Trends 2021

LatAm 2021: Amid Covid catastrophe start-ups bloom

Despite 2020's Covid catastrophe, the LatAm region boasts surprising start-ups, a change in business approach and a push for digital transformation.

IDG Connect / Shutterstock

Trends 2021

Show More

It's been a bumpy year everywhere. The pandemic has shaken up business across the globe and Latin America is no different. Yet there have been some significant triumphs too, especially in terms of the start-up ecosystem across the region and the influx of venture capital into Latin America. We look at how Latin America has fared over the past year and what we can expect in 2021.

Near-catastrophic Covid impact

The Coronavirus headlines from Latin America have been worrying, with much blame being laid at the feet of leaders like Brazil's President Jair Bolsonaro, who has refused to acknowledge the risk and has recently indicated he will not take a vaccine once one becomes available. In an editorial in the Lancet in November stated: "the region as a whole is facing a humanitarian crisis borne out of political instability, corruption, social unrest, fragile health systems, and perhaps most importantly, longstanding and pervasive inequality—in income, health care, and education—which has been woven into the social and economic fabric of then region."

Brazil's 172,000 deaths from Covid-19 have been one of the highest in the world, second only to the United States. Mexico is seeing a second wave that is causing the WHO to reenforce its guidance, urging both Mexico and Brazil to be "very serious" about addressing it. The economic fall-out has been near catastrophic, particularly in terms of unemployment and job loss. The IMF recently reported that GDP in Latin America and the Caribbean is expected to contract by 8.1% this year.

Its Regional Economic Outlook Forecast noted that this is "due to a large percentage of workers employed in jobs requiring close physical proximity, with fewer people in jobs where teleworking is feasible." Countries like Peru have seen a 40% contraction in the second quarter of the year. The IMF warned that unless the virus is contained in the region, more economic damage is likely.

Continuing Covid changes

Yet there are opportunities too, particularly in the realm of business. The pandemic could also be the impetus for needed change in the region. Business in Latin America has always relied on face-to-face interaction, networking and connections, but the pandemic has meant that businesses have needed to adapt to a changing environment.

For those not yet embracing digital transformation this has the potential to be a rude awakening that threatens those unable to adapt with obsolescence. The ability to quickly transition to remote working will be key for businesses seeking to weather the storm. But the pandemic also sets the scene for faster digital transformation across the region as consumer uptake continues to grow.

As Nathan Lustig, Managing Partner at Magma Partners, a seed-stage venture capital fund based in Latin America and the US, wrote recently: "However, the transition to a more fully digital business environment was still slowed by in-person business traditions, lack of trust, and risk aversion. COVID-19 is forcing companies in most industries to adapt their approach to business, implementing digital tools as a requirement for survival. This will be the tipping point, leading to a new wave of Latin American start-up growth in the coming years."

There are currently 17 of the world's 300 tech unicorns based in Latin America, according to a survey completed by LABS drawing on data from the Brazilian Platform for Innovation Distrito, the Latin American Venture Capital Association (LAVCA), and CB Insights. Thirteen of the 17 are from Brazil.

Surprising start-ups and new unicorns

In fact, the start-up ecosystem continues to see innovation and growth. Used car company Kavak, backed by SoftBank, made waves when it became Mexico's first unicorn recently achieving a $1.15 billion valuation in its latest funding round in September.

SoftBank has made its presence felt in Latin America, announcing recently that it would invest a further $3 billion into the region's tech sector for "post-pandemic deals". The focus is on fintech, insurtech and e-commerce, with SoftBank managing partner Paulo Passoni telling S&P Global that "We can see this big-time growth across our portfolio. E-commerce is a very strong theme for the next ten years in Latin America as it catches up with the rest of the world."

In the same month, Linkedin released a ranking of the most surprising start-ups and 10 Brazilian companies made the list, starting with the B2B e-commerce Menu, which connects commercial entities to distributors and industries. Brazil's real estate unicorn, Loft took second place, with Loggi, a logistics services company, coming in in third. Other notable inclusions were Neon Pagamentos, a fintech start-up, and Conexa Saúde, a telemedicine platform.

Interest in LatAm start-ups is on the rise with global players like Sequoia, Benchmark and a16z investing in companies like Wildlife Studio and Nubank, according to the Latin America Digital Transformation Report published by Atlántico. Venture capitalist investment has doubled since 2017, LAVCA stats reveal. The potential is clear, but the region needs to address the impact of Covid both in humanitarian and economic terms before it can fully reap the benefits of that potential.

Renewable credentials

Latin American countries are also looking to change their image and back a different horse. Rather than betting on fossil fuels, LatAm is looking to become a significant renewable energy pioneer. The region is innovating across a number of countries and building its reputation as a green powerhouse. In fact, almost 25% of the region's energy supply currently comes from renewable sources, including hydro and bioenergy.

Costa Rica has long been held up as a shining example of commitment to environmental sustainability, currently drawing 98% of its energy from renewable sources and with a commitment to become a zero-emissions economy within the next 30 years. But it is being joined by other contenders like Uruguay which has set its own carbon-neutral target for 2030.

According to Rystad Energy, Latin America's 49 gigawatts (GW) of renewable capacity will skyrocket to 123 GW in five years' time, with the biggest increases coming from Brazil, Mexico, Chile, Colombia and Argentina. Colombia recently announced its third renewable energy auction which will be held in the first quarter of 2021 and is estimated to represent an investment of more than US$6 billion in the country, according to PV Tech.

President Iván Duque has said the auction will make the country a "leader in Latin America's energy transition" and pointed out that in just over two years Colombia had quintupled its installed renewable. He added that in less than two years' time, he expected that capacity to be 20 times greater.

While there are still positive trends and growth in certain areas, it is clear that 2021 will still be a year of instability for LatAm, as the battle with Covid's human and economic costs continues and countries look to do damage control and mitigate risk. Government agendas have looked to tech for recovery plans, with for example, President Duque telling attendees at a virtual event titled The great digital acceleration in Latin America: How to put the State in start-up mode for recovery? that he planned to see Colombia become "the Silicon Valley of Latin America".

Digital transformation is likely to accelerate further as businesses scramble to "pandemic-proof" their ways of working and business models where they can. Tough times lie ahead for both business and government, it seems, but there is hope that the region could capitalise on its strengths and claw back a recovery over the next few years.