Investments by U.S. venture capital firms into Latin America are skyrocketing and one of the firms leading the charge into deals is none other than Silicon Valley’s Andreessen Horowitz.
The firm that shook up Silicon Valley with potentially over-generous term sheets and valuations and an overarching thesis that “software is eating the world” has been reluctant to test its core belief… well… pretty much anywhere outside of the United States.
That was true until a few years ago when Andreessen began making investments in Latin America. It’s the only geography outside of the U.S. where the firm has committed significant capital and the pace of its investments is increasing.
Andreessen isn’t the only firm that’s making big bets in companies south of the American border. SoftBank has its $2 billion dollar investment fund, which launched earlier this year, to invest in Latin American deals as well. (Although the most recent SoftBank Innovation Fund investment in GymPass is likely an indicator that the fund, much like SoftBank’s “Vision” fund, has a pretty generous interpretation of what is and is not a Latin American deal.)
“We previously didn’t invest internationally, [because] we weren’t as well set up to help these companies,” says Angela Strange, a general partner at Andreessen Horowitz. “Part of the reason for why LatAm is proximity.”
The same macro-trends that are driving wealth-creation and investment opportunities in China, India, Southeast Asia, and even Eastern Europe are just as prominent in Latin America.
By 2018, Latin America ranked as the fourth largest regional online market, behind Asia, Europe, and Africa, according to data from Statista. There were roughly 438 million internet users in Latin America and the Caribbean as of 2018, up from 300 million in 2013. Roughly half of the Latin American population was online at least once in 2017, and that points to continued room for growth in the market.
Not only that, but it’s a market that’s dominated by mobile internet usage. The region had the highest daily internet usage in the world, according to Statista, with users logging nearly 3.6 hours on smartphones every day. That’s nearly twice the amount of time that an average North American mobile phone users spent on their smartphone. Statista data also points to an increasing number of e-commerce opportunities in the region with roughly 150 million people expected to buy online in Latin America this year. By 2020, analysts estimate that the consumers will spend almost $75 billion on e-commerce.
Beyond that, there’s a difference in terms of just how far ahead some other emerging markets are then some countries in Latin America.
“The status of current services is behind what even exists in Asia,” Strange says.
An established investment infrastructure
The flood of capital is also responding to over a decade of groundbreaking work conducted by local and regional investors to lay the foundation upon which firms like SoftBank and Andreessen Horowitz are now building their billion dollar businesses.
It’s hard to overstate the importance of firms like Kaszek Ventures and Monashees in the Latin American investment ecosystem. Endeavor, the non-profit organization focused on promoting entrepreneurship spent several years cultivating entrepreneurs, and early successes like MercadoLibre, PeixeUrbano, Globant and others continue to give back to their communities in ways large and small.
Beyond the local investment activity, North American investors like Redpoint, were early believers and boosters in the region — going so far as to set up a local Latin American fund — eVentures. That firm was instrumental in building the co-working space that’s become central to a number of startups working out of Sao Paulo. 500 Startups has had a longtime presence in Latin America and has been instrumental in laying the groundwork for entrepreneurial education. So have organizations like Wayra, the startup accelerator from Telefonica.
And the Silicon Valley accelerator, Y Combinator played a role as well, bringing a number of startups from the region into its Mountain View, Calif.-based entrepreneurial bootcamp and networking program. So has the new Silicon Valley-based venture capital firm Base 10, along with Ribbit Capital and FJ Labs.
Some of these initiatives were initially stymied by macro-economic and political forces outside of their control. But the entrepreneurial drive in countries like Argentina and Brazil — the two largest hubs for startup activity — and new up-and-coming geographies like Mexico, Colombia, and Chile offer a ton of promise for what could come next. Andreessen has gone so far as to invest $1.6 million into the Uruguayan restaurant management startup, Meitre, according to the Latin American Venture Capital Association.
The Andreessen formula
For Andreessen Horowitz’s general partner, Strange, the strategy for investment in the region isn’t that complicated. Given the growth of the population, the continuing development of a more robust middle class, and the increasing penetration of mobile internet, the question is what services are necessary and what isn’t available.
Specifically, given her interest in accessibility and financial technology the question is “how are the next 3 billion people going to be banked?” she says.
For her, the answer is the smartphone. And that leads to thinking about what key services could be technologically enabled to create a new class of financial companies. The thesis extends across all of the other areas where Andreessen Horowitz has experience investing, she says.
Looking across the firm’s investments in the region you can see the echoes of deals past in the current commitments. Rappi, the multi-billion dollar logistics unicorn, looks very similar to Instacart. ADDI, the point-of-sale lending service, seems similar to Affirm or Klarna. The firm’s Uruguayan deal may seem similar to Resy or OpenTable. And Loft, a new company that’s operating in the real estate market, could serve as a modified, local version of OpenDoor.
“It has to be in a business we understand well… and a team that understands it better,” says Strange.