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The Opportunity of Latin America.





Latin America is a large and beautiful region of the world, with over 600 million people of various ethnicities making up an area of our world that produces some of our most important natural resources. It is sad to see the region often being left unrepresented at some of our largest conferences here in London and generally in the western world. Here though, we bring light to some of the biggest trends and startups in the region.



Written by Tanay Sonawane, Audrey Hutabarat, Jonathan Ouyang, and Varshith Uppalapati


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FINTECH DOMINATES


Latin America stands at the forefront of fintech innovation, witnessing an extraordinary surge in investment that catapulted from $4.1 billion in 2020 to an impressive $15.7 billion in 2021. With deep historical ties to the financial services sector, the region has proven to be an ideal breeding ground for fintech startups. Despite its expansive economy, Latin America's predominantly urban population, with around 87% in Brazil and 80% in Mexico, presents a unique environment ripe for financial disruption.

 





Historically, Latin American banks focused on serving affluent individuals, leaving a significant portion of the population underbanked, ranging from 30% to 50% across major countries. This gap, coupled with subpar user experiences from traditional banks, has catalyzed the rise of fintech disruptors. Brazil, a fintech hub and home to the region's highest number of unicorns, including global giants like Nubank, exemplifies this trend. Fintech players such as Nubank and Creditas are challenging conventions, tackling issues like unfavorable interest rates and inadequate banking experiences. With approximately 40% of the population under 25 years old in countries like Mexico and Brazil, coupled with a growing preference for digital solutions, Latin America is poised for the continued dominance and exponential growth of its fintech ecosystem.




HEALTHTECH IN LATIN AMERICA


Expectedly, the blow suffered from the COVID-19 pandemic brought about a decisive time to this segment in the venture capital space. The pandemic was, in many ways, a wake-up call, where it presented sudden challenges that had to be tackled through HealthTech with a combination of increasing investment and innovative ideas. 


And indeed, we observed a tremendous increase in investments in the start-ups that are providing this technology in Latin America. To be specific, total funding raised per year in Latin America increased 4700% from 2015 to 2021. 


In this industry, nearly 80% of the top Latin American HealthTech companies are provided by Brazil and Mexico. In Mexico, most start-ups are focused on serving low to middle income patients. This particular fact demonstrates the high demand for service across the country, thus showing the great room for further development in this area. But this is not unique to Mexico. Indeed, the overall provision of healthcare in Latin America still lags behind that of developed markets, which brings us to our next point below. 





Apart from the pandemic acting as a catalyst in the rise in funding in healthtech in Latin America, one other reason we are seeing such a surge in the funding in health technology in Latin America is due to the region's low efficiency in healthcare. This means that diminishing returns in investments has not yet been reached, and there are significant amounts of easy returns for investors by funding healthtech projects in the region. 


Given this, there are several areas that investors should pay attention to. Firstly, that of telemedicine. In combating the difficulties of accessing basic healthcare, telemedicine should be one of the most dominant solutions. This technology has already been widely adopted since the COVID era, where it was used to solve problems such as the high pricing of private appointments, busy public healthcare systems, and so on. And indeed, it is predicted that this market will reach the value of US$5.6Bn in 2026, signalling extremely high potential in growth. 


However, the other trend to watch for is that of the Data, Privacy and Regulatory Environment. As with any other technology that utilises big amounts of data, there are always doubts about its reliability and cyber-safety. In this sense, if start-ups are able to cultivate government and public institutions, we should expect to see sustained growth. If not, some caution should be exercised.



One startup in the region is Clivi. Clivi, headquartered in Mexico, is tackling diabetes in the region, which often suffers from a shortage of medical professionals for the condition. The app effectively connects patients with endocrinologists, nutritionists as well as psychologists, giving quick and easy access to medical services via WhatsApp or whatever communication channel they may use. Clivi has so  far helped thousands of patients, around 94% of whom achieved control of their condition within six months.





GOVERNMENT INITIATIVES


Governments across Latin America have proactively implemented initiatives to cultivate an environment conducive to startups and technology-driven enterprises, streamlining access to resources and funding. Noteworthy examples showcase the transformative impact of such initiatives in shaping the region's entrepreneurial landscape.

