Never has there been a better time for Latin American startups; there are currently great opportunities for those who decide to launch a company in this market, with more people willing to take a leap of faith and more teams willing to tackle interesting problems. However, the decision to start a company can be risky.
There is little information about how many startups have failed in Latin America, but according to CBInsights, only 33% of the more than one million startups that reach seed stage will succeed. If we include those that never make it to an initial funding round, the number of failures reaches close to 90%.
In a market such as Latin America, this statistic is as it should be. There are many reasons for the high failure rate such as market timing, not being able to find product-market-fit, disagreements between entrepreneurs, unforeseen socio-economic changes, problems in manufacturing, and plain bad luck.
It is normal for startups to fail, especially when they have an innovative product, a common denominator for startups. Nonetheless, as with every failure, the lessons learned from the experience are invaluable to the entrepreneur and the ecosystem.
Viewed from afar, this situation seems terrible. To work in a startup with a good team, an important mission, and a motivation to achieve it is one of the most fulfilling feelings of professional life, and to see the startup fail is extremely painful.
However, when a startup fails there are also positive outcomes. The bigger the failure, the better for the ecosystem. The knowledge created by that team is dispersed to other startups in the community, helping them grow in turn.
A team learns a lot in a short time through working and growing the startup. Later, when the startup fails, it is likely that these same people will want to be part of a new startup team, or perhaps start a company for themselves. In this way, everything that they have learned from the first attempt can be applied to the next, building on their experience and thus growing the ecosystem.
I regret to inform you that this week, one of the best fintech startups in Colombia, Alkanza, has ceased operations. This fintech startup aimed to democratize access to stock exchange investments by creating a robo-advisor which allowed people to invest in the economic market quickly and easily.
It is too soon to do a proper analysis, but the main causes for this failure were the slow product adoption through partnership channels and the difficulty of scaling the business model.
Let it be known that all of the Alkanza team, including the management, investors, partners, and even their most-recent hire, was among the best in Latin America, and the knowledge they now have will nourish the ecosystem.
For founders who are looking to strengthen their teams, I have good news: the Alkanza team members are ready for hire, and you can view their profiles and contact them here.
We all know how challenging it is to find available and experienced talent; so founders, move quickly because these people will not be on the market for long.
There is a need to change our mindset to understand that with entrepreneurship there is inevitably significant failure, but there are also many success stories. Although this time may be hard for the Alkanza team, I personally would invest in and work with this team on their next project, as I am sure many others would as well. Thanks for your hard work.
Daniel Bilbao is the co-founder and CEO of Truora, a startup that combats fraud in Latin America through instant background checks. He worked in the investment bank in Wall Street, is a mentor and partner for various startups, and is also an active angel investor.
If you’d like to learn more about Daniel Bilbao, listen to Episode 80 of the Crossing Borders podcast.