Publish in Perspectives - Wednesday, April 28, 2021
A Rappi messenger in Colombia waiting for an order. Companies such as Rappi and MercadoLibre enabled hundreds of millions of people to access food, groceries, clothes, and other needs safely from their homes during the pandemic. (Photo: Rappi)
Over 600,000 people live from selling through Argentina-based online retailer MercadoLibre. Above, its headquarters. (Photo: MercadoLibre)
Most of Teclatina value is concentrated in Brazil and Argentina, but others gaining ground.
BY IGNACIO PEÑA
A startup revolution is unfolding in Latin America and the Caribbean (LAC). Latin entrepreneurs are demonstrating world-class vision, business skills, and grit. They are transforming our lives for the better, generating jobs at scale, and delivering massive value for their shareholders.
There are 1,005 technology companies born in the region that raised over $1 million. These companies are collectively worth $221 billion, raised $28 billion, include 28 companies worth more than $1 billion, and have over 245,000 employees.
Accelerated growth has been witnessed throughout the broader ecosystem. Its value multiplied by 32 times in the last decade, going from an estimated $7 billion in 2010 to $221 billion in 2020. Most of the growth took place in the past four years. Tecnolatinas have shown they can grow and prosper even in difficult contexts: while their value grew from $7 billion to $221 billion in the last decade, the leading 40 publicly-listed traditional companies from across the region saw their market capitalization fall by $489 billion.
The revolution is accelerating: the time to achieve a $1 billion valuation has been steadily decreasing with the help of digital technologies and solutions, such as mobile and cloud computing, and more mature ecosystems. While it took decades for pioneers such as Totvs to achieve that value, the latest unicorns (such as C6, Loft, Ualá) achieved that status less than three years after they were founded.
Geographic strategies vary across LAC: while Brazilian startups focus on their local market, startups from the rest of the region are forced to internationalize in order to scale. In Brazil, 83 percent of the Tecnolatinas have local strategies and represent 74 percent of the ecosystem value. Outside Brazil, 49 percent of the Tecnolatinas have local footprints, but they only represent 5 percent of the ecosystem value, with the other 95 percent of value coming from the 51 percent of companies with regional or global strategies. The need for internationalization partly explains the asymmetry between Brazil and the rest of LAC and represents a challenge for entrepreneurs and local policymakers that calls for regional collaboration.
Fintech and E-commerce represent 72 percent of the ecosystem value and are the leading sectors across the region in terms of value. But startup activity is spreading across sectors and we identified 16 sectors with companies worth more than $500 million.
The Tecnolatinas ecosystem is poised for continued growth and can play a critical role in building a future of abundance, inclusion, and regeneration in LAC. A valuation of over $2 trillion and more than $30 billion of annual venture capital investments by 2030 would be consistent with international benchmarks and with LAC’s current trajectory.
We use the term Tecnolatinas to describe technology-based private companies born in Latin America and the Caribbean (LAC) and owned by founders from the region. The definition includes the wide range between early-stage startups and well-established companies worth tens of billions of dollars and with thousands of employees. Most of them are entrepreneur-driven digital ventures. Tecnolatinas share their attractiveness for venture capital investors as well as a distinct potential for impact due to their scalability and their capacity to ignite and consolidate entrepreneurial innovation ecosystems across the region. These ecosystems are critical for the transformation of LAC’s economy in the context of the unfolding technology revolution.
The present report builds on the 2017 Tecnolatinas study, which was developed in collaboration with NXTP Labs. While in the previous report we analyzed the companies with an estimated value of over $25 million, in this edition, we extended the scope to include the Tecnolatinas that raised more than $1 million of capital and with an estimated value of $6 million or more.
There are thousands of Tecnolatinas that have not yet reached those criteria and are therefore not included in this report. Including them is unfeasible because the data available about them is much more limited and unreliable, and they are in a highly volatile phase of development. However, they are highly unlikely to impact the conclusions of the report in a meaningful way due to their limited aggregated size in terms of capital raised and value.
