How did Latin America get this far, and which obstacles are still to be overcome?
By Alex O'Brien
The Latin American economy, traditionally heavily commodity-driven, has a history of ups and downs, the product of currency volatility and social upheaval. Naturally, this would give pause to a potential investor in the region. However, within the past decade, various parts of Latin America have seen entrepreneurial success. There has been quite the buzz coming from the startup scene particularly in Argentina, Brazil, Mexico, Chile, and Colombia. A number of unicorns come to mind, such as Globant and MercadoLibre from Argentina and B2W from Brazil. Now, governments are sponsoring initiatives to promote entrepreneurship, and investors from all over the world are lining up to get in on the action. How did Latin America get this far, and which obstacles have yet to be overcome?
Financing has proven to be the greatest challenge. Many startups are able to secure seed funding, but struggle to find follow-on funding. Corruption has also been traditionally pervasive throughout the region and deterrent to potential investors. There are still antiquated laws that hold entrepreneurs personally accountable for their startups. Administrative burdens (e.g. number of procedures and bodies to contact to register a company) for entrepreneurs, especially youth entrepreneurs, are 42% higher on average than in the average OECD country.
There is also a cultural stigma towards failure that potential entrepreneurs must face, more so in Latin America than in other parts of the world. This can deter people from pursuing entrepreneurship as a career choice. Also, if the startup of an entrepreneur in Latin America goes under, the entrepreneur will be less likely to try again.
There are a few key factors that have changed the game. The natural globalizing forces of the market within the past decade have allowed companies to scale up, as they enjoy greater access to a larger market. Technology and the spread of smartphones have also been vital. Latin America is riding a tech wave, having produced nine “technolatinas” with a valuation greater than 1 billion USD.
Another reason is the new mindset of the entrepreneur. Before unicorns founded in Latin America came on the scene, the presiding mindset was to sell the company off in its early stages - essentially that of a serial entrepreneur. Now, there is more of an “IPO” mindset, meaning that the entrepreneur is increasingly looking toward having an IPO than to sell to a larger company early on. This is due to the hugely successful IPOs within the last two decades, such as MercadoLibre, Globant, and Despegar.com. In 2017, 16 Latin American IPOs have raised $6.8 billion, in comparison to the $1.5 billion raised by nine IPOs the previous year.
Government programs have begun a formalized effort to bring entrepreneurship into the national dialogue and to provide ongoing assistance to entrepreneurs. A prime example is Mexico’s National Institute of Entrepreneurship (INADEM), which in 2014 contributed $658M to about 620,000 entrepreneurs. This resulted in approximately 6,000 new companies and 73,000 new jobs.
Though there are obstacles left to overcome, the future of entrepreneurship in Latin America is looking bright. Recent years have proven the untapped potential that exists in the region.
Header Image Courtesy of: WikiCommons
Alex O'Brien is a student at Yale University where she studies History and Economics. As an Intern for the Ye! Community, she led the development of the Ye! Community - Latin America strategy. Alex has previously interned at Bulldong Innovation Group and Impact on Record.