Groundswell of Interest in Latin America Startups Witnessed at SXSW

Latin America Still Lacks “Social Infrastructure”  that Exist in U.S. Tech Hubs

By Josette Rigsby (from SXSW)

The drive to become the next Twitter or Amazon doesn’t stop on the shores of the U.S.  Talented Latin Americans are taking advantage of innovations in open source, social media and highly advanced, scalable technology solutions like cloud computing to spawn new ventures beyond being service providers for U.S. firms. While entrepreneurship has gained momentum, there are still significant challenges to explosive growth in Latin American technology sector.

Over the weekend, I stopped in at a session called: “Cashing Out: Start-up Successes in Latin America” featuring entrepreneurs Andes Barreto of Onswipe, Grooveshark, and Socialatom Group, Daniel Undurraga of Latin American Groupon and Esteban Sosnik of Chile based Atakama, and previously of Wanako Games that was acquired by Vivendi/Activision.

All of the entrepreneurs we spoke with agreed that Latin America does not yet have the social infrastructure necessary to consistently support emerging technology firms.  Unlike California, Boston, MA, New York and other U.S. start-up hot beds, no well-established networks exist to assist Latin American companies in their embryonic stage.  There are no low cost loans or angel networks, few investors that are willing to assume the risk of providing seed money and limited opportunities to collaborate with others about lessons learned.

More Skin in the Game

According to Undurraga, Latin American entrepreneurs must invest significantly more than their American peers. Undurraga said, “Everything is very harder here than in the U.S.  There is a huge opportunity to create a venture fund now in Latin America with a Silicon Valley style.  The fund should be built with an incubator or some sort of platform for helping entrepreneurs so they can focus on their business model.”

Some organizations like Endeavor exist to support new Latin American firms, but panelist noted that Endeavor and many others target companies after they are well established – not when they are moving from concept to execution.

In addition to the challenges of acquiring funding, panelist noted that cultural factors like aversion to failure and the investor expectations that founder’s personal networks of family and friends contribute financially are also “annoyances” in the Latin American emerging technology market.  Although mature support systems don’t currently exist, Sosnik noted that current technology leaders are making themselves available to mentor the next generation of talent.  This social reinvestment could create some of the homegrown support networks that are necessary for start-ups to thrive.

Opportunities are Abundant

Starting a new technology company in Latin America is challenging, but there is also significant opportunity.  The Latin American markets are not yet saturated with established market leaders, making it easier for new companies to gain customer share.  Other developments in the Latin American economy that could spur start-up growth include:

• Wider availability of consumer credit cards has increased the potential customer base for e-commerce transactions
• Exponential growth in mobile device utilization provides opportunities and content types
• Availability of resources trained in large scale implementation due to participation in near shore IT consulting
• Historically lower staff attrition rates due to cultural loyalties to organizations

Cesar D’Onofrio of  Argentina, is CEO of Common Sense,  agreed that it is challenging to operate in the Latin American market, but his firm is managing to grow 20% per year and augmenting staff to meet demand.  He noted that his very presence at SXSW Interactive demonstrated the changing tide of emerging technology in Latin America.  D’Onofrio’ said, “My firm is interested in seeing what is coming next so that we can stay on the edge of emerging technology.  We want to ensure that we are knowledgeable and able to guide our clients to the best possible solutions.”

All the articles that say Latin America is the next Silicon Valley are wrong.  The entrepreneurial spirit and emerging technology are growing and thriving, but the result will not be a U.S. clone, it will be uniquely Latin American. (The annual South by Southwest Interactive conference kicked off in Austin, TX last week and featured an entire track on Latin America for the first time.)