For consistency purposes, we excluded from this study companies in which most of the ownership was sold to multinational corporations, such as OLX and PedidosYa. While these companies signal the potential of LAC’s ecosystems to create highly valuable assets, their value is very difficult to estimate, and today, they are more similar to the local operations of international technology companies than to the other Tecnolatinas.
At the same time, we included 43 companies that were founded and lead by LAC entrepreneurs and with a significant part of their team based in Latin America, but that have decided to base their headquarters overseas, mostly to facilitate their global expansion. They include companies such as Gympass, which was founded in Brazil, by Brazilian entrepreneurs and with operations in over a dozen countries.
We used multiple sources to identify the Tecnolatinas included in the study. They include the previous Tecnolatinas report as well as databases and reports from Crunchbase, LAVCA, Pitchbook, and Distrito.
The consolidated list of companies went through a detailed curation, validation, and profile augmentation process. We eliminated companies that were out of the scope, reviewed, and corrected conflicting information with alternative sources and complemented the existing information to build detailed profiles of each Tecnolatina using hundreds of articles, reports, press releases, and company websites. Each profile include variables such as name, sector, year funded, founders, investors, headquarters, markets of operations, capital raised, value of last round, estimated valuation, number of employees, webpage, etc.
The value of publicly listed companies is based on the market capitalization as of December 31st, 2020. For unlisted companies with a publicly disclosed value, we used the last disclosed valuation. To estimate the value of unlisted companies without a publicly disclosed value, we used a multiple of six times the last financing round. We decided to include Despegar as one of the companies that achieved valuations of over $1 billion, even though at the end of the 2020 its market capitalization was $0.9 billion because the company was valued at more than $1 billion for most of the period between its IPO in 2017 and 2020, when the COVID crisis interrupted international travel.
We added the estimated value of all Tecnolatinas to estimate the value of the ecosystem of the entire region and of each country and sector, designating as Ecosystem Value the sum of the value of the Tecnolatinas in that particular ecosystem. This enabled us to make a series of comparisons across time and geographies and to identify the strategies that are proving more successful in the region. When we refer to value creation in relation to Tecnolatinas, we refer to increase in the value of the companies.
Based on this information we proceeded to perform over 200 analyses, complementing the information of the database with further reports and industry data, to obtain the insights included in the study.
Our lives were transformed astronomically by the COVID-19 pandemic. Suddenly, hundreds of millions of people across LAC had to stay home, and shops were closed.
Companies such as Rappi and MercadoLibre enabled hundreds of millions of people to access food, groceries, clothes, and other needs safely from their homes and allowed hundreds of thousands of shop owners to continue operating despite the crisis.
E-commerce and logistics Tecnolatinas employ tens of thousands of people. Over 600,000 people live from selling in MercadoLibre. Rappi connects over 150,000 independent couriers and serves more than 350,000 businesses, mostly local SMEs.
We identified 1,005 Tecnolatinas that created $221 billion of value. The vast majority of that value was created over the past decade, during a period when the largest traditional LAC companies destroyed $489 billion. A comparison between the 2017 and the 2021 Tecnolatinas studies shows that the number of startups roughly tripled over the last four years while their value increased by a factor of 5.7.
Most of LAC’s ecosystem value (86 percent) is concentrated in two countries: Brazil and Argentina. Brazil is the largest home base with 513 startups, 16 Tecnolatinas worth over $1 billion, and 51 percent of the region's venture capital activity in 2019. Despite its market environment challenges, Argentina is home to the second-largest concentration of Tecnolatinas worth over $1 billion and gave birth to the uncontested leader of the ecosystem MercadoLibre.
Mexico, Colombia, Chile and Uruguay are gaining ground and also have companies worth over $1 billion.
Tecnolatinas are serving as powerful job engines. They created 245,000 jobs, with hundreds of thousands of people earning from buying and selling on their platforms.
Creating the first $1 billion of value is getting easier for LAC startups as the ecosystem matures. While the first pioneers took many years to reach that threshold, some of the latest companies were able to reach it in about a year.
