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Sailing Through Stormy Waters: How Startups Can Survive and Thrive in Latin America

Written by Susana Garcia-Robles
June 29, 2023

It’s no secret that the Latin American startup ecosystem has been feeling the impact of the recent market correction. Valuations have taken a much-needed adjustment, which has had its fair share of winners and losers.

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But in the midst of all this turbulence, there are those who have come out on top. These wise investors and founders managed to steer clear of inflated valuations and rushed, oversubscribed rounds, choosing caution over the fear of missing out (FOMO). And guess what? Now that the dust is settling, they’re reaping the rewards of a healthier portfolio. Kudos to them!

Here’s the thing – it’s not just the founders who bear the responsibility for the success of startups. Investors also play a crucial role. It’s important to recognize that sustainable growth lies at the heart of any thriving startup, and that responsibility is shared by both founders and investors. In some cases, investors have been throwing massive amounts of money at businesses, pushing for rapid expansion without stopping to think if the team is actually ready to scale across multiple markets simultaneously.

Now, not all is doom and gloom.

Those companies that have their valuations grounded in solid unit economics and key performance indicators (KPIs) are successfully securing funding in Latin America. How cool is that? These businesses have proven their ability to achieve sustainable growth while keeping a close eye on the financial health of their operations. They’ve chosen responsible expansion strategies over reckless growth at any cost. And guess what? It’s paying off big time because they’re grabbing the attention of investors who prioritize long-term value creation over short-term hype. This renewed focus on fundamental business metrics is definitely a positive shift that benefits both investors and startups.

We have talked about the founders, let’s talk now about the investors… But, hold on a second! Where are they? There are some investors who seem to have gone M.I.A. Yep, they’re missing in action, not responding to calls or messages, even after engaging in initial discussions and reviewing pitch decks. Their sole focus seems to be on the usual metric: DPI (distribution to paid-in capital). But here’s my word of caution to them: if investors are betting on the funds that already have a solid and incredible track record, this approach could prove detrimental to first and second-time fund managers who most likely have very little DPI to show, even if the fund and their investments are going very well. If these funds cannot complete their fundraising targets, they will not be able to invest in the good vintage years ahead… and some truly innovative startups will find it harder to get to sustainable growth. Investors, don’t let that happen! This is an extraordinary moment to support the innovation that comes from funds and startups…

If we take a moment to reflect on the past few years, we’ve faced some major challenges — global pandemic, hyper-growth of startups, unforeseen conflicts, economic recessions, and interest rate hikes, just to name a few. It’s been a roller coaster ride, no doubt.

And, as we move forward into 2023 and 2024, it’s clear that we’ll continue to face significant challenges. However, there’s a silver lining. The current climate has sparked a renewed desire among the investors who are actively investing to support founders who have a clear vision and a deep understanding of sustainable company growth. The focus is now on carefully managing company economics and ensuring long-term success, rather than chasing short-lived hype.

This market correction in valuations has given investors and founders a chance to refocus on sustainable growth strategies. Startups with solid unit economics and impressive KPIs are attracting investments, and investors are becoming more discerning in their choice of partnerships. As the landscape continues to evolve, it’s crucial for both investors and founders to strike a balance between ambitious vision and responsible growth. By doing so, they can weather the ongoing challenges and emerge stronger, fueling innovation and shaping a promising future for the Latin American tech startup ecosystem.

So there you have it! The market correction in Latin America may have caused some turbulence, but with caution, responsible growth strategies, and a keen eye on the long game, both investors and founders can navigate these choppy waters and come out on top.

Let’s keep supporting innovation and making the Latin American tech startup ecosystem shine!

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