Convergence of Venture Capital Landscapes: Latin America and South East Asia
In recent years, Southeast Asia (SEA) has emerged as a hub for venture capital investment, particularly in technology and fintech sectors. This transformation has not only attracted global attention but has also set a precedent that Latin America (LatAm) is beginning to follow. This white paper examines the parallels between the venture landscapes of Southeast Asia and Latin America, focusing on successful VC-funded business models from Southeast Asia that are being replicated in Latin America.
These developments in turn are driving increased investment interest from SEA in Latin American startups. Angel Ventures, as one of the region’s longest established VCs, has deep contacts across target industries for SEA investors, and has witnessed firsthand increased interest from corporate entities and sovereigns alike in the region.
Comparative Regional Analysis
Before delving into parallel business models between LatAm and SEA, it is helpful to provide context on how strikingly similar these regions are, economically, demographically, and developmentally.
Southeast Asia’s venture capital ecosystem has evolved significantly over the past decade. In 2015, VC investments in the region totaled approximately $1.6 billion. By 2021, this figure soared to over $25 billion, reflecting a (CAGR) of over 60%. Now, the SEA venture landscape is exhibiting signs of maturity, having produced 52 unicorns in the last five years, and receiving $75bn in funding in the same timeframe. This development path has been driven by a number of factors:
● Demographic trends: With a population exceeding 650 million and a median age of around 30, SEA has a young, tech-savvy demographic that is increasingly adopting digital solutions
● Mobile Penetration: The region has one of the highest mobile penetration rates globally, with over 70% of the population using smartphones. This creates a fertile ground for mobile-first startups
● Government Support: Various governments have implemented policies to foster entrepreneurship and innovation, such as regulatory sandboxes for fintech companies
LatAm, while lagging behind SEA in many of the above metrics, has similarly shown rapid growth and maturation. In 2021, the region saw venture capital funding reach approximately $15 billion, a substantial increase from $4.6 billion in 2019, marking a threefold growth in a three year period. Moreover, the region has produced 33 unicorns and received ~$36bn of VC funding in the last five years. Given this explosion in growth is more nascent than that of SEA, the driving factors are slightly different:
● Digital Transformation: The COVID-19 pandemic acted as a catalyst for digital adoption across various sectors in Latin America, with e-commerce and fintech leading the charge. As lockdowns forced consumers to turn to online shopping solutions, businesses rapidly adapted to meet the growing demand for digital services. For instance, digital bank transactions in the region skyrocketed from $17 billion in 2018 to $123 billion in 2021
● Investment Interest: As Latin America’s startup ecosystem matures, global investors are increasingly viewing it as a viable alternative to saturated markets like North America and Europe. This becomes increasingly true as geopolitical factors such as the USA’s increasingly tense relationship with China has placed Mexico as the lead trade partner for the USA
● Demographic trends: Nearly 50% of the LatAm population is under the age of 30, meaning there is a strong appetite for technological adoption and innovation among young consumers. This demographic advantage positions LatAm favorably compared to more mature markets where growth potential may be limited
The graph below shows some the demographic trends of both regions through a comparative lens:
Business Models from Southeast Asia Replicated in Latin America
Given two regions’ VC landscapes are developing in near parallel, it follows that business models that first gained traction in SEA are now seeing success in LatAm. Industries such as Fintech, logistics, and e-commerce are receiving outsized funding in recent years across both regions, as shown in the graph below:
Multi-Vertical Business Models (Super Apps)
One of the most notable business models that have successfully transitioned from Southeast Asia to Latin America is the concept of super apps. In Southeast Asia, companies like Grab and Gojek have evolved from ride-hailing services into comprehensive platforms offering food delivery, e-payments and logistics. These multi-service platforms cater to diverse consumer needs within a single application.
In Latin America, companies are beginning to recognize the potential of this model. For instance:
● Rappi, originally focused on food delivery, is expanding its services to include grocery delivery and financial services akin to those offered by super apps in Southeast Asia like Grab and Gojek
● Similarly, MercadoLibre, traditionally an e-commerce platform, is enhancing its financial services through Mercado Pago, positioning itself as a potential super app for Latin American consumers
These sorts of models have already started to receive investment from SEA investors. For example, SoftBank’s Vision Fund is one of the largest investors in Rappi, and led a Series F funding round with over $1 billion invested in 2019.
Fintech Innovations
The fintech sector serves as another crucial area where business models from Southeast Asia are being replicated in Latin America. As mentioned before, young, large underbanked populations across both regions have led to innovative fintech models being developed in recent years.
In Southeast Asia, fintech companies have successfully addressed financial inclusion challenges through innovative payment solutions and digital banking services. For example, GrabPay provides seamless payment options integrated into various services within its ecosystem.
In Latin America, startups like Nubank are following suit by offering digital banking solutions that simplify financial transactions for unbanked populations. Nubank emerged from Brasil in 2013, and has quickly grown to become the largest digital bank in the world outside of Asia.
Successes such as these have driven SEA investment into more recent LatAm fintech startups such as Stori, a Mexican firm that provides digital banking solutions and a flagship credit card. BAI Capital, a leading Chinese VC, invested in the Series A, Series B, and Series C rounds of Stori during which Stori raised more than $210M and the valuation increased by 3x.
Conclusion: New Investment Frontiers Across Two Regions
Super Apps and Fintech represent only two industries where there is synergy between LatAm and SEA. As growth in these regions continues in near lockstep, further areas of overlap between the two will emerge. For example, investment into logistics technology remains critical for both regions due to their vast geographies, huge populations, and the recent boom of e-commerce.
Angel Ventures remains vigilant of these trends, and has entered dialogue with LPs, corporates, and other investors across SEA, and confirms that the trends discussed in this article are top of mind for SEA investors interested in LatAm. Across the board, one thing is certain–Latin America presents a compelling case for Southeast Asian investors seeking new avenues for growth.
