Although Latin American countries do not have anywhere near the access to venture capital and angel investing as the US does, they have a rapidly growing technology industry.
Although there is activity in other countries in Latin America, Brazil will be the focus of this discussion as they have the largest and most mature venture capital industry in Latin America.
Mr. Bruno Peroni discussed the tech and venture capital environment in his home country of Brazil. Unfortunately the presenter from Venezuela was unable to attend. Luckily the insights provided by Mr. Peroni were enlightening.
Although it is the largest and most mature venture capital industry in Latin America, it is only valued at 360 million dollars. Although this is a large amount of money, it is dwarfed by the valuation of the Silicon Valley venture capital industry.
Brazil has the 7th largest world economy, but only the 74th largest GDP. Additionally around 30 of the worlds most dangerous cities are in Brazil.
They have been recovering from a deep recession, and their stock market hit an all time high this past February. Unfortunately Brazil has and does suffer from political corruption, and regularly has governmental scandals.
Brazilians average 3.8 hours a day on social media, which is quite high for a BRIC nation. They also have a huge consumer market group. Brazilian entrepreneurs and investors own Burger King, Kraft, and Budweiser. Reflecting that there is a hunger and great potential in this growing nation.
Two main risks act as limiting factors to growth in Brazil: crisis’s in Brazil tend to get worse before they get better, and their massive bureaucracy is very difficult to work with. Globally they are ranked as #123 in doing business.
Brazil is home to the WOW accelerator. It was one of the first and has been one of the most active accelerators in Brazil. Their portfolio includes 32 companies and 92 angel investors. 21212 is another one of the earliest Accelerators.
The five primary Latin Amirian tech and venture capitalism ecosystems are: Argentina with its strong business traditions and adherence to the mercado libre (free market); Brazil and its recovering ecosystem which is the strongest in the region; Chile whose international positioning is open and easy, although very small; Colombia whose government lacks support of venture capitalism; and Mexico with their strong ecosystem and cultural connection to Silicon Valley, as well as their proximity and connection to the United States.
Startups have taken shape in three distinct phases throughout recent Brazilian history. The first phase was called the bubble and occurred between1995 and 2005. Three companies helped lay the foundation for the emerging industries and were instrumental in creating culture of startups in Brazil.
Examples of startups from this phase are: Terra, an internet provider acquired by Telefonica; Buscape- price comparison application acquired by Naspers; and Movile-Moble Solutions who are controlled by Naspers.
The second phase is affectionately referred to as the dawn. It occurred between 2005 and 2015. This phase was characterized by Government support of Tech and Venture Capitalism industries and the effect of success stories from the first phase on the advancement of the second.
Governmental support consisted of incentives that fostered startups and strong government support of SEBRAE (and its 1 billion dollar funding intended to foster small company growth). Much of this was allocated to foster startups rather than small businesses.
These involved accelerator subsidies which have since dissolved because of the financial and economic crisis, venture capital subsidies funded through state owned corporations’ pension funds and government agencies and the largest Limited Partnerships. The network effect was a phenomenon where the tech and venture capitalism industries saw a boom due to excitement and confidence based on successes in phase one.
The third phase is currently underway and appears to be continuing the previous pattern of growth in the venture capital and tech industries. The growth and success of these industries in Brazil is yet to be seen as the country is still grappling with recent recession, however the third phase has the potential to advance Brazil in the worlds tech and venture capitalism markets.
If policy and innovation similar to the first two phases continues, then the third phase could be incredibly successful. Unfortunately, Brazil’s venture capitalism industry has few exit options and early mergers and acquisition are the norm.
Brazil is an island in Latin America, as it has a relatively closed economy and has difficulty establishing connections with neighboring countries. Bridging the gaps and addressing the issues in their venture capitalism industry are crucial for its continual advancement. Seed and growth funding is desperately needed.
Focus on relevant verticals, such as Agribusiness, Fintech, and Education represent the greatest opportunities in Latin America and Brazil. Mr. Peroni recommended to “buy now and buy cheap in Brazil”. The same holds true for Argentina and Colombia.