THE NEED FOR A LATAM FOCUSED ACCELERATOR FUND- Part 1
Over a 3-part series I will explain the reasons for the creation of a US based accelerator fund focused on Latin America. The blog relies heavily on Coller Capital LAVCA Latin America Survey 2015, OCDE Progress Report on Entrepreneurship 2015, Impact of Early Stage Equity Funds in Latam (Lerner, Tighe, Dew, Bosiljevac, Leamon, Díez-Amigo), EY Estudio de Capital Emprendedor Mexico 2015 & NXTP Labs Harvard Business Case (Lerner, Fernanda Miguel, Urdapilleta)
Part 1
Latin America has experienced significant change over the last decade. In the years 1999 to 2012, the number of people living under 1.09 dollars per day has decreased by 52% even though population has grown by 8% to 527 million for the same period (World Bank, 2015). At the same time, the region is one of the most economically stratified and faces a complex economic landscape with heavy specialization in natural resources, limited export diversification, and reliance on foreign technology. Countries in the region continue to lag behind at investment in science, technology, and innovation. In Latin America, investment in Research & Development (R&D) as a percentage of GDP has grown from 0.63% to 0.74% from 2009 to 2013, which is considerably less than that of other OECD countries that invest, on average, 2.3% of GDP in R&D.
The following graph denotes R&D in Private Investment as a percentage of the countries’ GDPs.
A 2012 OECD (Organization for Economic Cooperation and Development) study mapped the startup ecosystem in the region as baseline for policy creation. The landscape was not positive, showing significant gaps in the startup support structure in the region. A comparative matrix from this study identifying gaps in Financing, Business Services, and Entrepreneurial Training and Regulatory framework is shown below.
However, since 2012, there has been renewed interest in the region in entrepreneurship as a way to compete in the global innovation economy. This has led to new government policies and programs not only in countries, such as Chile, Colombia, Mexico, and Peru (OECD, 2013), but also Uruguay and Panama (OECD, 2015).
In fact, high impact startups are now a reality in the region. For example, as of November, 2015, Chile has 2 unicorns, 12 centaurs and 27 “little ponies” (CORFO, November 2015). More significantly, there has been a change in the mentality in the region. Several countries have implemented programs aimed at supporting the growth of startups: in 2010, Chile introduced Startup Chile; in 2012, Colombia launched iNNpulsa Colombia and Peru launched Startup Peru; and in 2013, Mexico created the INADEM.
Additional positive macro-economic trends include the impressive smartphone adoption of and migration to mobile broadband networks. Latin America had 718 million mobile connections at the end of 2014 and is forecasted to have 956 million by 2020, which would make it the second largest installed base of smartphones in the world, second only to Asia-Pacific. Additionally, in 2014, Internet user growth was 17%, compared to 2% in the United States, and Broadband use had grown by 20%, compared to 2.4% in the United States, for the same period.
Despite all these advances, creating a new company in Latin America still takes an average of 36 days to complete and 3 days to close. More importantly, financing options remain extremely limited and early stage investment, a critical stage for startup survival, seems to be a particularly weak point. In the next blog, I will dig deeper into the VC and early stage investment in the region, with a focus on Mexico to highlight the specific challenges facing the country.