Latin America’s tech industry is thriving in adversity

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When the United States sneezes, Latin America catches a cold, says the adage. Yet while the US tech sector has been reeling from big layoffs, its southernmost counterpart seems surprisingly cheerful.

Far from firing, Mercado Libre, the Latin American response to Amazon, is hiring. It will hire an additional 13,000 people this year and its shares are up 55 percent since January 1, outperforming the Nasdaq tech index by a wide margin.

The executive president, Marcos Galperín, says that his hiring vindicates the company’s philosophy of gradual and constant expansion. “When everyone else crossed the line, we didn’t,” he explains. “We take risks, we try new things but we try not to go crazy.”

Despite facing the same funding challenges as their US counterparts, Latin American tech CEOs are more bullish for a number of reasons. First, the region’s development gaps mean larger potential markets. E-commerce companies had to build entire logistics networks in countries that lacked them and develop new payment systems for consumers accustomed to cash. Now they can reap the rewards.

“The set of opportunities is greater in Latin America than in more developed markets. . . because you’re building markets that didn’t exist before,” says Nicolás Szekasy, co-founder and managing partner of Kaszek Ventures, the largest venture capital firm in the region. He points to Brazil’s big digital bank, Nubank, currently valued at $30 billion. “There is no Nubank in the US because the established banks offered a digital experience that was good enough.”

Millions of Latin Americans who lacked bank accounts have joined the financial system thanks to fintechs in the region. “In Argentina, people who play music on the subway have a QR code,” says Galperín. “People who sell things on the street have a QR code. That formalizes the economy like nothing else.”

Beneficiaries include start-ups such as Brazil’s Dock, which provides the technology for other companies to offer financial services. The executive president, Antonio Soares, describes it as “one of the biggest engines for financial inclusion.”

Second, Latin American tech companies had to jump higher hurdles to get started. Francisco Álvarez-Demalde, co-founder and managing partner of Riverwood Capital, says the complexity of tax systems and red tape in countries like Brazil spurred innovation. “A company that was able to build a product for such a complex market is completely ready to enter other markets,” he says.

At Riverwood’s Latam Tech Forum in Miami last month, where the FT was a conference partner, startup founders acknowledged that much tougher financing conditions had forced them to focus on expanding their core business profitably and reduce costs. But they remained optimistic about the long term.

According to the Latin American private equity association LAVCA, venture capital investment in the region dropped to $800 million in the first quarter of this year, just over a quarter of what was invested a year earlier. Valuations are lower and startups are postponing their plans to go to market.

But for businessmen used to navigating annual inflation of more than 100 percent (Argentina), six presidents in five years (Peru) or sudden jolts in economic policy (Colombia and Chile), the tighter financial conditions seem less threatening. than they might appear to an American. entrepreneur.

Other trends are helping the region. US companies are cutting costs by outsourcing software development to cheaper locations in Latin America, boosting the local technology industry. Mexico, Colombia and Chile have a higher proportion of students graduating in STEM subjects than the United States, according to Unesco.

And while Latin America’s formidable geographic barriers, such as the Andes mountains or the Amazon jungle, have hampered physical commerce, they pose no obstacle to the spread of software and online services in countries with similar cultures that speak two languages. closely related principals.

For now, investors seem happy to continue betting on the region’s entrepreneurs, albeit on a smaller scale. Alvarez-Demalde says Riverwood’s portfolio companies had their biggest growth last year. Szekasy said Kaszek “had no problem” raising nearly $1 billion earlier this year to put into startups. Latin America’s tech sector may not be as feverishly exuberant as it was in the boom of 2021, but it hasn’t caught a bad cold yet.

michael.stott@ft.com