The LAC startup ecosystem is already having massive impact
Until recently, most business leaders and policymakers in LAC dismissed the trailblazing growth of the startups in the region. This report shows that today that view of the world is untenable.
Tecnolatinas have created $221 billion of value, raised over $28 billion of equity, and have 245 thousand employees.
Today there are already 28 Tecnolatinas worth over $1 billion. They include some of the most valuable companies in the region, such as MercadoLibre (worth over $80 billion), multinationals with 30 offices in 15 countries such as Globant, and thriving Deep Tech startups such as NotCo.
The value creation trajectory of Tecnolatinas has been impressive. Most of the ecosystem value was created in the past few years: 83 percent in the past four years and more than 95 percent in the past decade.
And this is just the start!
Value is concentrated but the revolution is spreading
Ecosystem value is very concentrated in a few companies, sectors and geographies. Most (86 percent) of the ecosystem value is concentrated in only two countries: Argentina and Brazil. Two sectors represent 72 percent of the value created to date: Fintech and E-commerce. And the 28 Tecnolatinas with valuations greater than $1 billion represent 79 percent of the ecosystem value.
But the revolution is spreading across the region and across sectors. Today there are already 6 countries with ecosystems that created over $500 million of value that represents 71 percent of the population of LAC.
Simultaneously, we identified 18 sectors with companies that raised over $100 million, signaling that the market already validated that the opportunity is far greater than still.
Tecnolatinas are also spreading their wings internationally, particularly outside Brazil, where 95 percent of startups have either regional or global footprints.
Explosive growth in the last 4 years
Our first Tecnolatinas report was published four years ago, in January 2017. That was the first systematic study of the LAC startup ecosystem and it featured 123 startups worth over $25 million.
In this edition, we expanded the scope of the study to 1,005 companies that raised over $1 million and are worth over $6 million.
To provide a more clear view of the evolution of the ecosystem over time, we compared a few key metrics using the criteria of the 2017 study.
This comparison enables us to see three trends. First, the LAC ecosystem is growing at an accelerated pace: the number of startups worth over $25 million went from 123 to 314 (multiplying by 2.6x), their total value went from $38 billion to $216 billion (multiplying by 5.7x), and the number of companies worth over $1 billion went from 9 to 28 (multiplying by 3.1x).
Second, the ecosystem value has been driven by the most success companies: the value of companies worth more than $1 billion went from $23 billion to $175 billion (multiplying by 7.5x), and their share of total value went from 62 percent to 79 percent.
Third, the revolution is spreading across the region: the percentage of companies worth over $25 million that originated in Brazil and Argentina went from 66 percent to 59 percent.
These trends clearly show that the past four years have seen spectacular growth and a shift towards a new phase in the ecosystem's history, which went almost overnight from an early promise to become a force to be reckoned with and a powerful lever for the development of the region.
Tecnolatinas grew in value, while traditional companies contracted
A comparison of the value trajectory of Tecnolatinas with traditional publicly-listed companies reveals a powerful story. While traditional companies are struggling, innovative entrepreneurs empowered by the latest technologies and business practices are thriving.
During the past decade, traditional companies have destroyed $489 billion, while Tecnolatinas (which were insignificant at the beginning of the period) created $214 billion.
We find this picture remarkably insightful, because it shows two contrasting stories unfolding in the region.
We believe this represents a powerful signal to investors, business leaders and policymakers. While traditional companies continue to be critical for the region, this reminds us that in a world of accelerated technological change, value will concentrate and power will shift to the most innovative and dynamic players.
Value is concentrating on innovation
When comparing the evolution of the value of publicly-listed digital against traditional companies in LAC, we see that the contrast between them is not the result of the COVID crisis or a short term fluke, but rather a consistent story that has played out over the past decade.
The publicly-listed Tecnolatinas are worth 37 times what they were worth ten years ago. Meanwhile, the leading traditional companies from the largest companies from Brazil, Mexico, Colombia, Argentina, and Chile are worth between 33 percent and 70 percent of their value at the start of the period.
