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The Hidden Benefits of Launching Your Tech Startup in Latin America

Link to Original Article Here

By Craig Corbett

Over the last five years, the Latin America tech industry has started to gain a reputation as a solid startup launchpad. It’s tempted more local founders to stay closer to home, and more foreign founders to search for new opportunities in the land of El Dorado.

Over the last five years, the Latin America tech industry has started to gain a reputation as a solid startup launchpad. It’s tempted more local founders to stay closer to home, and more foreign founders to search for new opportunities in the land of El Dorado.

Our experience launching in the Latin America tech industry

People quickly make assumptions when we tell them our media incubator is headquartered in Medellin, Colombia, they quickly make assumptions. However, while the year-long sunshine and friendly locals are great, there are more benefits to starting a company in Latin America.

Over the last 5 years, our Colombian-based company has grown to 70+ employees from all over the world. We’ve developed a global client base which is even more diverse than our team. From our HQ we can be in Miami in 3 hours, New York in 6, Madrid in 10 hours and London in 12, and while over the years we have toyed with the idea of moving our central headquarters to the US, the benefits of being based in Latin America have consistently outweighed the convenience of being closer to US startup hubs like Silicon Valley.


Photo Credit: Crunchbase News

 

But aside from the obvious attractions, what are the hidden benefits of launching your startup in Latin America? I spoke with a number of Latin American based startups, investors, and experts to get their opinions:

1. Latin America has large markets of receptive early adopters

On a recent trip to the sprawling capital of Colombia, I had the pleasure of meeting with a number of local startups, VCs and accelerator programs. Bogota has created lots of local success stories in recent years — such as Platzi and more recently Rappi — and has seen a disproportionately high number of homegrown startups accepted to the esteemed Silicon Valley Y-Combinator, which is always a good measure of local startup ecosystem strength.

When pressed on why Bogota is such a great launch pad for tech startups, almost everyone I spoke to mentioned the size of the city. Bogota is huge in comparison to most European and American cities with upwards of 9 million residents. And on top of having a large local market, smartphone ownership is high, a trend which is consistent across the whole of urban Latin America. This opens the door of opportunity for B2C startups, especially those who optimize their services for smartphone use.

Latin American consumers are less reluctant to try out new apps

On the flipside, Comcast highlights that most US consumers are increasingly reluctant to try out new apps, have become jaded with advertising from the ‘flooded’ app market. However, in Latin America, where smartphones are still more of a novelty for many users from lower economic brackets, and free wifi and cellphone data plans are improving rapidly, people are much more willing to try new apps and services if they can make their lives easier. As such, most apps and services, such as Rappi, offer incentives to bring new users onboard, and recommendation benefits for those who share with others.

Joshua Castaño, Managing partner at venture builder InQLab told me:

“In Bogota, we have millions of early adopters who are willing to try new things. When you get a new app, you can get lots of traction, fast, which allows local startups to scale faster. This is especially important for B2C business models, for which you need big sizes of early adopters. That’s why big hubs like Mexico City, Bogota, and Sao Paolo are thriving.”

Access to large pools of engaged and active early adopters allows startups to show traction at an early stage, which in turn makes it easier for them to raise funding, or apply to esteemed accelerator programs, to take their businesses to the next level. And while I have used Bogota as an example, it is important to note that Bogota is only the 6th largest city in the Latin American region, behind Lima, Rio de Janeiro, Buenos Aires, São Paulo, and Mexico City.

Latin America’s growing consumer tech market

Recent studies estimate that more than a billion people across Latin America will be connected to a mobile network by the end of the decade, equivalent to about three-quarters of the region’s total population, which offers lots of opportunities to startups who offering mobile-first services, and offering the right incentives to get people on the street using them.

Sergio Ramos, founder and editor of SocialGeek, told me that a lot of homegrown success stories in Latin America were motivated by global tech companies being slow to enter the region, pushing local innovators to solve local problems. Ramos offers the example of Uber Eats, which was slow to enter Colombia, clearing the way for Rappi to establish itself as a forerunner in the region first. He also notes other success stories such as online education platform Platzi, and fintech startup NuBank, all of which have excelled within Latin America despite larger, more established competitors in the US and Europe.

