Nearshore Americas

How China Is Becoming A Key Source Of Tech Investments in Latin America

The distance between China and Latin America hasn’t been an obstacle for VCs and startups to get closer and bring cross-border innovation to the region. In the last couple of years, deep-pocketed Chinese tech investors have started to export their success at home to a region of 650 million people where they see accessibility and opportunities.

Since the China game in tech changed from copying global market leaders to replicating their own successful business models to overseas markets, emerging economies like Latin America and South East Asia have seen a new wave of VC investment being poured into local startups.

Gone are the days when state-backed loans and infrastructure projects were the only sources of investment from China to Latin America.

Emerging markets like Latin America are currently crucial to Chinese tech companies that want to scale quickly abroad. The pain points and solutions that these startups have been addressing for the China market share more in common with the types of problems that can be found in countries like Brazil, Mexico or Chile.

Made-In-China Unicorns Want Their Footprint in Latin America

You just need to have a closer look at what the biggest Chinese tech startups have in their global expansion plans to realize Latin America is undoubtedly on their radar as an important market:

Tik Tok’s parent company Bytedance, the world’s most valuable startup at more than $75 Billion, has physical operations in Sao Paulo, with some of its products targeting specific audiences in Latin America, such as news and entertainment app TopBuzz, and photo and video app Vigo (formerly known as Flipagram).

Since dockless bike sharing China startups Ofo and Mobike initiated expansion to international markets as a top priority, Latin America hasn’t been an exception.

Beijing-based Ofo has expressed interest of opening operations in Mexico City, and its chief rival Mobike already launched operations since March this year in the Mexican capital, and a few districts and communes in Santiago, Chile.

The presence in Latin America of China’s bike sharing platforms has popularized its use, and even helped the emergence of local competitors such as Yellow, the Sao Paulo-based bike-sharing and e-scooter platform gaining presence in Brazil, and planning to expand soon to other markets in the region including Colombia, Chile, Argentina, and Mexico City.

China’s ride-hailing startup Didi Chuxing conveys the concept of going big in the region after the acquisition of its Brazilian counterpart 99 for $1 Billion in 2017. It is worth mentioning that Yellow’s co-founders Ariel Lambrecht and Renato Freitas started Yellow right after 99’s acquisition.

A clear example of how Chinese investments are accelerating maturity in startups, and supporting the sparks of innovation and entrepreneurship in the region.

Venture Capitalists And Startups Are Exploring Opportunities

In one of the last events of the year we hosted at Startup Grind Beijing, Michael Zhu, founder and partner at China-US-focused accelerator Accathon Capital, addressed the importance for global VCs to invest in emerging markets:

“Latin America and South East Asia are definitely booming. Investors and corporations have a growing interest in these markets thanks to an increasing population with access to digital platforms but lack of innovation technologies. This opportunity is making them rush to seize market opportunities, perhaps same as what China
experienced 10 years ago.”

Now you can even find examples of Chinese-owned startups whose main market is Latin America, and Latin American founders launching their ventures in China.

The first is the case of Noticias Aguila, the Shenzhen-founded news aggregator that since last year owns the title of No.1 news app in Google Play Mexico with more than 20 million active users, and whose founder, Tang Xin, is a Tencent former employee.

The second is the case of Gabriel Mirón, the Founder & CEO of Clearing Point, the fintech startup enabling direct conversion between Asian and Latin American currencies.

“As a Latin American fintech startup based out of Shanghai since 2016, and focusing on cross-border business between the two regions, we have benefit from grants, investments, and promotion to develop our business from public and private institutions on both sides.” said Gabriel.

Increasing Support From Private And Public Initiatives

From government acceleration programs to fully private venture capital funds, and institutional support, the China – Latin America innovation synergies are expected to continue to thrive in the years to come.

The Inter-American Development Bank (IDB) also recognize the importance of the exchanges in innovation between China and Latin America:

“LAC is witnessing the emergence of a new generation of dynamic entrepreneurs that are seeking financial returns and focusing more and more on solving pressing problems. We believe China-LAC partnership will be the new fuel for innovation and an economic engine for development.

“We are committed to move the agenda further to create more networking and matchmaking opportunities for China-LAC ecosystem players.” said IDB’s Officer Vanessa Li, working at the China desk, and responsible for providing strategic advice for China activities, since the Asian country joined IDB in 2009.

Since early-stage VC firm Magma Partners opened in January the Sino-Latin America Accelerator, after joining forces with Chinese co-working space Kr Space, the cross-border partnership has the resources to help Chinese entrepreneurs access the Latin American market, and vice versa.

Managing Partner Nathan Lustig recognized that in order to increase VC investments in Latin America, finding a way to connect with China is necessary:

“As the US has been deemphasizing Latin America, which has accelerated under the Trump Administration, China has stepped in to fill the gap.

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“Between governmental level deals like the $17B currency swap with Argentina and Latin America’s official incorporation into the belt and road initiative, to startup investments and acquisitions like Didi’s acquisition of 99 for $1B in Brazil and subsequent expansion to Mexico City, and Tencent’s $180M investment into Brazil’s NuBank, China is becoming a large influence on the region.

“We believe that China will be a growing influence on the region, especially on series B and forward deals along with acquisitions. Latin American startups should have China on their radar, which is why we’ve opened a Beijing office and are working with Chinese companies and investors to help them thrive in Latin America.”

What to expect?

Key players of the ecosystem including institutions, VC firms, investors, government, and corporations are helping entrepreneurs and their startups from Latin America and China to increase funding and accelerate maturity for the cross-border relationship and the development of new high-tech ecosystems.

Although numbers seem promising, there is still a long way to go as the bilateral innovation exchanges are still in their very beginnings.

The next decade is crucial to the rise of more tech unicorns that are growing market share thanks to a prosper relationship between China and Latin America.

Andrés Rodríguez

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