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Venture capital investment has been breaking records in Latin America since 2016. In 2017, VC investment crossed the $1 billion threshold for the first time in the region. Two years later, VC investment in LatAm nearly tripled and is now projected to reach $2.8 billion by the end of this year.[1] [2] In 2019, Softbank made the largest single investment transaction in a Latin American tech startup, announcing a $1bn investment in Rappi, the popular online on-demand delivery platform. In 2018, LAVCA recorded seven unicorns in the region, including Rappi, 99, PagSeguro, Nubank, Ascenty, Arco Educação, and Stone Pagamentos.

As recent as last November, Brazil’s iFood—a food delivery service—closed one of the largest ever VC funding rounds in Latin America. The $500 million-dollar round was based on the fact that iFood delivers 390,000 orders a day and is growing at a quarterly rate of 110%. This is compared to US-based Grubhub, which delivers 416,000 orders a day and is growing at 40%.[3] Yet, the deal went largely unreported on the global stage. Why?

Because most global investors are still focused on other parts of the world, where the VC and start-up environment is even more dynamic and competitive.

At the global level, Latin America is still trivial in VC investment space; it received less than 1% of the $254 billion in global VC investments in 2018.[4] Europe, which is similar in population size to Latin America, received 12 times as much investment; Asia, a fellow emerging market, captured 37% of total VC investments.[5] No matter how it is measured, VC investment and the technology sector in Latin America are fundamentally behind other markets.

International investors should see this as an opportunity to capitalize on Latin America’s green tech scene and capture consumers who are seeking technology-based solutions to their daily activities.

Latin Americans more ready than ever to adopt digital solutions

Latin America’s 650 million people are one of the most tech-welcoming and internet-connected inhabitants in the world. By the end of 2018, there were 445 million unique mobile subscribers in Latin America, roughly 74% of the adult population. By 2025, the number will reach 517 million, 86% of the population. As a whole, the region will account for 10% of all new global mobile subscribers from now until 2025.[6]

Why is this important? First, smartphones are the primary way people access the internet in the region; of the 149 million internet users in Brazil, 139 million are mobile.[7] With the expansion of mobile connectivity, Internet penetration in Latin America is expected to grow 15% by 2025 and will fuel the digitalization of services across the board.[8] This will continue to support e-commerce growth, the consumption of online content, and consumers’ appetite for digital goods. Despite the relative dearth of local innovation in comparison to other world regions, Latin American consumers are more ready than ever to consume and transact in innovative ways.

SaaS in Latin America growing faster than other world markets

Specifically, this wave of mobile and internet expansion will create a path for the adoption of software-based solutions in the region. Globally, Gartner predicts that total revenue for cloud services will grow from $182 billion in 2018 to $331 billion by 2021, a $149 billion positive change. Its largest segment, Cloud Application Services (or software as a service, SaaS), is expected to grow from $80 billion in 2018 to $144 billion by 2022, a 16% CAGR.[9] And in Latin America specifically, the data reflects that the region is outpacing global growth.

In Latin America, a 25% projected CAGR for SaaS in the next 5 years shows that the region has more room for expansion than other more saturated markets.[10] The entrance of major tech providers in LatAm (Colombia and Chile), such as Amazon’s Web Services, will facilitate this growth by allowing local firms to store information more comfortably on the cloud, lower costs, and scale more quickly.[11] Not only will cloud-based tech providers find a fertile market in Latin America, but they will also empower local tech entrepreneurs and increase competition. International companies looking to penetrate the market should act fast while growth is still imminent and the local market is still adolescent.

B2B SaaS opportunities — A new frontier

RD Station, a Brazil-based marketing platform that helps SMEs achieve a better ROI on their digital advertising spend, is one of the many SaaS companies fulfilling the growing demand in LatAm, having raised $26 million in funding.[12] Similarly, Runa HR is a Mexican start-up proving an online platform for HR and payroll management. Other B2B solutions are gaining traction in the areas of accounting and invoicing, customer relationship management, e-commerce and online marketplace toolkits, financial management, market intelligence and big data, content marketing, and education and training, among others. SMBs make up 99% of the companies in operation in Latin America,[13] and they’re in desperate need of tools to enhance productivity. As the supply increases, SMBs are becoming more familiar with the myriad technological solutions available to them, opening up a nearly endless market for SaaS and tech companies looking to penetrate Latin America.

International tech providers have an advantage and should strike now

This onset of software-based companies should come as no surprise to observers of Latin America. In 2018, Brazilians downloaded over 7.3 billion apps, the fourth-most downloads in the world.[14] This inclination to adopt new technologies is reflective of a population that wants to improve its quality of life. Nevertheless, only 4% of global VC investment in Latin America went to SaaS industries in 2018, indicating that the local environment for software and digital platforms is underfunded.

Here, international companies have an inherent advantage over locals; in general they are better funded, supported by the likes of Silicon Valley start-up environments, their founders are groomed by world-class VC investors, and they have operated in more competitive global markets. Thus, international SaaS and technology companies should not shy away from Latin America for lack of knowledge or experience; on the contrary, Latin America is in a new frontier of opportunity for companies who can satisfy the now critical and growing demand of people and businesses seeking digital solutions.

This article is a result of a thought leadership partnership between Americas Market Intelligence and EBANX. It was originally published on the Latin American Business Stories site from EBANX, where you’ll find posts on tech developments, business trends, market analysis and more.

[1] LAVCA, Crunchbase, TechCrunch, AMI analysis
[2] The fundraising and investment data collected by LAVCA is specific to fund managers that have raised capital from third-party institutional investors/limited partners and does not account for other types of private capital investors
[3] Forbes
[4] KPMG, AMI analysis
[5] KPMG
[6] GSMA
[7] Forbes
[8] GSMA
[9] Gartner
[10] Kenneth Research
[11] Reuters
[12] TechCrunch
[13] Local chambers of commerce and small business associations
[14] Forbes

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