Latitud's letter for startups in Latin America: the best vintages are yet to come in 2023

Latin America has been historically neglected by startup investors, with its entrepreneurial ecosystem still in its infancy. But this is changing – and fast. 

We've all seen the rhythm of startup creation, funding, and growth in the past few years. The LatAm startup ecosystem accelerated, attracting talent that gave birth to game-changing companies.

But 2021 made it rain in terms of excess capital for founders; leading to major rounds being closed from slide decks and not a lot of care placed on  fundamentals like unit economics or product-market fit. 

And so, in the past 12 months, we've also seen a similarly grand slowdown. 

The economy is made of boom and bust cycles – and, guess what, we're currently in the bust phase. After a decade of a bull market, we're officially in bear territory, and we’re seeing articles about massive layoffs everywhere we look.

But here's why we don't think this is bad news.

You've probably heard investors group startups into vintages – a term also used by our co-founder Gina Gotthilf, in a recent talk with StartSe. Just like wine, some seasons yield better results, and some yield worse results. What you might not know unless you're a wine expert is that growers actually give their grapes some tough love, making them work for their living.

Giving grapes an easy life on fertile soil won't make them the best they can be. Only when they're forced to dig deeper for nutrients and water can they develop the strategy and strength to focus more on growing great grapes, rather than the glitz and glamor of a surrounding canopy of leaves.

And that's exactly what startups are being forced to do.

Whether it’s high season or low season, the recipe for a great startup remains the same: an obsession about a problem, a market that actually exists, an amazing team, and enough capital to get you to scalable profit.

In a harsher environment, the last ingredient is harder to get. We start seeing startups struggling to raise, or even realizing they only have 12 months left of runway and won’t be able to figure out product market fit in that time. 

At times like these, startups need to pay less attention to their canopies and more to their roots. There’s no way around it – now is the time to assess each line item and evaluate every effort in order to extend your runway so that your startup can survive in any weather conditions. 

But the (kinda) funny thing is that you should have done those things all along; it was just easier to get away without scrutiny before. Startups that can survive in this weather have figured that out and therefore have a great chance of going really far.

It’s true: while the startup ecosystem will temporarily lose some of the great talent, whether it be great founders who simply can’t afford to keep going without a salary or those who prefer the comfort of going B2B or B2C: back to banking, back to consulting. 

In times like these, we like to quote the great Brazilian racing driver Ayrton Senna: 

You cannot overtake 15 cars in sunny weather, but you can when it's raining.

In other words, tough seasons may be the perfect time for excellent entrepreneurs to rise. And thus, we’re really excited to invest – whether it be time or money – into the 2022 and 2023 startup vintages. 

And more than ever, we’re excited to nurture startups through a world-class community. We’re here on a mission to keep elevating the ecosystem in the good times and especially, in the bad times.

May we toast to that with excellent wine in a few seasons from now.

– Brian, Gina, and Yuri (Latitud co-founders)