Business is booming in Latin America: Startups raised $9.3 billion in the first six months of 2021, and the region has produced a record number of unicorns, including Nubank, Rappi and iFood. The growth has caught the eyes and pockets of foreign investors, too, with SoftBank announcing its Latin America Fund II, committing $3 billion to tech companies there.
As Latin America bathes the startup spotlight, players there need to consider how its startup growth can translate to self-sustaining economic and social development across the board.
Investment dollars stretch far beyond business: In the United States, venture investment accounts for 0.2% of GDP, while revenue from VC-backed companies accounts for 21%. The more funds contribute to GDP, the greater potential there is to fuel a new era of development, where more people have access to employment, wealth and education. However, this scenario will only be possible if Latin America prepares for it now, starting with the following areas.
Businesses that partner with schools can incubate the next talent generation
Latin American companies may have financial capital, but they now need to hire senior roles and technical positions as they scale and look to build products in a more efficient manner. But Latin America has the biggest skills gap in the world, with more than seven in 10 firms saying they have difficulty finding workers with the right skills.
With so many companies raising significant funds in a short time, competition to find a high quantity of high-quality workers is fierce.
AI companies have garnered some of the most attention in Latin America this past year, raising a total $862.6 million. However, most AI programs and documents are written in English, in which Latin America has a 56% proficiency rate.
That means that at the moment, AI can't be developed and leveraged to its full potential in the region. In response, governments should push bilingual policies in both schools and businesses, offering greater funding and hiring support for courses like English for IT professionals.
There also needs to be tighter collaboration between educational institutions and businesses in Latin America when it comes to upskilling individuals. That could take the shape of courses, mentorships or work experience, or dedicated schools such as SoftBank's Operator School, where a selection of SoftBank's portfolio companies and network teach tech skills.
In fact, we're already seeing similar initiatives in Puerto Rico, where accelerator Parallel18 has partnered with NASA to offer startups access to the space agency's technology and the chance to commercialize their products through it. In addition, Parallel18 released a talent app for freelancers, students and professionals to find and apply to work with local international startups. If platforms like this can be scaled across Latin America, they'll be a springboard for skilled talent to join and power the region's growth.
Tech infrastructure can build innovation hubs beyond capital cities
Despite the remote revolution, less than 50% of Latin America has fixed broadband -- and the majority of people who do have access are concentrated in capital cities.
According to the Inter-American Development Bank, over the next 10 years, digitized public services alone could stimulate 5.7 percentage points of growth in GDP in Latin America -- or $325 billion in income. Imagine the impact on GDP if companies invested in improving digital inclusion, as well -- consumers could gain access to online goods and services, and more people could start 100% digital companies.
Although governments in Argentina, Colombia and Uruguay are conducting tests for 5G networks to accelerate connectivity services, rural governments require more resources and support to obtain the infrastructure and expertise needed to expand internet access. This means cultivating more public-private partnership opportunities that can spur innovation in the most underserved places.
Giving local populations more opportunities to start small online businesses would stimulate new income streams to support their families and communities. It would also facilitate distance learning, digital cash transfers, telemedicine and other fundamental aspects of life that have moved to virtual spaces. More people could start or join advocacy groups online, giving underrepresented demographics a platform to be heard. The overarching improved quality of life that comes with connectivity means freeing up time and resources for individuals to innovate and create.
Digital inclusion also enables businesses and governments to introduce coding schools across countries. By teaching critical tech skills away from cities, nations can reach untapped talent and empower the local growth of smart tech solutions. Traditional rural industries like agriculture, for example, have much to gain from greater AI literacy, which could optimize harvest quality and accuracy.
Governments should lubricate the way to internationalization
Latin America is home to 33 countries, each with its own entry requirements and business laws, meaning businesses struggle to scale beyond their domestic markets. This hurdle to internationalization makes it difficult for companies to get the traction they need to even consider an IPO.
One possible solution is for Latin American governments to work together and introduce an open passport for entrepreneurs, allowing individuals greater flexibility to launch and operate businesses across Latin America.
Governments can take inspiration from the pending African Union passport, which would allow for frictionless travel between 55 countries. In Latin America, such a passport could make it easier to form international teams and create a more cohesive overall ecosystem. Most importantly, it could empower startups to internationalize from day one and eventually move on to other continents.
Barriers to taking companies public need to be lowered
Latin American businesses have historically only made up a small fraction of the companies listed on stock exchanges. With few companies leading the charge toward IPOs, Latin American entrepreneurs have had little precedent to understand and successfully complete the process.
Yet in June, Uruguayan fintech dLocal launched its IPO on Nasdaq. This recent spark could have a domino effect with other businesses and motivate governments to lubricate their journey by lowering the barriers to going public.
Likewise, there's room for government-run entities to prep businesses for an IPO. For example, Start-Up Chile, the public accelerator launched by the Chilean government, has facilitated 42 exits in eight years, including Cabify and Glamit. These types of organizations could have specialized departments for public offerings, supporting companies with steps like choosing an investment bank, regulatory filings, pricing, after-market stabilization and transition to market competition.
With more government-backed, IPO-centric resources, more entrepreneurs would have the knowledge and confidence to take the public leap.
Latin America's capital flow can spell great things in the long term, but not if governments and businesses don't distribute it to the people, infrastructure and technology that will make and maintain progress. Doing so will convert the region's recent investment boom from a temporary windfall to a driver for real social and economic change.
The author is the former executive director at parallel18.