19
January
2021
|
09:07 AM
America/Los_Angeles

Brazil Spearheads South America's Global Tech Ambitions

Four hot tech areas are emerging with the potential to cement a place in the future global economy for Latin American companies

Above: Sao Paulo's main business district Paulista Avenue. Credit: Julio Ricco

Guest post by Carol Strobel, operating partner at Redpoint eventures and a veteran of Brazil's startup ecosystem.

Latin America has been known as an emerging economy for decades. 2021 could be when it hits its stride.

The phrase "emerging markets" was coined by World Bank economist Antoine Van Agtmael to describe certain countries’ economies with significant GDP growth to support a growing middle class, and with stable and sustainable rates of economic growth spanning decades. 

Latin America’s stability and sustainability issues for their economies have repeatedly discouraged investors since the 19th century. But hard times breed tough companies, and Brazilian giants such as AB InBev have emerged that compete on global terms -- not on local regional comparisons. 

The pandemic, even with Brazil being one of the hardest hit countries in the world, has helped startups move ahead and accelerated growth of the digital economy. This will set the stage for clearing major challenges that have kept Brazil from blooming into a more mature and stable economy.

For example, countries like Brazil, Colombia and Mexico have been handicapped in building a mature innovation ecosystem due to very high interest rates and a persistent lack of financial inclusion for many small businesses and their customers. 

These four tech sectors: e-commerce, edutech, fintech, healthtech -- are poised to raise the prospects for Brazil and the rest of Latin America with a potentially significant impact on the region’s global ranking.

The hottest investment sectors in Latin America: 

1. On-demand delivery comes of age -- spurred by Covid-19 necessity

Buoyed by the global pandemic and three converging trends -- “rising smartphone penetration rates, improving internet infrastructure and large youthful populations,” e-commerce has skyrocketed in emerging markets during 2020, according to a recent Nasdaq.com guest post. 

In September, research firm Forrester forecast e-commerce will spike by 15.6 percent in Latin America during 2020, while retail sales in the region will contract by nearly four percent.

As of four years ago, early Latin American e-commerce entrepreneurs such as Buscape co-founder and Redpoint eventures' partner Romero Rodrigues saw a big opportunity for O2O commerce growth due to the continent’s significant experiential differences between online and offline services compared to more mature markets.

“There are numerous daily tasks that can be solved with ease in the U.S. In comparison, the lack of training, standardization and process in Brazil creates chronic inefficiencies in the service sector that push consumers to prefer and use mobile applications that provide everyday services in a standardized manner,” wrote Rodrigues back in June 2016.

Fast-forward four years to the end of 2020, and that forecast has proven true with a quadrupling of e-commerce sales in Latin America from about $22 billion in 2016 to nearly $84 billion in 2020, per eMarketer.

As Brazil and other Latin American countries locked down for most of 2020, food delivery has been a bright spot for on-demand delivery and the sector’s seen some of the region’s largest funding rounds in foodtech/delivery companies from investment giants such as Naspers and SoftBank. 

In its latest earnings report, Naspers reported 141 percent revenue growth in food delivery and a 69 percent boost in retail between March and September.

Prosus, the European tech giant spun off from Naspers last year, had a standout investment performance in Naspers most recent earnings report: iFood, the online food delivery portal and mobile app based in São Paulo, which grew its revenues by “234 percent YoY with KPIs including order frequency and order value hitting record levels.” Prosus is a majority shareholder in iFood.

With such lucrative investor returns, there will be heightened interest in Latin America’s e-commerce markets during the year ahead.

2. Online education is ripe for reinvention and rapid growth

How we convey knowledge and prepare people for the new jobs of the future has been totally upended in 2020 for students of all ages. Edtechs, which have not grown as fast in years past, are now well-positioned for rapid expansion during 2021. No longer a secondary learning option, digital education platforms are now on the front line to broadly educate, inform and retrain workers.

One big driving force behind the shift in edtech moving from a perk to a necessity for adults is the new trend of “reinventing workers” for a post-COVID economy - especially in the service industries where many jobs will not be coming back, at least anytime soon.

Similar to the U.S. where training programs aim to teach new skills for different types of jobs, numerous programs have sprouted up in Brazil and other parts of Latin America to train the workforce of the future.

Some NGOs and private companies have begun innovating new ways of attracting and teaching STEM skills to more diverse groups of people. 

For example, in the wake of government funding cuts to public education scholarships earlier this year, Ester Borges Santos, a 22-year-old from São Paulo, recently co-led the launch of a virtual study group program to create new learning opportunities for young women of color interested in STEM careers after the COVID-19 crisis hit.

Marcelo Sales, one of Latin America’s best known serial entrepreneurs, realized that Brazil was not keeping up in the race for an AI-based economy. His AI startup Cyberlabs partners with university and government-funded AI labs in Brazil to advance research and education.