2. Hidden hubs of in-demand talent in Latin America

Securing the right technical talent can be a major headache for early-stage startups in more established markets. Latin America on the other hand, has long been recognized as a gold mine for technical talent, which once earned the region the title of number one destination for offshore services.

And as more homegrown founders enter the arena, and more foreign startups choose Latin America as a launch pad, these large pools of talent are increasingly working on local projects, rather than working for foreign companies remotely.

Tech salaries in Latin America

Average salaries for top-end tech talent are still considerably lower in Latin America than in the US or Europe. But according to data from Stack Overflow developers can still earn as much as five to ten times the average national salary, which remains as low as $355 in Brazil, Colombia, Mexico, Ecuador, and Bolivia.

Being able to hire top-end tech talent for as low as $1000-$2,500 USD per month offers great opportunities for startups, who would struggle to find talent for that price in other parts of the world. Professions with in-demand skill sets, like blockchain developers or data scientists, are very challenging to find in the US and Europe. However, for startups who build good relationships with local educational institutions, there is talent in the least likely locations.

And data from Stack Overflow shows that it is not only the number of local developers has increased dramatically over the last 5 years, but also the skills and reputation of local developers, highlighting that reputation scores for developers from countries like Peru, Colombia, Chile, Argentina, and Brazil are consistently higher than from other developing regions.

Securing top talent in Latin America is easier

Ragi Burhum, CEO of Peruvian mapping startup AmigoCloud, told me that their company has been able to secure hard to find roles like data scientists, not only in the capital city of Lima but also in the smaller city of Arequipa, a town normally known for tourism but home to a number of esteemed universities. Dolmarie Mendez, CEO of healthcare data solutions company Abartys Health based in San Juan, Puerto Rico told me her team’s first two hires were graduate physicists who had studied at local universities, and that securing talent with such a high level of expertise would have been very difficult as a startup on the mainland US.

After India and China, Mexico now has the largest pool of engineers in the world, but in Latin America, smaller local talent pools are often found in the least likely places, largely due to the influence and experience of esteemed educational institutions.

Strong Latin American educational institutions for engineering talent

Mexican startup innovation is hyper-focused on Mexico City and Guadalajara. But over the last 8 years, areas like Chihuahua have grown into respected tech hubs. Locals state this is largely due to the presence of esteemed technical education institutions such as Tec de Monterrey (TEC), which has a satellite campus there.

Thanks to the influence of TEC and its partner Orion Technology Park, Chihuahua is now renowned for producing highly experienced tech talent. By 2014, the area had become home to the third highest levels of employment in the information technology and analytical instrumentation sector across the country, with more than 40,000 local tech jobs.

This trend is prevalent across the region. In Colombia, Bogota is home to a number of respected institutions such as Universidad de Los Andes. However, smaller hubs of tech talent are popping up in more remote areas too, including nestled in the mountainous coffee region of Manizales.

According to El Tiempo, the Universidad Nacional de Colombia and Universidad de Manizales have such strong tech programs, that nowadays, as much as one-fourth of the population of Manizales aged 25 – 34 has a technical or technological degree, the highest average in the country by far.

A large pool of tech talent in Latin America

Amyn Gillani, CEO of global software development firm Talos Digital, which also has offices in Montreal, NYC, Miami, and Medellín, told me that just weeks after opening its newest office in Manizales, the company has been able to bring on dozens of highly trained and experienced designers and developers. “The flow of high-quality talent from a range of backgrounds we have found in Manizales is quite astounding,” said Amyn. “This is helping us to grow as a company, and take on even more challenging projects for an ever-expanding base of clients around the world.”

According to Sebastian Ortiz, former head developer for Tappsi, and co-founder of Tpaga, the low hanging fruit of comparatively high salaries are motivating the vast majority of local developers in Latin America to work as well paid employees, rather than taking the financial risk of setting up their own companies.

However, as Ortiz explained to me, this is a double-edged sword for the region. While it means that local startups have a steady flow of tech talent, it also limits the amount of homegrown innovation taking place. However, one can only hope that as more local successes emerge, that this will inspire more technical founders to take the necessary risks to get the rewards.

