Is Latin America ready to make “decacorns”?

Interview with Andrés Barreto, Managing Director of TechStars Latin America

The Latin American startup ecosystem has grown exponentially in the past four years. The region recorded a staggering $4B+ in investment in both 2019 and 2020, and this will only rise. With investment pouring in from across the globe, it is no surprise that the region now claims 35 ‘unicorn’ startups – those with a valuation of over $1B – including Rappi, Ualá, and Frete, to name just a few.

The question is: is Latin America ready to make “decacorns”?

A “decacorn” is a startup valued at over $10B. Currently, Latin America has one decacorn – the Brazilian neobank Nubank, which is the largest neobank in the world and valued at $43B. 

Andrés Barreto, Managing Director at TechStars, believes that Latin America is certainly capable of producing many decacorns, and, in fact, they already exist. For Barreto, it is more a question of how many decacorns Latin America can create, and the answer to that lies in the nature of the support given to startups in the early stages of their journey.

Innovation in Latin America

There is no shortage of innovation in Latin America. The startups that have emerged from the region in the past 4 years are proof of this: fintechs addressing Latin America’s millions of underbanked citizens, digital learning platforms, interactive life insurance startups, and more. The pandemic pushed further this innovation when many companies were forced to pivot their product and business model in order to adapt to the changing market and global situation. 

In fact, Andrés believes that the innovation of the entrepreneurs is so strong that they have ended up shaping the market as they created digital solutions towards a more tech-based ecosystem. 

“These entrepreneurs are creating markets that didn’t happen before – they just weren’t possible”

Latin America is not lacking in entrepreneurship, but it needs to be supported with early-stage funding and access to the right networks from an early stage if Latin America wants to make more “decacorns”.

Access to funding

Only a few years ago, Latin America’s access to venture capital was limited to its own local funds. Prior to 2018, the capital markets focused on their own spaces and rarely looked beyond their own borders. 

The situation began to change towards the end of 2018, and 2020 saw a huge explosion of international attention from venture capital firms from across the globe. In recent years, “geography has mattered less, and the US investors increased their appetite for Latin America”, says Barreto.

The new attention and investment in the region had a profound impact on the startup ecosystem, with funds such as the SoftBank Latin American Fund writing $100M + checks for companies such as Creditas’ $200M, or the $100M each for Clip and Konfio. However, these investments are channelled towards companies already becoming successful, rather than early-stage startups. 

Barreto acknowledges that it is more risky to bet on a smaller startup than an established and successful one, and so often the bigger funds just don’t go there. Unfortunately, this means that many startups fail simply because of a lack of access to early-stage support, and this is where accelerator programs play a role. 

Building a company from the roots

As a Colombian immigrant to the US, Andrés Barreto witnessed first-hand the impact accelerator programs and grassroots support can have for young entrepreneurs and their companies. Without TechStars opening the door for Barreto, it seems unlikely he would have reached success on his own.

Barreto wants to rewrite the future economy to benefit those who are in a similar position. Accelerator programs across Latin America are seeking out the often-overlooked talent and are willing to take the risk to champion them in the ecosystem. 

These programs offer unique opportunities for networking and building those crucial relationships that could make the difference between securing that raise or not in the future. They also provide mentorship and a unique insight into the ecosystem from experienced entrepreneurs – something that simply wasn’t possible before the digital age. 

Often, accelerators are also particularly conscious of challenging inequality. TechStars, for example, is actively working to target the lack of access to funds faced by women and minorities. Last year, less than 2% of Latin America’s venture capital went to women-led companies. In contrast, the next TechStars program boasts a portfolio in which 70% are diverse or minority entrepreneurs.

In a few years time, Barreto wants to see at least 30% of the region’s major startups led by minorities and women.

“I would ideally like to see at least 50%, 60%, of companies led by women – a reflection of the population. It is something we must aim for in order not to repeat the mistakes we’ve made for the last 50 years.”

Shaping the future

With increased attention from accelerators and venture capital funds turned towards minorities and early-stage startups, Latin America is laying the foundations for a strong future ecosystem that will produce multiple “decacorns”. 

Venture Capital funds such as Newtopia, an Argentine fund focused on seed to Series A, and accelerators such as TechStars and more local programs, are paving the way for grass roots support to entrepreneurs across the region. It is only a matter of time before Latin America begins to see more startups heading towards that $1B and $10B valuation. 

Andrés Barreto is confident that Latin America’s future decacorns already exist today, now it’s just a matter of helping them get there.

Connect with Andrés Barreto on LinkedIn.

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