Is Latin America's market opportunity underestimated by global investors?

Julio Vasconcellos · Sep 23, 2022 · hedged

Latin America's tech penetration (1.5%, 3% in Brazil) will very likely catch up to where India and China are today (15-20%), implying roughly a 10x increase and trillions of dollars of value creation over the next decade

Atlantico's Digital Transformation Index shows LatAm far below other markets, and these catch-up gaps historically close

Scope: not claiming LatAm reaches US levels of ~52%; value created over a decade, not overnight

35:27 20VC: Why Greed is the #1 Enemy of Venture Returns, Why Not Enough VCs Play to Win and Lessons from Scaling to $100M and 1,200 Employees and Then Cratering with Julio Vasconcellos, Founder @ Atlantico

Marcelo Claure · Jul 31, 2023

People consistently underestimate Latin America as a market

Latin America's combined GDP is roughly 2x India's with a third to a quarter of the population, and 600m+ people; early successes like Nubank have seeded many more companies

19:02 20VC: Marcelo Claure & Shu Nyatta on Lessons from Investing $7.5BN at Softbank & Why Dumb Money has Gone, Why "LATAM is Under Construction" and the Next 10 Years Will Be the Best & Investing Lessons from Missing Nubank & OpenAI & Investing in FTX

Marcelo Claure · Jul 31, 2023

The attraction of Latin America is that it is still 'under construction' — launching another fund into an already-built market like the US is not worth doing

If LATAM were already built, other people would already be there; the opportunity is to help build the entrepreneurial landscape and generate the exits that let others dream of doing the same

30:18 20VC: Marcelo Claure & Shu Nyatta on Lessons from Investing $7.5BN at Softbank & Why Dumb Money has Gone, Why "LATAM is Under Construction" and the Next 10 Years Will Be the Best & Investing Lessons from Missing Nubank & OpenAI & Investing in FTX

Shu Nyatta · Jul 31, 2023

Companies in 'thin protocol' markets must build everything themselves, which turns investors off as operationally and capital intensive, but that work is what creates the business and makes it more likely to endure

In markets without existing infrastructure the company has to do work the ecosystem doesn't provide; investors mistake that necessity for a flaw

Scope: applies to thin-protocol industries; he says many LATAM industries are like this

46:56 20VC: Marcelo Claure & Shu Nyatta on Lessons from Investing $7.5BN at Softbank & Why Dumb Money has Gone, Why "LATAM is Under Construction" and the Next 10 Years Will Be the Best & Investing Lessons from Missing Nubank & OpenAI & Investing in FTX

Julio Vasconcellos · Sep 23, 2022

The COVID digital adoption boom reverted to long-term trend in the US but persisted in Latin America, leaving markets like Brazilian e-commerce roughly three years ahead of their historic growth curve

Latin Americans trying e-commerce and telemedicine for the first time found it far better than waiting in line at bank branches or doctors' offices, so they didn't go back

36:48 Covid driven digital adoption persisted in latam unlike reversion in the us

Julio Vasconcellos · Sep 23, 2022

Investors underestimate Latin American vertical software opportunities because they judge the core market size alone; the adjacent markets there are greenfield, so core plus adjacencies can produce outcomes larger than US comparables

In competitive markets like the US all adjacencies are already occupied, whereas in Latin America they are unoccupied, so the summation of adjacencies plus core can exceed US comparables

45:28 Adjacent markets are greenfield in latam so core plus adjacency can exceed us comparables

Shu Nyatta · Jul 31, 2023

Latin America can support a multi-fund growth equity firm, and the biggest challenge is that the rest of the world doesn't believe it yet

Nobody doubts you can build a growth equity firm; the open question is regional, and it can only be answered by executing and producing big outcomes over time

20:11 Rest of world doesnt believe latam can support a growth firm until proven

Marcelo Claure · Jul 31, 2023

The next ten years will be the best ten years for Latin America, driven by nearshoring and by commodities demand from global electrification

Companies will no longer run single China-only supply chains, making Mexico the place to serve the US; Bolivia, Argentina and Chile hold ~60% of the world's lithium (Bolivia alone a third), so commodity prices should stay steady for a decade, and Brazil will become the largest food exporter in the world

20:46 Nearshoring and commodities demand will drive latams best decade

Marcelo Claure · Jul 31, 2023

Technology adoption in Latin America is extremely fast and growth outruns expectations because the incumbent systems are broken

Education and health systems are poor, transportation was broken (which is why Uber exploded), and retailers charged interest rates up to 80%, so a product that is 70% cheaper solves a real need and grows beyond what anyone could dream

27:12 Broken incumbent systems drive faster than expected latam tech adoption

Shu Nyatta · Jul 31, 2023

Talent is the other thing LATAM still needs, and it is now improving from two directions: successful companies spawning founders and foreign talent moving into the region

Rappi, itself a Colombian YC company, is one of the largest contributors of alumni founders to Y Combinator, and people are increasingly working remotely for or relocating to companies in Mexico, Colombia and Brazil because those companies are exciting

33:29 Latam talent pool is improving via alumni founders and inbound relocation