Cautious optimism. Curiously, our mixed emotions about the current state of the market mirror how tech founders and workers are feeling this year. Our optimism is rooted in the conviction that digitalization is a secular force transforming Latin America for decades to come. Whether we are drunk at the peak (last year) or hungover in the trough (this year), when we zoom out from the cycle of the day, the trendline is clearly up and to the right.
As our Digital Transformation Index shows, the region’s technology ecosystem stands to grow by an order-of-magnitude as it catches up to the likes of India, China, and even the US, all of which began their journeys long before us. Value creation from tech in LatAm will be measured in the trillions of dollars.
The foundation for long-term growth is rock solid: LatAm is ahead of China in internet penetration and leads globally in digital adoption for most internet services and digital media. Capital, long a barrier to growth, is no longer scarce even after a halving of venture funding from 2021 peaks. Despite the market downturn, human capital still flocks to tech, with students at top schools reinforcing their preference to work in tech above all other fields.
Perhaps most striking is how the pandemic-sparked digital boom has persisted in Latin America, representing a permanent leap forward while more developed markets like the US are now reverting to pre-pandemic trendlines. This great leap forward in digital adoption goes beyond e-commerce and food delivery and is seen across all areas of society – from digital banking usage to telemedicine.
After experiencing the future, for Latin Americans there is no going back to waiting in line at the bank branch or at the doctor’s office.
If there’s a reason why optimism runs through our veins as entrepreneurs, there is equally good reason for the caution with which such optimism should be tempered. As Tom Jobim warned us, “Brazil is not for beginners,” and, in this year’s market downturn, neither is the rest of the world.
After years of pumping steroids into the veins of the world economy, Central Banks pressed the brakes as inflation finally reared its head. Asset prices worldwide adjusted abruptly, and tech companies were no exception – with cash flows further into the future, they felt the pain especially severely as investors questioned the unwinding of this economic adjustment. Venture funding eased up and founders that the market encouraged to grow at all costs only six months ago are now told to focus on margins.
Our research shows that founders are tightening their belts, but most likely not enough given the uncertain global and regional backdrop. Yet, encouragingly, historic data shows that a pot of gold (or bitcoin) may await us at the end of the rainbow if we exercise enough caution to make it there.
The data shows that businesses that survive and get funded in bear
markets like these are significantly more likely to become large,
independent public companies. But ensuring survival is far from an easy feat and finding balance is key this year.
Amidst all the dynamism, this year we found ourselves drawn to explore three different areas of opportunity: for Fintech, Latin America’s world-class performance continues. A rising tide for B2B innovation accelerated by infrastructure buildout and record-breaking adoption of Brazil’s instant payment system Pix define this continued success. Moreover, a new wave of entrepreneurs is breaking barriers for SMB digitalization in Latin America, bridging the gap between the abnormally high number of SMBs in the region and the equally shy value they create for the economy. Finally, for Crypto and web3, while it’s still early days, Latin America is perhaps the most fertile
ground for the application of successful use cases.
We are excited to have you join us in this third edition of the Report.
Enjoy the ride!
