Why Venture Capitalists are looking at Latin America's tech sector again

A look at the VC landscape across Latin America

While traditionally Latin America has failed to attract the kind of million-dollar tech sector investments making headlines in China and India, interest from Venture Capitalists and other investors is growing, with new investment entrants like Andreessen Horowitz in Colombia, QED in Brazil and Mexico, and Founders Fund and Sequoia Capital in Brazil.

A report from Gust and Fundacity, which looks at the 62 accelerator programs in Latin American countries, showed a total $31.5 million in investment into 1,333 startups in the region in 2015. Accelerator programs like Start-Up Chile, which is the largest in the region, have managed to help increasingly large numbers of startups. Start-Up Chile alone has assisted over 1,200 startups and 3,000 entrepreneurs, raising more than $135 million for its most successful projects and bringing in over $7 million in capital investments, according to VentureBeat.

Dr. Ximena Hartsock, Chilean-born founder and president of Phone2Action, a DC-based civic tech startup that enables businesses and citizens to connect with policymakers via email, Twitter and Facebook using their mobile phones, explains that while current investment in the region is still emerging when compared with the United States, there is great interest from the VC community in the new innovation market that is Latin America.

“Brazil Colombia, Chile, Peru, and now with a new administration, Argentina, are leading the way in attracting investors. Not just VC firms but also private equity firms such as Tiger Global, General Atlantic, Riverwood Capital have invested in the region,” she says, highlighting that Tiger Global invested more than $500 million in Brazilian B2W.

A report by the Latin American Private Equity and Venture Capital Association (LAVCA), noted that in 2015, Mexico, the second most active market behind Brazil, saw a record US$2.3 billion invested through 88 transactions, an increase of 80% in number of deals and 72% in amount invested year-on-year.

Hartsock uses ReinSystem as an example of investment success. The company started in a university in the South of Chile at the lower tip of the continent. Using a combination of hardware and software, it helps farmers monitor soil conditions. A year after getting seed capital investment and some revenue the founders realised that most large farms already have sensors in their soil. They had the “a-ha” moment that the indicator that makes the biggest impact is water so they pivoted to focus on vineyards.

“In just a few months they launched Irricrops, a software that helps vineyards manage water management and irrigation. Irricrops grew five times faster than ReinSystem had. The seed funding allowed them to put their MVP in practice,” Hartsock says. “While this is something all startups do, it is even more important for startups focused on climate, agriculture, mining, and sustainable energy which are the areas of innovation needed in many countries in Latin America.”

Astrid Borgna, Business Manager at Start-Up Chile, says that the Venture Capital ecosystem in Latin America is still in an embryonic stage. “In fact, investors here are more risk-averse than in the US or the EU. Countries like Mexico, Brazil and Chile are the most advanced in the subcontinent [in terms of venture capital investment],” she says, adding that state initiatives are a significant help especially in Chile.

“A lot of VC firms are encouraged to come here, as co-investor of the State and more precisely CORFO, the governmental organisation that oversees a variety of programs aimed at generating the economic development of Chile, through the promotion of inward investment and the advocacy of competitiveness for domestic companies,” she says. The result is that in Chile most of the funds have some kind of government share in them.

According to Borgna, there are two types of investments coming from Venture Capitalists, namely traditional investment towards mining or telecommunication industries; and innovative investment, which is mainly in fintech, big data, and logistics.

Borgna believes that this is because the entrepreneur mind-set is shifting in Latin America and startups in the region are more and more scalable. They are also more prepared: they are better trained to design their product, to acquire customers, and to talk to investors.

Latin America’s tech ecosystem, while still in diapers, is vibrant and exciting, according to Hartsock. “Large exits accompanied by a more mature entrepreneur ecosystem has attracted the most prestigious firms including the giants Accel and Sequoia. With the rise of mobile adoption and connectivity we will see a rise in startup activity in the next three years across the continent,” she says. The changing political climate in the region, especially in terms of relations with the United States is also likely to have an impact, with Hartsock predicting that Cuba, which has a lower penetration of mobile devices, will see an increase.

“Argentina, now under a new more dynamic administration will also see growth. Colombia, Peru, Chile, and Uruguay will continue to mature. Investors also will take more risks. They are looking at how local entrepreneurs solve the region’s problems and are aware that you can’t transplant American solutions to Latin America and expect the same results,” she adds.

Although the region is seeing investment growth, challenges remain, chief among them for Borgna the cultural issue. “Latin American investors don’t want to take too many risks and thus, focus more on mature startups. In Chile, government-sponsored co-investing programs with startups are way more popular for advanced startups than early stage one,” she says.

As a result, Borgna notes, entrepreneurs often complain about bad deals, especially when their startups are early stage and usually look for investors outside Chile. “One of the solutions to that problem is to teach to local investors how to invest,” she says.

While Hartsock, who moved to the United States 15 years ago, has seen some significant changes in the region, she believes the geographic challenges, and the lack of economic and cultural incentives for entrepreneurship are still hard to overcome. “Big cities like Medellin, Sao Paulo, Santiago, and Lima offer a vibrant space for entrepreneurs but rural areas not so much and entrepreneurs struggle keeping the morale and productivity high when they face connectivity issues, poor infrastructure, and lack of support,” Hartsock says.

She adds: “VCs are risk-adverse so they will continue to invest where they see track record and it will be a while for track record to spread.  This is why government efforts and private public partnerships are so important in Latin America. The role of the universities especially in rural areas cannot be underscored enough.”


Start-up Chile is often described as the ideal example of an initiative that has truly driven investment in the region and key to that has been the focus on creating an investment-friendly environment, with incentives that make it a great place to do business.

Keeping politics out of the process has also been a foundational aspect of Start-Up Chile’s success. Hartsock says: “As a Chilean, I find it remarkable that even under two administrations with different ideologies Start-Up Chile’s vision has remain unchanged. This has helped foster trust among VC firms that the effort won’t be politicized and therefore the investment capital coming to the program has increased over time.”

She adds what makes Start-up Chile special is that CORFO, the government entity that created it, runs it like a startup. “If you go to Start-up Chile’s space in Santiago, or any of their meetups you feel the same energy that you feel at a We Work co-working space in San Francisco, NYC, or DC,” she says.

Hartsock also highlights the success of initiatives such as those in Medellin, Colombia. “Colombia celebrates entrepreneurship every day of the week and it’s exciting. I think successful efforts are a combination of investment capital and marketing. Startups are supposed to do everything better, faster and with fewer resources and seed funding plus a bit of marketing and celebration can help tremendously generate early traction and keep the entrepreneurs’ morale high.”

To increase the interest in investment in the region, collaboration is key. “One of the trends that is visible today is cooperation between VC firms to access countries in Latin America where they are not present yet. Collaboration is going to help the VC investment expand across the region,” Borgna says.


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