3. Increasing access to funding and accelerator programs in Latin America

Having access to large markets of early adopters and top-end talent is great. However, without access to some form of external funding, most startups won’t even make it to that stage. Luckily though, more options are emerging in Latin America, for startups at different stages of their journey.

As more local success stories emerge, the region is increasingly grabbing the attention of both local and foreign investors looking for their piece of the pie. In 2017 VC investments surpassed $1 billion in the region for the first time, according to recent data from the Latin American Private Equity & Venture Capital Association (LAVCA), with leading firms like Andreessen Horowitz, Sequoia Capital and Accel Partners enteringmarkets like Colombia, Brazil, and Mexico.

International funds in Latin America

However, international funds tend to prefer safe bets, investing larger rounds on quickly scaling companies that have shown traction and demonstrated potential to move into new markets. As such, Jose Deustua, managing director of Peruvian accelerator UTEC Ventures recommends that startups based in Latin America first target local fundsbefore trying their luck with international players, pointing out that in his home country of Peru, US$7.2 million of seed capital was invested in 2017, compared to only US$1 million from international funds.

Access to global accelerators

But there is hope even for those startups who cannot catch the eye of VCs and Angel investors. Since the launch of the first government-backed accelerator in Latin America, Start-up Chile, back in 2010, there has been an explosion of both public and private accelerator programs across the region.

In its early batches, StartupChile only accepted foreign startups to the program. However, over the years has progressively started putting more of a focus on not only including homegrown Chilean startups, but also putting a preference on startups that can develop products, and companies that can give something back to the Chilean economy and society.

Alemendra Morel, communications executive at StartupChile explained:

“Our first aim was to attract foreign startups from countries with stronger startup cultures and ecosystems to develop a more international ecosystem in Santiago. But more importantly to create positive role models to show Chileans that they too had the potential to create amazing ideas and products which could really make a difference not only in Chile but in the rest of the world too.”

Accelerator success in the Latin America tech industry

In the 8 years since its launch, StartupChile has become a shining example within the region, having distributed more than $40 million in equity-free funding to 1,309 budding startups from as many as 80 different countries. Other public funds include Parallel 18 in Puerto Rico, Ruta-N in Colombia, BNDES in Brazil, Fund of Funds in Mexico and IncuBAte in Argentina.

Following in line with the roots of StartupChile, all of these programs are open to applicants from anywhere on the globe, however, most require that the businesses must give something back to the local economy, or society.

Over the last five years, this boom of public accelerator programs has also inspired the entrance of renowned global accelerator organizations like RockStart and The Founder Institute, into the region, along with a number of private accelerator programs often backed by leading tech companies. Esteemed global startup organizations like Seedstars, TechStars, and StartupWeekend are also increasingly holding events within the Latin American region too, providing participants with tech tools, investor connections, mentors and the chance to secure funding. On December 6, Seedstars will hold its LatAm Summit in Lima, after a tour across 12 thriving ecosystems in the region.

Active collaboration of venture capital funds in Latin America

In the US and Europe, there is a lot of competition between global accelerator organizations. In comparison, in Latin America it is more common to see active cooperation between public and private entities.

Franco Iovi, Head of Mentors and the LatAm Innovation Circle for Microsoft backed accelerator ImagineLab in Santiago, Chile, told me that public and private accelerator programs regularly share resources, startups, and expertise to advance the tech and innovation industries within the country.

Iovi told me in a phone interview:

“It doesn’t matter if accelerators are public or private. We are all working together towards the shared common goal of promoting entrepreneurship and innovation within Chile and the greater LatAm region. Once key organizations started to work together we noticed that we could truly make a positive change. Now we share resources, startups, and promotion as much as possible. Working together has become our greatest asset, it gives us an advantage and makes us more competitive.”

In other parts of the world, startups might have to carefully choose which startup organizations they want to work with. However, in Latin America, there is more flexibility for startups to learn from various organizations.

Latin American Tech Industry in Conclusion

More leading investors are investing in Latin American as startup ecosystems get saturated. We are sure to see more startups setting up shop in the warmer climes of Latin America. For those companies who are willing to jump in with two feet, and give something back to local communities and ecosystems, the opportunities are endless. And now you mention it, the year-round sunshine sure doesn’t hurt either!