Latin America Investment: 4 Ways to Drive Long-Term Growth

Latin American Startup Growth and its Potential for Regional Development

The startup ecosystem in Latin America is experiencing significant expansion. During the first half of 2021, startups in the region secured $9.3 billion in funding.

This period also witnessed the emergence of a record number of unicorn companies, notably including Nubank, Rappi, and iFood.

Attracting Foreign Investment

The substantial growth observed in Latin America has attracted considerable attention and capital from international investors.

SoftBank, for example, has announced the launch of its Latin America Fund II, pledging a $3 billion investment into technology companies operating within the region.

Beyond Financial Gains: The Broader Impact

The implications of this investment extend far beyond purely commercial considerations.

In the United States, venture capital investment represents 0.2% of the Gross Domestic Product (GDP), while companies supported by venture capital generate 21% of total revenue.

Preparing for Sustainable Development

To fully realize the potential for a new era of development – one characterized by increased access to employment, wealth creation, and educational opportunities – Latin America must proactively prepare.

This preparation necessitates focused efforts in several key areas.

• Increased funding contributions to GDP are crucial for fostering sustainable economic growth.
• Strategic planning is needed to ensure that the benefits of startup success are widely distributed.
• Investment in education and skills development will empower a larger segment of the population to participate in the burgeoning tech sector.

Successfully navigating these challenges will be paramount to translating startup growth into lasting economic and social progress throughout Latin America.

Strategic Partnerships: Cultivating Future Talent Through School Collaboration

Companies throughout Latin America possess substantial financial resources, yet they are increasingly challenged to secure qualified personnel for leadership and specialized technical roles as they expand and refine their product development processes.

Currently, Latin America faces the most significant skills deficit globally, with over 70% of businesses reporting difficulties in locating individuals with the necessary competencies.

The rapid influx of funding into numerous companies has intensified the competition for a large pool of highly skilled workers.

The Rise of AI and the Language Barrier

Artificial intelligence firms have attracted considerable investment in Latin America, totaling $862.6 million in recent funding rounds.

However, a significant portion of AI-related documentation and programming is conducted in English, a language in which Latin America demonstrates a proficiency rate of only 56%.

This linguistic constraint currently limits the full development and utilization of AI capabilities within the region.

To address this, governmental bodies should prioritize and promote bilingual education initiatives in both academic and professional settings.

Increased financial support and recruitment assistance for programs such as English for IT professionals are crucial steps.

Bridging the Gap: Collaboration Between Education and Industry

Enhanced cooperation between Latin American businesses and educational institutions is essential for effective upskilling.

This collaboration can manifest through various avenues, including specialized courses, mentorship programs, practical work experience, and dedicated training centers.

Examples include the SoftBank Operator School, which leverages the expertise of SoftBank’s portfolio companies and network to impart valuable tech skills.

Successful Models and Regional Expansion

Puerto Rico provides a compelling example with accelerator Parallel18’s partnership with NASA.

This collaboration grants startups access to NASA’s technology and opportunities for commercialization.

Furthermore, Parallel18 has launched a talent application designed to connect freelancers, students, and professionals with both local and international startups.

Scaling platforms like this across Latin America will serve as a catalyst for skilled individuals, fueling the region’s continued economic advancement.

Investing in talent is no longer optional, it’s a necessity for sustained growth.

Establishing Innovation Hubs Through Tech Infrastructure, Beyond Major Cities

Even with the rise of remote work, fixed broadband penetration remains below 50% across Latin America. A significant proportion of those with access are located within capital cities.

The Inter-American Development Bank projects that the digitization of public services alone could contribute to a 5.7 percentage point increase in Latin America’s GDP over the next decade – equating to $325 billion in additional income. Consider the potential GDP boost if private sector investment focused on expanding digital inclusion; consumers would benefit from wider access to online commerce, and more fully digital businesses could emerge.

While nations like Argentina, Colombia, and Uruguay are trialing 5G networks to enhance connectivity, rural administrations need increased resources and assistance to secure the necessary infrastructure and expertise for broader internet access. This necessitates fostering greater collaboration between public and private sectors to encourage innovation in currently underserved regions.

