The talent in founding teams and entrepreneurs has drawn many foreign investors to the Latin American ecosystem. Accelerators play an important role in breaching the capital gap that exists in the pre-seed and seed stages.
If there is one region experiencing a boiling point in its startup ecosystem, it is Latin America. In recent years, the sector has grown in very specific areas ―fintech, logistics and distribution, and e-commerce― mainly in Mexico, Colombia, Argentina, Chile, and Brazil.
A key factor that has enabled the growth and evolution of the Latin American entrepreneurial ecosystem is the seed accelerators: entities or companies that support startups in exchange for participation in the business. Their operation is based on a program that contains a series of calls for proposals with a stipulated time frame.
According to the Association for Private Capital Investment in Latin America (LAVCA), since 2015 and before the pandemic, venture capital investments have grown 673% in Latin America. Investors take the risk because although startups have a relatively short operating life (approximately 2 years) and are in the early development phase, they have a short operating history and small tangible assets that prove to be a great option for well-above-average returns if they successfully execute their strategy.
Techstars is a company that develops accelerator programs focused on supporting entrepreneurs who are typically underfunded, such as women and minorities. Its original program, Techstars Boulder Accelerator, was founded in 2007 as an accelerator program and since then has helped 160 companies grow their business to the next level. It offers a contact and mentors network with significant global experience in building and scaling companies.
“Accelerators play an important role in the capital gap that exists in the pre-seed and seed stage. Especially when entrepreneurs are not fortunate enough to raise hundreds of thousands of dollars from friends and family,” explained Andrés Barreto, entrepreneur, lecturer and Managing Director of TechStars.
From his experience as an entrepreneur, Barreto argues that one of the main reasons for the maturing of the entrepreneurial ecosystem in Latin America and the attractiveness of startups for accelerators in the United States has been the COVID-19 pandemic. As contradictory as it may seem, the health contingency challenges made accelerators migrate with greater emphasis to startups in the region since there was a sudden acceleration of digital transformation in all industries.
“The geographic barriers during pandemic times were removed and the need for ‘Silicon Valley’ as a geographic point diminished. Access to opportunity became easier with a video call. Finally, we can see that, with the nature of remote work, an entrepreneur in Miami, Boston, Guadalajara, Medellin or Cordoba has the same access to the commercial market and capital to create products that are born global from day one,” Barreto said.
And while the pandemic left positive things behind, it opened up a huge space for entrepreneurs in innovation. In terms of labor and digital and programming talent, it resulted in more remote work opportunities for companies in the United States. It also made much more evident the digital gap and unemployment, which has disproportionately affected women.
500 Startups is another VC working to support startups across the globe through early-stage investment and accelerator programs. The 500 LatAm Accelerator is a 16-week seed program for Spanish-speaking founders that has funded and mentored some of the region’s largest startups including Konfio, Clip, Conekta, Cabify, and Ayenda Hotels.
Co-founder Didier Quiroz has also seen the rapid growth and huge potential of the booming tech scene in the Latin American ecosystem, and 500 Startups is working to support that growth. The program aims to train young startups in investment, management, software, and development among other key areas.
“I think the starting point of the entrepreneurs and their companies is completely different today to what it was nine years ago when everything was an experiment. Now there are better opportunities for education and training which is resulting in more prepared entrepreneurs and increasingly specialized companies that understand the problems of the ecosystem,” said Quiroz.
Investing in human capital
Techstars’s Barreto also praises the increased education and training opportunities for Latin American startups, both from local and international companies.
“Education is fundamental for the growth of startups in the region, specifically learning the English language and Software Programming, in that order. Companies are hiring software programmers who are trained in non-formal academies, bootcamps and online,” he stated.
Without a doubt, the most strategic activity that can be done for the economic development of the region is to increase the alternative offer in startup education to complement the traditional one. Training in software development and other related digital skills generates more wealth for more people in less time in contrast with almost any other industrial strategy for economic development.
With a strategy of such dimensions, skills and talent are better leveraged, and this is another factor for why Latin American entrepreneurship has drawn foreign investors’ attention: from beginning to end, the investment criterion is human talent and the founding team. At least that is one of the main parameters of Techstars as a seed accelerator, “then comes the market, the product and the idea”, explained Barreto.
The program is committed to fund 1,000 diverse CEOs by 2026, and thus change the disproportionality of the tech industry, where the rate of capital invested in companies led by women or minorities is extremely low.
“If access to capital is only possible for those who already have it, inequality will only be perpetuated on a larger scale. Accelerators close that gap so that those who are not well connected have the same access to capital as those who are,” concluded Andrés Barreto.
Similar to Techstars, Y Combinator is also changing the face of early-stage funding in Latin America and has backed many of the region’s most promising and successful startups, including those led by female founders. The accelerator works closely with companies for three months, helping them to redefine their pitch to investors to better harness the resources of the ecosystem and scale rapidly.
Once graduated, Y Combinator startups continue to have the support of the founders and the accelerator’s network as they grow in the ecosystem.
“We think founders are most productive when they can spend most of their time building. Our goal is to create an environment where you can focus exclusively on building the product and talking to users,” said the company.
Among the list of Y Combinator graduates are many startups led by female founders, including UBits, Fondeadora, Glitzi, and Mozper. The accelerator also held a Future Founders Conference for Women to further target funding inequalities for minorities in the region.
Beyond providing crucial training and support in the early stages of launch for startups, accelerator programs can also determine the future success of a company in a different way.
In gaining the recognition of major global players in the ecosystem, participation in an accelerator such as TechStars, Y Combinator, or 500 Startups, acts as a “seal of approval” for other investors, attracting future investment to the region and giving more companies global exposure. In turn, there is a spillover effect as more investors look to the region and its booming startup scene which boosts existing startups and creates an even stronger ecosystem for new companies and increased innovation.
This post is also available in: Español (Spanish)