afforded the chance to flourish. Fortunes will be made, and lives will be changed.
M. Christopher Johnson is an experienced strategy consultant, entrepreneur, investor and writer. He edits the Latin America Startup Blog (www.latamstartupblog.com) and is based in Mexico City.