At first, I couldn’t believe it when I read this new — and little-known — statistic: Latin America is the world’s most rapidly growing region when it comes to the funding of startup companies.
According to Crunchbase, a leading business information company, venture capital investors poured a record $19.5 billion into startups based in Latin America last year. That was more than triple the amount invested in the region’s startups in 2020, turning Latin America into “the fastest growing region in the world for venture funding in 2021,” the firm said.
As for this year, Crunchbase added that, in just the first two weeks of 2022, Latin American startups pulled in more than $450 million, and that investors “are optimism that tallies will keep rising.”
Indeed, experts tell me that last year was not a statistical blip, and that funding for the region’s startups has been rising steadily in recent years. But what they are seeing happening now goes far beyond their previous expectations.
“We have never seen anything like this,” Mauricio Claver-Carone, Inter-American Development Bank president, told me. “Just last year, you had more venture capital going into technology investments in the region than you had seen over the past 10 years together.”
Most of the investments in Latin American startups went to large firms in late stages of fundraising and that are already operating in several countries. They include firms such as Brazil’s Nubank online bank, Colombia’s Rappi delivery services company and a Chilean company that pays people for the calories they burn walking or biking with money that it collects from thousands of companies.
But while Latin America already has at least 27 known “unicorns” — companies that have a market value of more than $1 billion — there is also a huge rise in funding for early-stage startups.
There is an amazing number of small, socially motivated startups popping up everywhere in the region. I’ve interviewed several of their founders in recent months for a segment entitled “the innovator of the week” in my TV show on CNN en Español, and they are doing extraordinary things.
Laboratoria, a Peruvian startup co-founded by Mariana Costa Checa, provides free six-month computer programming courses for women in impoverished areas, then places them in technology firms.
Pachama, a startup led by Argentine entrepreneur Diego Saez, is fighting climate change by selling “carbon credits” to companies that pay other firms to plant trees or help conserve forests. Nilus, an Argentine company co-founded by Ady Beitler, recovers food that farmers normally throw away because it doesn’t have the perfect looks demanded by supermarkets — but is otherwise just fine — and sells it at below-market prices to the needy.
The bad news, however, is that Latin America’s rapidly growing startups are almost always individual success stories, which succeed once they move to California, or Florida. The region has a huge pool of talent, but most countries — with a few exceptions, such as Chile — fail to provide funding, know-how or international contacts to young entrepreneurs who are just starting their companies.
The amount of money the region is investing in innovation is pitiful. While Israel invests 4.9% of its annual gross domestic product in research and development of new products, South Korea invest 4.5% and the United States puts in 2.8%, Latin American countries’ average investment in research and development is only 0.6%, according to the World Bank.
Just as bad is that, while China and other Asian countries have benefited from massive US and European investments, many Latin American governments are scaring away foreign investors, instead of welcoming them with a red carpet.
Largely because of 19th century pre-globalization ideas that are still being peddled by the region’s populist leaders, only 54% of Latin Americans that foreign investment is good for believe their countries, according to a new IADB study.
Summing up, Latin American startups are growing faster than anywhere else in the world, but they only receive a small fraction of the world’s investments in new companies.
If countries in the region took advantage of their talent and put innovation at the center of their political agendas — investing funds and providing global contacts to young entrepreneurs — the region could increase its economic growth.
What are they waiting for?
Don’t miss the “Oppenheimer Presenta” TV show on Sundays at 7 pm ET on CNN en Español. Twitter: @oppenheimera