Latin America’s tech industry thrives on adversity


When the US sneezes, Latin America catches a cold, the adage goes. Yet while the US tech sector has been rocked by major layoffs, its counterpart further south is looking surprisingly perky.

Far from fire, Mercado Libre, Latin America’s answer to Amazon, is hiring. It will hire an additional 13,000 people this year and its shares have risen 55 percent since Jan. 1, outperforming the Nasdaq tech index by a wide margin.

Chief executive Marcos Galperín says his hiring confirms the company’s philosophy of gradual steady expansion. “When everyone else was going overboard, we weren’t,” he explains. “We take risks, we try new things, but we try not to go crazy.”

Despite the same funding challenges as their American counterparts, Latin America’s tech CEOs are more optimistic for several reasons. First, the gaps in the developing region mean larger potential markets. E-commerce companies had to build complete logistics networks in countries that lack them and develop new payment systems for consumers used to earn money. Now they can reap the rewards.

“The opportunity set is greater in Latin America than in more developed markets . . . because you are building markets that were not there before,” says Nicolás Szekasy, co-founder and managing partner of Kaszek Ventures, the largest venture capital firm of the region. He points to Brazil’s major digital bank Nubank, currently valued at $30bn. “There is no Nubank in the US because the incumbent banks were offering a digital experience that was good enough.”

Millions of unbanked Latin Americans have joined the financial system through the region’s fintechs. “In Argentina, the people who play music in the subways have a QR code,” says Galperín. “The people who sell goods on the street have a QR code. That formalizes the economy like no other.”

The beneficiaries include start-ups such as Brazil’s Dock, which provides the technology for other companies to offer financial services. Chief Executive Antonio Soares describes it as “one of the biggest engines for financial inclusion”.

Second, Latin America’s technologies had to jump higher hurdles to get started. Francisco Álvarez-Demalde, co-founder and managing partner of Riverwood Capital, says the complexity of tax systems and bureaucracy in countries like Brazil has encouraged innovation. “A company that could build a product for such a complex market is then completely ready to enter other markets,” he says.

At Riverwood’s Latam Tech Forum in Miami last month, where the FT was a conference partner, start-up founders acknowledged that much tougher funding conditions had forced them to focus on profitably expanding their core business and cutting costs. But they remained bullish on the longer term.

According to the Latin American private capital association LAVCA, venture capital investments in the region shrank to $800 million in the first quarter of this year, barely more than a quarter of the amount invested a year earlier. Valuations are lower and start-ups are postponing plans to enter the market.

But for entrepreneurs accustomed to navigating annual inflation of more than 100 per cent (Argentina), six presidents in five years (Peru) or sudden jumps in economic policy (Colombia and Chile), tighter financial conditions seem less threatening than they can for an American entrepreneur.

Other trends are helping the region. American companies are cutting costs by outsourcing software development to cheaper locations in Latin America, boosting the local tech industry. Mexico, Colombia and Chile all have a higher proportion of students graduating in STEM subjects than the US, according to Unesco.

And while the formidable geographical barriers of Latin America, such as the Andes mountains or the Amazon rainforest, have hindered physical trade, they do not present an obstacle to the spread of online software and services in countries with similar cultures that speak two closely related main languages .

For now, investors seem happy to continue to focus on the region’s entrepreneurs, albeit on a smaller scale. Álvarez-Demalde says Riverwood’s portfolio companies had their highest growth last year. Szekasy said Kaszek had “no problem” raising nearly $1 billion earlier this year to put into start-ups. Latin America’s technology sector may not be as feverishly exuberant as it was in the boom of 2021, but it is not yet suffering from a severe cold.

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