Such efforts by private companies combined with government reforms have led to a turnaround for Brazil which is emerging as a world-class AI innovation hub.

With the future of high-paying jobs in Latin America hinging on access to more talent with STEM training and skills and so many major challenges that need to be addressed in the region through innovation, online education will continue to grow and show real impact, especially during the continuing lockdown during the first half of 2021 until we all move forward into a new normal.

3. After a five-year boom, fintech is paving the way to financial inclusion

For more than five years, the fintech sector has attracted the most VC dollars in Latin America with more than $220 million invested in Latin American fintech startups last year alone, according to LAVCA. 

Despite the economic crisis created by the global pandemic, fintech investment is still going strong in 2020. In fact, Oyster Financial, a Mexico-based neobank for SMBs, raised the largest seed round in Latin American history in September. In total, Brazilian fintechs have skirted the current crisis and have raised more than $1 billion during 2020.

The open banking movement, which was led by Europe and the U.K. in 2016, was quickly adopted using a similar model in Latin America that has been led by Brazil, Chile and Mexico.

Traditional banks in Latin America have not served the broad population well enough. At the end of 2018, about 70 percent of Latin Americans did not have access to a bank account due to bureaucratic complications.

Also, some banks only let people open an account if they’re in the top 20% income bracket.

While consumer-facing neobanks such as Brazil-based Nubank, the largest in Latin America, have been in the investor and media spotlight for a number of years, the end of 2020 has brought more investment interest in B2B neobanks. In early September, venture capitalists placed a combined $121.8 million in B2B fintech startups - including Anchanto, Deel, Oyster Financial, Salaryo and Thunes - in one week alone.

Without the ability for small and medium-sized companies to access basic financial services such as business accounts, debit and credit cards, or loans, there’s little hope for the economy in Latin America to bounce back after the current economic crisis.

“SMBs in Mexico need a fintech operating system and not another bank,” according to Vilash Poovala, CEO and co-founder of Oyster Financial in a recent interview. “We had to get a debit card by actually creating our own startup. It’s been 20 months, and we tried to get a debit card from some of the largest banks. Five times we went to a particular bank during COVID, and five times they had the debit card attached to the wrong company.”

With so many potential new jobs created and a major contribution to GDPs, fintech innovation promises to transform emerging markets while being a financial force for good that powers the “rise of the rest” through a more level playing field for all, while rewarding investors with returns.

4. Brazil’s healthtech sector continues to be red hot

The healthtech sector in Brazil emerged as an investment hot spot back in 2018. Similar to the fintech sector, the pandemic has accelerated the digitization of healthcare based on necessity. With a need to distance people socially from a safety perspective and a shortage of hospital space, the transition to e-prescriptions, telehealth and remote monitoring has spiked in Brazil.

A new report by think tank Distrito shows that more than $93 million has been invested in Brazilian healthtechs between January and October, which is up by more than 50 percent than in all of 2019. In October alone, there was $25 million invested in four Brazilian healthtechs.

According to a WHO bulletin: “Until the 1970s, Brazilians used to joke that they had to die before the authorities paid any attention to them.” Certainly, under the strain of the pandemic, the lack of broad access to healthcare is no laughing matter. 

For many years in Brazil, there have been massive inequities in access to healthcare services, serious problems with the quality of care, and burdensome bureaucracy and high costs that can be vastly reduced through investments in innovation.

Covid-19 has hit poor communities the hardest and Brazil’s healthcare system is plagued by inequality. An analysis of public data shows that Covid-19 patients in Mare’s favelas are dying at a rate that is three times higher than Rio’s wealthy Leblon district.

Healthtechs have exploded in the region to deliver better options from healthcare on demand, telehealth and mobile apps to digitizing medical records and prescriptions. And the Covid-19 pandemic has presented a grand challenge to healthcare startups to develop truly valuable services.

Looking ahead:

Tackling large social problems like education, finance and healthcare in emerging markets makes a lot of sense because with new technologies there are always opportunities to leapfrog ahead.

Plus: with so much “blue sky” for growth and upside, the potential return on investments is huge. And with dozens of tech "unicorns" valued in the billions of dollars emerging in greater numbers, Brazil and its neighbors are showing they now have a large startup ecosystem and experienced teams that know how to build companies on a global scale.

Investors invest in teams and that explains the rise in global and corporate interest in Latin America. 

With that larger level of investment comes the rare opportunity -- and responsibility -- for Latin American startups to compete globally while acting locally to the benefit of the societies and economies of an entire region and which will be relevant for a long time. 

. . .

Carol Strobel has been a Brazilian tech ecosystem and startup innovator for more than a decade, including years of experience as the legal director of Intel Capital for Latin America. She currently serves as an operating partner at Redpoint eventures, the first Silicon Valley VC fund on the ground in Brazil as of 2012.

Disclosure: Redpoint eventures has invested in CyberLabs and Oyster Financial.