The Latin America Unicorns Riding To Success

There have been an unusual number of unicorn sightings in Latin America (LatAm) in recent years. For so long a regional laggard when it comes to scaling up startups, LatAm unicorns - the name given to privately held startup companies valued at over $1bn - are now increasingly common. Though valuations of early-state companies are often tricky, it’s estimated that the number of LatAm unicorns jumped from just a couple in 2017 to around 15 by end-2019. Brazil alone saw at least five startups reach unicorn status last year, trailing only the US and China in national rankings.

Building a unicorn in Latin America

The corporate term ‘unicorn’ was first coined in 2013 by US venture capitalist Aileen Lee, referring at the time to the 39 tech companies (founded after 2003) that had reached a $1bn valuation. Lee’s firm, Cowboy Ventures, found that only around 1 in every 1,538 of these startups made the threshold, making them almost as rare as… a mythical creature. Crunchbase now counts more than 600 private unicorns, though that still remains a tiny fraction of all startups. The growth is largely down to higher numbers of startups and investors, fueled by disruptive technology (smartphones, online marketplaces, the ‘cloud’ etc) and a hungry desire to be the ‘next big thing’.

There is no ‘one-size-fits-all’ methodology to building a unicorn, nor any guarantees of success. Most of those that make it provide a niche experience (think social media platforms) or provide a simple solution to an existing problem (e.g. mobile payments). They also need strong founders with a clear vision and value proposition, and talented teams to execute the plan. Crucially, startups need to be highly scalable, with a focus on tech innovations (and iterations) and lean organizational structures. It’s the prospect of stellar early-stage growth and a plan to make it sustainable that catches the eye of forward-looking seed investors. It’s worth remembering that one of the highest valued ‘super unicorns’ of all time, Uber, was making heavy losses right up to its IPO as it invested heavily in growth.

So what’s behind this sudden explosion of LatAm unicorns? The foundations of a startup community have been there for a while, with the region home to a large, young and tech-savvy population that is eager to solve some of the problems they’ve grown up with. And the startup ecosystem has indeed developed quickly over the last decade with the spread of incubators and accelerators. But there was still one key ingredient that was largely missing until recently: money.

According to the Association for Private Capital Investment in Latin America (LAVCA), venture capital investment into the region has roughly doubled each year between 2016 and 2019, from $500m to $4.6bn. Despite widespread damage and disruption from the Covid-19 pandemic in 2020, there is reason to hope that more is on the way. In March 2019, Japan’s SoftBank launched a new $5bn investment vehicle for LatAm tech opportunities; the SoftBank Innovation Fund (SIF) is considered the largest-ever technology fund focused exclusively on the fast-growing Latin American market, and is already shaking up the region’s venture capital landscape.

With these exciting prospects in mind - and because we love to report on tech stories from Latin America - here are some of the newest and most interesting members of the region’s unicorn club:

Loft/QuintoAndar - Brazil (Proptech)

Before the Covid-19 nightmare began, Brazilian property tech (‘Proptech’) company Loft became the first LatAm unicorn of 2020 after raising $175m at the start of January. The company claims to be ‘reinventing the real estate market’ in Brazil by using technology and data to boost transparency and simplify the experience of buying and selling property - a bit like a LatAm version of Opendoor. Set up in São Paulo in August 2018, Loft remarkably took less than 18 months to reach the $1bn valuation milestone and is now looking to expand to other major Brazilian cities and Mexico DF. Loft’s expansion is symptomatic of a strong appetite for growth and disruption in the Brazilian real estate market: in September 2019, digital rental marketplace QuintoAndar also reached unicorn status and is now moving into the buying and selling of real estate.

NuBank/EBANX - Brazil (Fintech)

Fintech is a fast-growing segment worldwide, and Latin America is emerging as an important region given its large and well-connected population. NuBank has a neat LatAm background story, having been set up in Brazil by Colombian entrepreneur David Vélez in 2013. It achieved unicorn status in 2018 is now the largest digital bank and a leading financial institution in Brazil with around 26m customers. In fact, NuBank is now considered to be a ‘decacorn’, with a valuation exceeding $10bn, and is seeking further rapid growth as it expands into Mexico, Argentina, and other LatAm countries. Meanwhile, cross-border payments company EBANX is the latest Brazilian fintech success story, with the Curitiba-based startup becoming a unicorn in October 2019. It’s main service is to provide payment solutions for international companies wanting to enter lucrative LatAm markets.

Wildlife Studios - Brazil

Wildlife is another Brazilian unicorn from 2019, which isn’t surprising considering the country attracted more than half of the region’s venture capital investments last year. The São Paulo-based mobile gaming company says it has more than 60 games and “billions” of players around the world. Though it has been around since 2011 and posted strong organic growth throughout the last decade, Wildlife surprised the market with its unicorn valuation in December. It has just raised another $120m to put its estimated valuation at $3bn, with the new capital expected to take the startup into creative areas beyond video games.

Auth0 - Argentina

Despite suffering repeated bouts of economic volatility - or perhaps because of it - Argentina emerged as the early home of LatAm tech unicorns with the success of major companies like Despegar.com, MercadoLibre, OLX and Globant. While Brazil is now the undisputed leader in the region, cybersecurity platform Auth0 did become Argentina’s fifth recognized unicorn in May 2019, and just a few months later closed another round of funding to reach a valuation of nearly $2bn. With LAVCA reporting that 2019 was a record year for seed-funding in Argentina, we could be seeing more unicorns from down south in the near future.

The next contenders…

The Covid-19 pandemic has caused all kinds of disruption for startups and traditional businesses alike. But some of the contenders to join the elite club of LatAm unicorns include Mexican mobile payments app Clip, Brazilian lending platform Creditas, Argentine digital banking app Ualá, and Mexican/Brazilian mobility firm Grow Mobility.

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