"Gradually, then suddenly." Hemingway's words synthetically capture the recent history of technology in Latin America. After more than a decade of gradual progress made in fits and starts, technology in Latin America has finally caught up with its pace and has grown at an accelerating pace in recent years.
The region now boasts 17 unicorns compared to zero just three years ago. For the first time, the region's most valuable company is not a state-controlled oil or mining giant, but rather the e-commerce platform MercadoLibre.
However, we are only at the first chapter of this long story. When we compare the penetration of technology companies in Latin America in both developed and developing markets, we estimate that the market could grow nearly tenfold over the next decade. The value to be unlocked will be measured in trillions of dollars and lives will improve in the hundreds of millions.
Our venture capital fund, Atlantico, conducts an in-depth annual analysis of Latin American market data in what we call the Latin America Digital Transformation Report. The report consists of hundreds of data-rich slides based on original studies, surveys and models built from a combination of public and proprietary data shared by many of the region's leading technology companies. This year, for the first time, we have decided to make the report public and here we highlight some of this year's results.
Global venture capitalists such as Sequoia, Benchmark and a16z have planted their flags through key investments in companies such as Nubank, Wildlife and Loft. These are not isolated incidents: Venture capital investments in the region have nearly doubled every year in the past three years according to the Latin American Venture Capital Association (LAVCA). To understand what investors are seeing in the region, we analyzed the market through a simple framework that we apply throughout our report.
The starting point of this framework is the existing socio-economic basis. The context in which the transformation occurs is important in shaping its possible outcome. The same ingredients applied in different contexts and time periods will produce very different results. Therefore, we believe that Latin America is unique globally and that the types of societies that will thrive (and to what extent) will be different than other parts of the world. Attempting to fit foreign business models and products is unlikely to produce good results.
In the case of Latin America, it is crucial to remember that the region boasts a population twice that of the United States and a GDP that is half that of China (but similar on a per capita basis). In short: Latin America is big, a central factor that has the power to attract capital and talent. However, it is also crucial to note that economic inequality is severe. While a quarter of the region's population lives in poverty, the wealthy of Mexico City and São Paulo enjoy living standards in line with their New York and London peers.
This unique mix of great opportunities and critical problems waiting to be resolved has provided fertile ground for the gig economy to flourish. Case in point: Brazil is Uber's the largest market in the world in terms of racing volume, with São Paulo its largest city. Rappi, a major food delivery operator in the region, valued at over $ 3 billion, increased its sales by 113% in the first five months of the pandemic. When taken together, the largest auto and food transport services in Brazil are already the largest private employer in Brazil, a formidable contributor to reducing high unemployment.
When we look at the value of tech companies as a percentage of the economy (market capitalization of tech companies as% of GDP) we clearly see that Latin America, with a penetration of 2.2%, still has a long way to go. Our estimate is that it is 10 years behind China (with 27% penetration), which in turn is five years behind current US levels (39% penetration).
However, it is important to note that Latin America is making up for lost time. This metric for penetration or share of technology companies has grown an average of 65% per year since 2003. By comparison, the growth in penetration of US technology companies has grown 11% per year over the same period, while that of China grew by 40%.
Driver of digital transformation
Within the socio-economic context of the region, let's look at the three drivers of change in our framework: people, capital and regulation.
On the people front, the increased visibility of successful role models has catalyzed the desire to follow in entrepreneurial footsteps. People like Mike Krieger (co-founder of Instagram), Marcos Galperin (founder / CEO of Mercado Libre) and Henrique Dubugras (founder / co-CEO of Brex) have shown that local talent can continue to build global companies.
In a survey we conducted with nearly 1,700 college students from Brazil's top universities, 26% of students expressed a desire to work in startups or large tech companies. A whopping 39% have expressed their intention to start a business in the future, which rises to 60% when just considering computer science students. As more and more of the region's top graduates flock to technology, it gives us confidence in accelerating industry growth for many years to come.
On the capital side, there has been a lot of talk about the growth of venture finance in the region. Last year it peaked at $ 4.6 billion after doubling from the previous year. However, what is perhaps more surprising is that, despite this rapid growth, we are still far from the ceiling. When we consider venture capital investments as a percentage of GDP, we see Latin America as only one seventh of the level of the United States and one quarter of the level of India.