This is consistent with what we are seeing in other markets. Innovative technology companies are creating more value and taking leadership positions in the rankings of the most valuable companies.
This pattern is likely to continue as the technology tsunami accelerates over the next decade.
LAC with ecosystem value of $221 Bln, 97 percent originating in 8 countries
The LAC startup ecosystem is a force to be reckoned with that is creating value on a massive scale. In the graph we can see how the ecosystem activity is spread throughout the region.
Eight countries represent 97 percent of the ecosystem value. Brazil is the central hub of the ecosystem, with 513 Tecnolatinas (51 percent), $14 billion capital raised (50 percent), and $91 billion of ecosystem value (41 percent).
Mexico follows it next in terms of activity, with 170 Tecnolatinas (17 percent) and $4 billion of capital raised (13 percent), but only with $10 billion of ecosystem value (5 percent). Argentina has less Tecnolatinas (78 or 8 percent) but more equity raised (18 percent), and much more value ($99 billion or 45 percent).
Next come Chile and Colombia with similar levels of activity as Argentina, but with lower ecosystem value to date because their ecosystems are in an earlier growth phase.
Finally, Uruguay, Guatemala, and Peru are new shining stars leading the way among smaller countries.
Brazil and Argentina created 86 percent of LAC’s ecosystem value
Brazil and Argentina have over $50 billion of ecosystem value and concentrate 59 percent of the startups, 68 percent of the capital raised, and 86 percent of the value created. As already seen, Brazil has the most consistent ecosystem and Argentina stands out due to the presence of MercadoLibre.
Mexico is quickly catching up and already has an ecosystem of 170 Tecnolatinas worth $10 billion, and is followed by Colombia (76 startups, $8 billion of value), Chile (78 startups, $5 billion of value) and Uruguay (8 startups, $1 billion of value), all of which have thriving ecosystems. The number of startups in these countries is significant.
Most other countries are either unactivated or in very early stages of their development. However, the rise of Guatemala and Peru shows there are still large untapped opportunities in the rest of region.
Tecnolatinas are contributing to job creation
Tecnolatinas have over 245,000 employees and serve as platforms that provide a livelihood to hundreds of thousands of people.
Most of the employees (142,000 or 58 percent of the total) work for the largest 32 Tecnolatinas (3 percent of total), that have over 1,000 employees. Of those, roughly half (74,000 or 52 percent) work in companies with between 1,000 and 4,999 employees.
This shows that there is a social impact rationale for seeking to create +$1 billion companies that goes beyond the value of the company. Put simply, the most successful startups become job creation engines.
International experience suggests this pattern is likely to become even stronger. Amazon already has more than 1 million employees, after hiring more than 400,000 people in 2020 alone.
Six LAC countries with companies worth over $1B
There are already 28 companies worth over $1 billon (up from 9 only four years ago) in LAC, proving beyond doubt that Latin Americans can create large technology companies at scale, something that never happened in the history of the region and highlights that it can take part in the unfolding technology revolution.
The undisputed leader is MercadoLibre. The next three most valuable Tecnolatinas are focused on Fintech in the Brazilian market and are all worth over $10 billion: Stone, Pagseguro, and Nubank.
Most large countries already have Tecnolatinas worth over $1 billion: Brazil (16), Argentina (5), Mexico (3), Colombia (1), Chile (1), Uruguay (1) and overseas (1).
The Tecnolatinas revolution has come of age in LAC, and the startup ecosystem is a powerful engine for growth and transformation across the region. The ecosystem is on a trajectory to create trillions of dollars in value in the decade and to mobilize tens of billions of dollars per year in investments. Entrepreneurs, investors, corporate leaders, and policymakers should take note and leverage this historic opportunity.
Ignacio Peña is founder of Argentina-based Surfing Tsunamis and a lecturer at Wharton and Singularity University.
This article is based on a new report from the Inter-American Development called "Tecnolatinas 2021: The LAC Startup Ecosystem Comes of Age."
Republished with permission from IDB.