Central America is the next hotspot for startup growth and venture capital


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The Latin American startup ecosystem has become an investment magnet as investors continue the post-pandemic digital transformation underway in the region. Now Central America is the next big frontier.

Since the start of 2020, internet retailing – including e-commerce, food and grocery delivery, streaming, and gaming – has exploded in Latin America. Mexico remains the country of the United States first business partner and has become the fastest growing e-commerce market in the world by Euromonitor. It is rapidly closing the gap between itself and Latin America’s largest e-commerce market: Brazil.

According to LAVCA, VCs invested $ 10.3 billion in more than 400 Latin American startups in the first half of 2021. This is more than double the investment observed during the same period in 2020. Five new creations unicorns have emerged from Latin America this year; the increase in total number of private and public technology companies valued at over $ 1 billion and further highlighting emerging opportunities for technological innovation in the region. Brazil and Mexico generated the lion’s share of investor attention and startup activity, which is not surprising given their ranking as the two largest markets in terms of economy and population.

But Latin America is not a monolith, and investors and traders looking for opportunities in the region should not treat it as such. Latin America is a ethnically diverse landscape made up of over 20 countries with distinct customs, currencies, purchasing preferences, social challenges and opportunities that deserve to be better understood at the local level.

As a US-born executive working at a hyper-growing Latin American startup, my job is to find new opportunities in the region. After many years of tracking its progress, I’m optimistic about Central America as the next big frontier for venture capital investment and startup growth, especially in e-commerce which is booming across the country. LatAm.

Why Central America?

Cradle of Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama, Central America is the bridge between North America and South America. This diverse region, which has invested heavily in education and infrastructure, has been largely ignored by international investors until now. It is poised to experience tremendous growth over the next five years, especially for internet-focused companies, and local startup founders and global investors who understand this deeply have a head start to cash in and win. market share from the start.

During the pandemic, Central America lost access to one of its most important and reliable income streams: tourism. Although this change has resulted in greater social and economic volatility, necessity is the mother of invention and the adoption of the Internet and entrepreneurship in the region is setting new records for the region. Some of this growth is being held back by the low number of bank inclusions, especially among women, which is why understanding how the region buys is key to unlocking it.

At the end of May, the Biden administration announced its new Central America partnership initiative to boost private sector business development and positive change at the local level. So far, 12 companies and private organizations, including Chobani, Mastercard and Microsoft, have responded to Vice President Kamala Harris’ call to action for more “inclusive economic development”In the Northern Triangle of Central America, which includes El Salvador, Guatemala and Honduras.

Increasing foreign investment and creating local jobs are only part of the opportunities in Central America today. U.S. government agencies, including the State Department, continue to partner with local governments to address current health and education disparities, many of which could be alleviated or even resolved through business and initiatives focused on Internet.

Paving the way for more financial inclusion

The pandemic has transformed e-commerce from a luxury to a necessity. The global e-commerce market is expected to reach $ 4.21 trillion in 2021 as the online wave continues, according to a forecast from Adobe, which would be up 38% year-over-year. This pace is almost certain to become the new benchmark, meaning that global companies will be forced to find growth in less mature markets to continue to generate more growth.

This rapid rise in digital commerce explains the recent explosion of fintechs across the region. They fill the gaps in financial inclusion that the traditional bank did not fill.

For this reason, more and more people now have access to new types of bank accounts and online transaction processing in local currencies, various payment methods and even options for online cash transactions. These new capabilities, which are becoming increasingly common in the region, are essential to reach Central American consumers, a large population that continues to grow every day.

Another contributor to the fulfillment of the Central American promise is to help those who carry out their daily financial tasks in local currency to continue to do so. For example, in Guatemala, only 24% of its 16 million citizens currently shop online, and only a fraction of them have access to USD bank accounts. Merchants and digital service providers looking to reach larger customers need to move beyond credit cards and US dollars and give their online shoppers the ability to pay in quetzales using cash options.

With the increase in cross-border payments, more and more international companies have developed in the region and they no longer need to incur the expenses and overheads of staffing their own local operations to serve the market. . With the new ability of global merchants to sell in Central America and settle transactions in their national currency, the region is a great option for rapidly expanding their total addressable market.

internet penetration across Central America is now at 60 percent and continues to climb. When combined with new fintech and payment options, all the tools and infrastructure are there for local shoppers to do more online shopping of all kinds – from buying housewares and gifts to gifts. anniversary of running their businesses entirely in the cloud.

Central America is on the verge of explosive growth. B2B SaaS and global brands looking to expand would be wise to take note of the next big opportunity in Latin America, whether through direct sales or acquisitions. The key to turning the most underserved customers into voice fans is to democratize access through local payment methods that not only make it possible, but easy, to say yes to offers from global merchants.

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About Darnell Yu

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