The future is bright for Latin American startups

Startups have been a bright spot for Latin America in recent years. The number backed by venture capital more than doubled between 2020 and 2023 to over 2,500, according to LAVCA, an association for regional investors. In 2021 Latin American startups attracted around $16bn in investment, roughly as much as in the previous ten years combined.

Startup activity exploded during the pandemic. As elsewhere, people confined to their homes wanted to shop, consult doctors and much more without leaving the house. Many existing firms did not have online portals, or at least not user-friendly ones. It helped that SoftBank, a Japanese investment behemoth, had launched its first fund for Latin America in 2019, worth $5bn. Other funds followed suit.

Since then investors have calmed down. Global economic conditions have been a factor, too. In 2024 startup funding will probably stabilise at around its pre-pandemic level. But the number of startups will increase. More will find backing from venture capital, including local funds, which are now proliferating.

As elsewhere, many Latin American startups aim to make life more convenient—groceries or takeaway food delivered to your door, for example. The likes of Cornershop, a Chilean app that started in 2015 and was bought by Uber in 2020, and Rappi, a Colombian app, are now used across the region. Both have expanded to do more, including delivering small parcels and running errands.

But startups also reflect the particular “pain points” faced by people in Latin America. Logistics is one fertile area. The region’s postal services are shoddy and, slow and a lot goes missing. E-commerce startups such as Mercado Libre have established their own logistics arms. Startups are likely to expand into business-to-business deliveries, especially if Mexico attracts more manufacturers seeking to move operations from China.

Another pain point is low trust and lack of legal recourse when things go wrong. Kavak, based in Mexico, is a platform on which people buy and sell second-hand cars. Its founders realised buyers did not have confidence in sellers to tell the truth, so they stepped in as a middleman. Similar platforms exist for property. Loft, in Brazil, buys, remodels and sells apartments and houses. Users can sell their pad to Loft, apartment-swap or simply list property on its website.

Brazil has long been the most established startup hub, followed by Mexico, Colombia, Chile and Argentina. Expect some countries to produce their first unicorns (companies valued at over $1bn) and more cities, not just capitals, becoming startup centres too. Other countries will also see more activity as startups expand across regional borders.

Nubank, a Brazilian firm, is one example to watch. In mid-2023 it became Brazil’s fourth-largest bank by number of customers (it has 80m) and has expanded to Colombia and Mexico. The region is home to millions of unbanked people, and plenty of banks that stick to traditional, expensive models.

What will still be lacking in 2024 is substantial official support. Governments around the region have cheered on innovation, but none offers anything like the support services for entrepreneurs that made successful startup hubs of countries like Israel or Singapore. Slow bureaucracies and out-of-date rules continue to frustrate. Even so, startup activity will continue to thrive. Entrepreneurs in the region point out that they have to be resilient to get to where they are. Turning the region’s obstacles to their business advantage is what makes Latin America’s startups so dynamic. ■

Sarah Birke, Bureau chief for Mexico, Central America and the Caribbean, The Economist, Mexico City