COVID-19 has turned the world upside down. The first few months of the pandemic put business around the world either on hold or on survival mode. And while the virus is still wreaking havoc across the globe, Latin American startups are marching along, with many even thriving.
Coronavirus’ impact on business operations
One would expect the impact of the virus on business to be overwhelmingly negative. Surprisingly, that was not the case. An August 2020 LAVCA survey shows unexpected insights into how coronavirus has impacted both existing and new business for Latam startups.
According to survey results, 58% percent of startups surveyed said the crisis has had a neutral (25%), good (26%), or even a very good (7%) impact on their existing business. Similarly, the crisis had an overwhelmingly positive impact on new business for Latam startups, with 17% reporting a neutral impact, 49% reporting a good impact, and 8% reporting a very good impact on new business.
Perhaps, this effect is in part due to Latam startups finding new opportunities to create solutions, tools, and resources that directly respond to the pandemic. Another theory is that the recent lockdown orders have accelerated the need for businesses to migrate traditional processes online, increasing efficiency and reducing costs. The following are two Mexican startups that show how businesses have been able to thrive during the “new normal”.
How a visitor registration platform quickly pivoted toward contact tracing
LobbyFix is a perfect example of how startups have risen to the opportunity to create new solutions to this new global challenge. The Mexico-based visitor management solution helps offices register and track traffic flow in and out of their facilities. Their team quickly reacted to the pandemic by creating contact-free check-in processes, as well as a suite of new features to help buildings detect and track whether a visitor was experiencing COVID symptoms or had come in previous contact with the virus. These features were a natural extension of their existing business registration platform.
“The new reality post-COVID-19 is forcing us to think outside of the box, to get out of our comfort zone, and to see how the market’s needs are evolving,” shared COO, Isabel Martinez. “To survive this crisis, our products need to evolve as our market does. Otherwise, our company will be another victim of this virus.”
Still, sales and use are low as many workers are still working from home indefinitely.
“Nowadays, with everyone working from home, and visits reduced to the minimum, we had the need to look for new tools to offer to our user base, and at the same time, look for new opportunities in this new reality, test them as quickly as possible, and learn at the same time as our customer what will be needed from now on,” added Martinez.
“Nice-to-have” online legal service turns into a necessity
The coronavirus will most likely be a factor for the foreseeable future. This means that the way we conduct business will transform. Companies have new needs that require new solutions. Oftentimes with entrepreneurship, it’s a matter of being in the right place at the right time.
EasyLex is a perfect example of this. EasyLex is a Mexican legaltech company that allows users to create contracts as well as incorporate businesses online. Since their February 2019 launch to market, EasyLex has grown steadily but modestly. That all changed with the pandemic.
“With the COVID-19, our growth has been exponential because companies are now looking for ways to minimize their expenses, and moving your legal process to a less expensive online platform makes sense –especially since you’re no longer visiting your attorney’s office or having face-to-face meetings,” said EasyLex cofounder, Andrea Duran.
According to Duran, most of EasyLex’s new customers were already contemplating a move to a more digitally-oriented approach and the pandemic was the catalyst they needed to make the jump. As a result, EasyLex saw a 300% growth in unit sales during the months of the shutdown (April to May), as well as a 40% increase in revenue.
“The pandemic has been an accelerant for the modernization of more traditional business processes. Old habits die hard but when the harsh reality of cost-cutting as a result of a potential slow down in business met up with the blunt reality of not being able to do things in person – businesses started to shift. In the end, I think they’ll end up stronger for it,” explained EasyLex’s seed investor, Andy Kieffer at Agave Lab Ventures. “The pandemic has completely changed the landscape. Many of these ‘one day we’ll get around to it’ projects have converted into necessities overnight.”
Latam Investment in 2020
Another area where the pandemic impacted startup growth was in the ability to fundraise. Yet, despite the economic uncertainty, Latin America continues to attract capital amidst the pandemic, especially in Brazil and Mexico. Sectors that saw investment were the lending and delivery services.
Total foreign direct investment to Mexico for the first half of 2020 was $17.7B, a 0.7% decrease compared to last year. Startup investment specifically has seen significant growth despite the pandemic. According to an April 2020 Transactional Track Report, Mexican VC investment increased by 132% compared to 2019. Fintech is a particular area that has continued to see strong growth. A report by the LATAM Fintech Hub showed that Latin American fintechs raised $525M in equity and debt between 74 deals in 2020 H1.
While businesses across the board have been struggling, the pandemic is an opportunity for Latam startups to mature. Chile-based investor, Nathan Lustig, also suggests that COVID is forcing the region to accelerate a trend towards the digitalization of work and commerce, a view that is widely shared across industries in the region.
Andy Kieffer, General Partner of Agave Lab Ventures thinks now is the time for startups to rethink their long-term fundraising strategies.
“Part of the startup culture is jumping from round to round in an ever-increasing spiral of increasing valuations. If you’re a company that was burning through cash, sacrificing near-term profit in favor of raw growth, you may be looking at some serious retrenchment.”
Kieffer started off the year advising Agave Lab’s startups to focus on profitability, which had the portfolio in a strong financial position to brace the uncertainties of the pandemic.
“Companies that have built a bit of a war chest and can use this time to refine their business models and boost their unit economics will be in a great position to capture market share from those high fliers that have recently crashed,” he said. Only the best companies and products will survive. Latam’s entrepreneurs have to continue to evolve to survive and thrive in the new normal.
Startups usher in the new normal
The pandemic creates unprecedented challenges for startups when it essentially shut down many parts of the economy overnight. It also created new opportunities for Latam startups that were able to create new solutions to the pandemic, or whose innovative, online solutions were made necessary to keep businesses functioning safely during the ongoing pandemic.
The coronavirus pandemic is unlike anything we’ve ever seen, and has undoubtedly impacted all areas of life. Now is the time for innovators and entrepreneurs to usher us into the new normal.