The Hunt for a Unicorn Startup in Latin America

Latin America has long been considered a promising region for startups and venture capital.

With a population of over 600 million, a growing middle class, and a thriving tech scene, the region has attracted significant attention from investors and entrepreneurs alike.

However, despite the potential, Latin America has struggled to produce unicorn startups, a company valued at $1 billion or more.

This article will explore why startups in Latin America have difficulties achieving a $1 billion valuation compared to other markets and what can be done to change this.

The Current State of Startups and Venture Capital in Latin America

To understand why Latin America has difficulties producing unicorn startups, we must first examine the region's current state of startups and venture capital.

According to a Latin American Private Equity and Venture Capital Association (LAVCA) report, venture capital investment in Latin America reached a record high of $4.6 billion in 2019, up from $2.6 billion in 2018.

However, the report also noted that the region still needs to catch up to other emerging markets, such as China and India, regarding venture capital investment.

One of the main challenges facing startups in Latin America is the need for more access to capital.

While the region has seen an increase in venture capital investment in recent years, the amount of money available still needs to grow compared to other markets.

This makes it difficult for startups to scale and achieve a $1 billion valuation.

Another challenge facing startups in Latin America is the lack of a developed ecosystem.

Latin America still needs a mature ecosystem compared to other markets, such as Silicon Valley, where startups can access a wealth of resources, including talent, mentorship, and funding.

Unfortunately, this makes it more difficult for startups to attract top talent and access the resources needed to grow.

Finally, the market size looks big, and it is, however, the culture, the size of the average population wealth, and the way every country does business is totally different.

Unicorn Startups

Unicorn startups have become a symbol of success in the global business landscape. Companies like Uber, Airbnb, and WeWork have achieved massive success and disrupted entire industries.

As a result, finding a unicorn startup is sometimes the ultimate goal for investors and entrepreneurs. Not only does it provide a significant return on investment, but it also brings prestige and recognition.

Searching for a unicorn startup in Latin America is a VC or founder's dream. However, despite the region's potential, only a few startups have achieved a $1 billion+ valuation.

And this may be just because the market is not big enough for some business models.

Biggest Success

You can see that startups with the most significant valuations or exits solve problems for the big masses, and that's what you need to aim for if you want to build a unicorn.

Rappi is a Colombian delivery startup valued at $5.2 billion in 2022 on its last round. While Rappi has achieved significant success, the company has faced challenges, including regulatory issues and intense competition.

As a result, they are currently break even and still have yet to make any IPO plans.

The best Latam example is Nubank, a Brazilian fintech neobank that was one of the most prominent startups with a 30B pre-IPO valuation, now one of the most significant exits and currently the biggest Latam banks listed(market-cap valuation).

Nubank is THE success story in the Latin American startup ecosystem and one of the most considerable case studies for business schools of 2020 and beyond. 

According to Marcelo Claure, CEO of SoftBank Group International, one of the main challenges facing startups in Latin America is the lack of capital.

"The biggest challenge Latin America has is access to capital," he said. "There's not enough capital in the region to support all the startups that are being created."

Other experts pointed to the lack of a developed ecosystem as a major challenge facing startups in Latin America. "The ecosystem is still very young," said Sergio Furio, CEO of Creditas, a Brazilian fintech startup.

"We don't have the same level of mentorship, talent, and funding that you see in other markets."

Conclusion

With its large population, growing middle class, and thriving tech scene, Latin America holds immense potential for startups and venture capital. However, the region has many challenges.

In my experience working on Latam startups, you can find great people around this side of the world. However, the market is small and atomized. Many have tried to copy a business model that works in US and EU.

But there are differences from country to country in Latam, making it harder to apply the same strategy in Peru or Mexico. But, then, we have 600 million people overall.

Remember that California's entire GDP is almost the same size as Latam, so we have many households but less than 1/5 of the GDP per capita of California (90k vs. 15k). So, our purchasing power is much lower.

It is not just more money and more ecosystem if some business models don't work with different languages and small pockets. So if your goal is to build the ultimate unicorn in Latam, you must think of a problem that generates pain for millions of people of different cultures. Hard, right?