2 Silicon Valley tech investors reveal why they're hunting for the next $150 billion Shopify in Lati
- The normalization of investing via Zoom has unlocked Latin American startups for US investors.
- 2 Accel investors said they're hunting potential unicorns in the region, especially in e-commerce.
- They say domestic versions of Shopify or DoorDash can tap into a huge potential market.
Silicon Valley investors don't want to miss out on Latin America.
2020 was a record year for tech startups across the giant, diverse region with $4.2 billion invested across 370 deals, per CB Insights.
The COVID-19 pandemic has somewhat democratized the startup funding process, with investors in San Francisco conducting funding discussions over Zoom calls rather than insisting on in-person meetings.
"The quality of founders in Latin America is high, but it wasn't as acceptable to do a lot of these investments through video calls previously," Andrew Braccia, partner at Accel, said. "Post pandemic, it's more efficient to do this and global boundaries are starting to melt away."
Four years ago, fintech startups in Latin America were securing a fraction of their current funding and attracting a handful of Silicon Valley funds. In 2019, fintech startups in the region raised $1.7 billion from investors, up from $236 million in 2017. In 2019, SoftBank announced an innovation fund with $2 billion to deploy specifically in Latin America.
The region has become more competitive, Accel's Braccia said. That's partially due to bigger funds entering Latin America, after years of strong growth. The number of investors backing Latin American startups more than doubled from from 36 to 80 between 2013 to 2017, per Crunchbase.
The move away from cash has fuelled local fintechs
Fintech is a bright spot for Latin America, in part because the populations of markets like Brazil and Mexico are overwhelmingly young and many (as many as 55 million - or a quarter of Brazil's population) are unbanked.
A recent blog post by Andreessen Horowitz, one of Silicon Valley's most prominent investment firms, was bullish about the region's growth on the back of the COVID-19 pandemic.
The firm pointed to the fact that consumers are open to new products and services, while previously physical retailers have begun to digitize. Notable examples include a reduction in physical cash's dominance and the overwhelming prevalence of using smartphones as a payment method.
These shifts have helped mint an increasing number of unicorns.
There are now 16 startups worth more than $1 billion, with some markets producing their first unicorn business in the past 12 months. Fintech Dlocal became Uruguay's first ever tech unicorn in 2020 and debuted on the Nasdaq this week.
Brazil-based fintech Nubank, the region's largest private startup, is now valued at $25 billion.
Investors are aggressively approaching potential e-commerce stars
Another growth area, particularly during the pandemic, is e-commerce.
The currently $85 billion e-commerce market in Latin America is projected to reach $116.2 billion in 2023.
"The total addressable market is huge and in emerging markets you are building from scratch and creating the market," Ethan Choi, another Bay Area-based partner at Accel said.
Accel's strategy in Latin America has been a proactive one.
The fund approaches businesses it believes can be local versions or competitors to successful North American startups and goes out of its way to provide capital, even if the company isn't looking to raise.
One recent example was Sao Paolo-based Nuvemshop, which Accel backed in a $90 million round in April. The company had already raised $30 million in October 2020 but Accel saw an opportunity to pre-emptively back the business.
The team compare the opportunity favorably to Canadian e-commerce giant Shopify, the massive e-commerce platform which hosts online stores for sellers.
"Nuvemshop is built specifically for Latin American merchants that care greatly about having a platform that is native to them and their customers in terms of language, business workflows, currency and payments, logistics, apps and agency partners, and adherence to local business regulations," Choi said.
Mexico's Valoreo brought in a chunky $50 million seed round in February while 7-month-old e-commerce startup Merama brought in $160 million in debt and equity in April from leading VC investors.
One reason investors like Choi want to back domestic challengers is their in-built understanding of local customs and culture. A US firm expanding to Latin America, for example, may need to work harder to understand logistics and payments infrastructure across the various markets and see slower growth. "It's difficult to 'copy and paste' a US or European platform and its idiosyncrasies to Latin America and any other foreign language for that matter," he said.
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