BY Jonathan Frutkin CrowdFundBeat contributing editor and CEO of Cricca Funding, LLC. He’s the author of “Equity Crowdfunding: Transforming Customers into Loyal Owners” which is available in paperback, Kindle and audio book formats.Providing a window on the emergence of startups in Latin America, the Latam Startups Conference 2014 brought together top global experts to collaborate on innovative ideas to drive global entrepreneurial success.
Torsten Kolind, CEO of YouNoodle, an international platform for global entrepreneurial competitions, discussed the primary problem with the region. His first slide: “Latin America: Where Opportunity Meets Inefficiency.” The data backs up this contention. While the growth in startup activity has been quite impressive, the fact remains that productivity has fallen in real terms by 30% in Latin America during the past 40 years. There are many reasons, not the least of which is a relatively recent history of political instability.
Of course, the lack of access to startup capital is also a factor that throttles growth for Latin American startups. In developed capital ecosystems, there is investment from institutions like pension funds and governments into venture funds. This capital pool permits funds to successfully raise money quickly and efficiently. That type of funding does not exist in Latin America. A cultural shift toward appreciating the startup ecosystem as a financial opportunity will help address this problem.
But the problem isn’t only on the funding side. The problem also exists on the “exit” side. That is, large companies do not systematically acquire startup companies in order to develop new product and services line. Instead, the Latin American corporations are focused on research and development rather than finding the best and brightest companies.
There is also a concept called “country risk”. That is, the less stable the political infrastructure of a country, the higher returns that investors will demand. For example, can you imagine owning a factory somewhere near central Ukraine? An investor in that situation would rightfully want to ensure that any return compensates for the risk that the Russian army may march right through the doors. Although Latin America is far from a war zone, most countries have recent history with nationalization of industry and armed political conflict which rightfully concerns investors. The downside for entrepreneurs in emerging markets is that they must present a compelling case for enhanced financial returns.
So, in short, the ecosystem is far from developed. Of course, some countries are doing better than others. According to some data, the most successful countries in promoting entrepreneurship by investment are Mexico, Brazil and Colombia. On the other hand, countries like Peru and Chile have been lagging behind.
There are other cultural barriers to successful development. For the most part, startup employees in Latin America do not get stock options. As any experienced hand knows, these stock options create the premiere incentive for startup companies to attract the best type of employees – those with a vested interest in the success (or the failure) of a new enterprise.
The conference was the brainchild of Miryam Lazarte, CEO, Go South!Consulting, Inc., a Vancouver based consultancy assisting North American companies looking for opportunities in Latin America. Go South! helps companies succeed in Latin America by translating business culture between new business partners. CrowdfundBeat was privileged to be a silver media partner.
The startup ecosystem has to do as good of a job communicating with corporations, as corporations do selling their products. Once that happens, then the success of startup companies will no longer be a story about Silicon Valley. Instead, it will be a tale about global growth.
* Someone needs to start a business to complete these signs. These are great looking recycle bins, but I have no idea what items go into which bin. I assure you that there are some hurried people who are putting garbage into the aluminum bin and glass into the paper bin.