 

In Puerto Rico, the government has harnessed innovation through its accelerator program, Parallel18, launched in 2015. Offering $40,000 USD of equity-free funding, along with mentoring, consulting, and investor access, this program aims to position the island as a thriving hub for entrepreneurship. The five-month program, based in the capital of San Juan, provides a platform for strong networking opportunities, illustrating how government initiatives can catalyse entrepreneurial ecosystems in unexpected places.

 

Similarly, Chile's government-backed initiative, Startup Chile, is a global catalyst for entrepreneurial success, prioritising support for over 2,000 founders worldwide. It distinguishes itself through crucial equity-free funding, ranging from $15,000 to $100,000 USD, propelling startups through early development. Beyond funding, Startup Chile fosters valuable partnerships with major entities like Microsoft and Walmart, creating significant networking opportunities. The initiative also provides access to co-working spaces in Santiago, facilitating collaborative environments for start-up growth.

 

Argentina, recognising challenges posed by bureaucracy and complex tax systems, has taken significant legislative steps to promote entrepreneurship. News laws such as Entrepreneur’s Law means that companies can start doing business in just one day. Argentina also gave special benefits, like tax cuts, to tech companies under the Law of Promotion of Software. This helped Argentina become a big hub for IT businesses. The government is quite serious about supporting businesses that use knowledge, so they lowered the tax rate for these companies to 15% until 2029. The government also created something called the National Trust Fund for Entrepreneurial Capital (FONDCE). It has 10 funds, each with at least $30 million. This fund gives brand-new businesses 0% loans, which means they don't have to pay any extra money back. The government also helps startups through city programs like IncuBAte. IncuBAte provides support like mentorship, money help, and shared workspaces. It even finances up to 100 startups in each round, making it easier for new businesses to get started.

 

The convergence of private and governmental initiatives in LATAM has led to huge interest from the VC community. A CB Insights report reveals that the region raised over $600 million and witnessed more than 98 mergers and acquisitions in the first quarter of 2023, reflecting the significant impact of government support on funding outcomes.





AGRITECH


In Latin America, the agriculture sector still accounts for a significant portion of the region’s economic health, where its growth is still intimately linked to the livelihoods of the people. In fact, agriculture accounts for 5-18% of the region’s GDP, and is one of Latin America’s fastest growing sectors. 


As of June 2022, Latin America received around 1% of AgriTech venture investment, which leaves considerable room for continuous growth. A very notable reason as to why the sector might be increasingly attractive to tech investments is the increasing food demands. Latin America accounts for a significant portion of global agricultural exports, with Brazil being the world’s third largest exporter in sugar, coffee, orange juice, beef, and more. Argentina is the largest export of soybean meal and oil in the world. With this dominance, to meet the increasing global food demands, agricultural production in Latin America would have to grow 80% by 2050


In order to meet this demand, global investors are now recognising the need to digitalise farming, thereby increasing food yields. So why AgriTech? Well, much of the problem faced by farmers is poor understanding of soil fertility, and lack of timely information from fields. With AgriTech, farmers can gain access to close-to-real-time field data and make informed decisions that better yield results and reduce inefficiencies such as unnecessary food wastes. With this,we are now seeing sturdy streams of funding, reaching a record high of US$51.7bn in 2021 in the AgriFood Tech sector. 


Indeed, the viability of Latin America’s agricultural sector will depend on its ability to keep pace with growing demands and its ability to adapt to climate change. The digitalisation of farming through AgriTech is a promising field that can potentially yield incredibly high returns for investors in the region.







One such startup which works in this area is Demetria of Colombia. Coffee is a major export in the Latin America region, but there are significant challenges when it comes to applying technology across the value chain. Demetria is a company that aims to bring technology to improve the taste of coffee. The firm provides a suite of SaaS products that help farmers analyse coffee beans using NIR sensors to better analyse the quality of beans with AI. 





Latin America is a region that is growing faster than ever before. To ignore it as an emerging markets investor would be a mistake indeed! Such a region provides amazing opportunities both for investment and for the betterment of our planet.


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