With investments from the United States and China, the market for Latin American startups looks positive in 2024.
In 2024, there are new trends in the US investment market, and many are beginning to look towards emerging countries. This development promises to boost startups in these regions. This blog post looks at what 2024 will bring for the world of investments and how these new trends will influence Latin American startups.
Notably, in 2023, total venture capital funding in Latin America, including domestic investments, fell by more than 63%, leaving many entrepreneurs thinking that it would be difficult to raise capital this year.
The current state of the investor market and nearshoring
Nearshoring is a significant macroeconomic trend today. Manufacturing companies are moving their processes from distant locales to sites that are closer to their borders.
Trade between the United States and neighboring countries such as Canada and Mexico (rather than China or Europe) makes transporting goods cheaper and faster. In the context of the war between Russia and Ukraine, instability in the Middle East, and US sanctions on China, keeping global supply chains close and operational is more critical than ever.
This trend is one of the reasons for the increase in global foreign investment in Latin America and represents an opportunity for US investors to access high-growth stocks. Even more critical, nearshoring means a stronger connection between both markets, so the US market trends will also affect the Latin American market.
As a result, several Latin American companies have successfully integrated into the North American market. An example of a company that went public in the United States and is generating a multiplier effect on other companies is Globant, which operates in many countries to offer technology and software development services. The company empowers companies like Ubisoft, LinkedIn, JP Morgan, and Nissan.
Another example of a Latin American company offering services to create bridges between the United States and Latin America is Félix Pago. This financial technology company offers cross-border payments through WhatsApp. It is increasingly being used by immigrants in the United States who send money to their families in other countries, like Mexico. It is a very useful service to simplify bank transfers between the countries most benefited by nearshoring and has experienced tremendous growth since it was extended to the US. That is why, in such a short time, this Latin American startup became a unicorn, that is a company with a value of over $1 billion.
Benefiting directly from the nearshoring effect does not mean a company can go public more quickly. However, if a Mexican company sells services to companies in the United States or has income from that market, it could be argued that it is worth more, thanks to having a lower country risk when it comes to its billing and collection of invoices.
What other trends will define the ecosystem for Latin American startups in 2024?
Three more trends will define the Latin American startup ecosystem in 2024. They have already begun appearing in the United States and will soon start to affect Latin America.
The first is the reduction of interest rates. The Federal Reserve has forecast a significant decrease in interest rates during 2024. As a result, fixed-income assets become less attractive.
The next trend is more investments in higher-risk assets. When interest rates rise, investors naturally do not want to bet on high-risk assets because they achieve good income through fixed income. Conversely, when interest rates fall, investors regain their appetite for risk since fixed income is no longer attractive. This, added to the growth projections due to the nearshoring phenomenon, makes investing in Latin American stocks less risky for US investors thanks to the positive impact of its cross-border category.
Finally, based on conversations with various entrepreneurs in Brazil and Mexico, executives from large Chinese and Asian companies have recently traveled to Latin America to meet with executives from high-growth Latin American startups. These Chinese companies are expected to acquire one or two of the most relevant private players to enter the Latin American technology ecosystem more strongly or at least become a significant source of capital for high-growth startups.
In China, there are companies comparable to those in Latin America that are more advanced in terms of profitability since they started decades before their Hispanic counterparts. Therefore, they have considerable capital on their balance sheet. This opportunity also arises because the stock markets in China are at their lowest point, and, therefore, certain companies are looking to invest abroad. China has always wanted to be a strategic partner in Latin America.
2024 should be a promising year
In conclusion, the landscape for Latin American startups in 2024 appears promising, fueled by investments from both the United States and China. The trend of nearshoring, driven by geopolitical and economic factors, presents significant opportunities for these startups to integrate into the North American market and attract foreign capital. Additionally, as interest rates decline and investors seek higher-risk assets, Latin American stocks become more attractive, further bolstering the region’s startup ecosystem. Furthermore, the prospect of acquisitions and capital infusion from large Chinese companies signifies a deepening of ties between Latin America and Asia, presenting new avenues for growth and collaboration. With these trends shaping the environment, Latin American startups are poised for continued expansion and innovation in the global marketplace.