Empowering local communities with increased opportunities to launch small online ventures would generate new revenue streams, bolstering both families and local economies. Furthermore, it would enable advancements in areas like remote education, digital financial assistance, and telemedicine – all increasingly vital aspects of modern life.

Enhanced connectivity also allows for the implementation of coding education programs throughout countries. By delivering crucial tech skills outside of urban centers, nations can unlock previously inaccessible talent and foster the local development of innovative technological solutions.

Traditional rural sectors, such as agriculture, stand to benefit significantly from increased AI literacy. This could lead to optimized harvest yields and improved accuracy in agricultural practices.

The Benefits of Expanded Digital Access

• Stimulation of new income streams for families and communities.
• Facilitation of distance learning opportunities.
• Improved access to essential services like telemedicine.
• Empowerment of underrepresented groups through online advocacy.
• Unlocking untapped tech talent in rural areas.

Ultimately, improved quality of life through digital inclusion frees up individuals’ time and resources, allowing them to focus on innovation and creation. Investing in infrastructure is therefore an investment in future growth.

Facilitating International Expansion Through Governmental Action

The Latin American region comprises 33 distinct nations, each possessing unique regulations for business establishment and market entry. Consequently, companies often encounter significant challenges when attempting to expand operations beyond their national borders.

This impediment to internationalization frequently hinders a company’s ability to achieve the necessary momentum for a potential Initial Public Offering (IPO).

A viable approach to overcoming this obstacle involves collaborative efforts among Latin American governments.

Specifically, the introduction of a unified entrepreneurial passport could be instrumental.

Such a passport would grant individuals increased freedom to initiate and manage businesses throughout Latin America.

Drawing Inspiration from the African Union

Governments within Latin America could draw valuable insights from the proposed African Union passport initiative.

This initiative aims to enable seamless travel across 55 African countries.

A similar passport system in Latin America would streamline the process of assembling international teams.

It would also foster a more integrated and robust business environment.

Crucially, it would equip startups with the capacity to pursue international growth from their inception.

This early international focus could then pave the way for expansion into other global markets.

Benefits of a Unified Approach

• Enhanced mobility for entrepreneurs.
• Reduced administrative burdens for cross-border business.
• A more unified and competitive regional ecosystem.
• Increased opportunities for startups to scale internationally.

By prioritizing initiatives that reduce barriers to entry, Latin American governments can unlock significant economic potential and foster a more dynamic entrepreneurial landscape.

Reducing Obstacles to Public Listings for Companies

Historically, a limited number of Latin American enterprises have been represented among companies listed on global stock exchanges. The scarcity of initial public offerings (IPOs) in the region has meant that Latin American entrepreneurs have lacked substantial models to emulate when navigating this complex process.

However, the recent IPO of Uruguayan fintech firm dLocal on the Nasdaq exchange in June represents a potentially significant turning point. This event could catalyze further public offerings and encourage governments to streamline the process by reducing the impediments to going public.

Furthermore, governmental organizations possess the capacity to proactively prepare businesses for IPOs. For instance, Start-Up Chile, a government-funded accelerator program, has supported 42 successful exits over eight years, including prominent companies like Cabify and Glamit.

Such entities could establish dedicated divisions focused on public offerings, providing assistance with crucial steps such as selecting an investment bank, completing regulatory submissions, determining pricing strategies, ensuring post-market stability, and managing the transition to public market competition.

Increased government support, specifically tailored to IPO preparation, would empower more entrepreneurs with the necessary knowledge and assurance to pursue public listing.

The influx of capital into Latin America holds considerable promise for long-term growth. However, realizing this potential hinges on governments and businesses effectively channeling these funds into initiatives that benefit the population, improve infrastructure, and foster technological advancement.

This strategic distribution will transform the region’s current investment surge from a fleeting opportunity into a sustainable engine for genuine social and economic transformation.

The author previously served as the executive director at parallel18.