The LatAm Tech Report 2023: the future of 7 startup sectors
A look into Latin America's tech future: trends, opportunities, and challenges in fintech, e-commerce, logistics, SaaS, proptech, healthtech and edtech
Last year, we opened the first edition of The LatAm Tech Report showcasing the grandness of Latin America. From Tijuana to Tierra del Fuego, this grandness not only remained but prospered. Our GDP now surpasses US$ 6T and we're inching closer and closer to 700 million inhabitants.
LatAm's grandness comes in many other forms, though. It also shines through when its startup founders transform challenges that seem as insurmountable as Aconcagua into opportunities as vast as the Amazon river. And as persistence is key, they do it time and time again – even when the outlook seems bleak. We end this year with an estimate that our fundraising levels will go below pre-pandemic levels.
This past year made LatAm founders and investors not only stronger but wiser: forced to do more with less and knowing only the best would survive and thrive, we expanded our capacity to focus. And so, we built technology that will actually move the needle for us and our customers while keeping efficiency in check.
Once again, we hope to provide new coordinates for your opportunity map with The LatAm Tech Report. This 2023 report starts with the state of the general startup market in LatAm. But we also explored the future of seven segments: Fintech, E-commerce, Logistics, SaaS, Proptech, Edtech, and Healthtech.
Since the best way to predict the future is to create it, we decided to look into LatAm's tech future from the eyes of its builders.
In the Latitud Founder & Investor Survey 2023, 100+ early-stage founders, investors, and operators across the region shared with us their perception of the fundraising environment, the maturity of their markets in LatAm vs the world, and the sectorial trends, opportunities, and challenges they see – with special attention to the rise of artificial intelligence (AI).
This ecosystem perception was then paired with a look at LatAm's most recent data and deeper conversations with ~30 founders and investors.
We asked ourselves these questions:
Context Setting: where are we now?
The Trends: what's changing and how are startups leveraging it?
The Opportunities: what can we expect?
The Challenges: how should we prepare?
We know you're busy and that it's a lot of information to process. Wanna save the read for the weekend and get some digestible insights instead? We got you covered.
The state of the LatAm startup market: on the road to maturity after a time of reflection
The number of VC-backed startups continues to rise. Yet, 2023 hasn't made the expected comeback in the volume of capital invested: numbers are still lower than we saw in 2019 and 2020, prior to the recent startup boom. In 2019, USD 5B was invested in LatAm startups. In 2020, USD 4.23B. In 2021, USD 15.97B. In 2022, USD 7.88B. And in 2023, USD 2.75B.
But here's why this isn't all doom and gloom: as we said at the beginning of this year, the harshest soils produce the best vintages. Both Latitud Ventures and LAVCA see that the Latin American startup is still undercapitalized and will show growth in the long run, given the number of opportunities still around.
Many sectors still need to see more tech adoption: LatAm's startup ecosystem as a whole is in the middle of the road to market maturity, according to the participants of the Latitud Founder & Investor Survey 2023.
The region has a mix of sectors that have already been through years of digital adoption (such as fintech and e-commerce); are in the middle of a digitalization process (logistics, proptech, healthtech); and are still in the beginning of that journey in comparison to US/European markets (edtech, climate tech). And so, the vast majority of founders and investors conclude that 2024 will present a better fundraising environment than 2023.
Fintech: LatAm's darling still takes 40% of venture capital
This year up to Q3, fintech saw slightly more retraction than the overall startup market (-67.3% vs -65.2%). Still, fintech is the most mature startup sector in Latin America, taking about 40% of all venture capital in the region as of 2023 YTD. There are now over 600 venture-backed fintechs across Latin America.
While Covid-19 has taken plenty of consumers and financial products and services online, there's still a lot to be done. After the banking fintechs investment wave and the infrastructure laid by software fintechs, lending and payments fintechs are following suit.
Some other current trends for the fintech sector include catering to companies and not end consumers (B2B business model), with embedded finance being an example, and the adoption of artificial intelligence in predictive analysis, such as improving customer service and credit scoring based on past queries and data.
Looking to the medium to long-term, opportunities for fintechs include catering to promising niches, providing insurance, tracking the evolution of digital currencies, and using AI once again, but this time for more prescriptive and creative processes.
Even if the sector is mature, old challenges remain. Fintechs have to face obstacles such as high cost of capital, obtaining and securing customer data, increased competition and cost of acquisition, and regulation for spaces such as crypto and Open Finance.
E-commerce: the majority of LatAm buys online, but the sector has space to explore
The Covid-19 pandemic transformed online buyers from minority to majority in Latin America, with 3 out of 4 people in the region having already bought something online. Even after this growth spurt, LatAm's e-commerce share of total retail (10%) still has ground to cover to reach the shares in countries such as the US (16%) and China (46%).
E-commerce had higher-than-average growth rates in venture capital during the acute years of the pandemic (2020 and 2021). But it has also retracted more than the average in 2022 and Q3 2023. LatAm e-commerce players face challenges such as the difficult macro environment (even if the region is well-positioned to recover quicker than others), the gap in quality network coverage, changing regulations and taxes, and the eternal search for margin efficiency in the form of LTV:CAC.
We've walked far in e-commerce, and that's reflected in LatAm's capacity to offer a variety of buying channels and payment options. Artificial intelligence (AI) applied to e-commerce is also advancing in the region, with local startups tackling a range of applications for the e-commerce sector.
Some medium and long-term opportunities for e-commerce in LatAm are digitalizing more of its numerous analogic SMBs, reaching Chinese levels of live commerce, and watching closely the strategies and increased presence of international players. As for AI, the biggest challenge will be separating hype from fact.
Logistics: gaining share of venture capital (and efficiency)
Logistics as a whole has gained more momentum with the supply chain constraints and the rise of e-commerce brought by the Covid-19 pandemic – and companies and investors have increased their attention to logistics startups, and investments into them poured. Even if funding has gone down in 2022 and 2023 in terms of volume, logistics startups keep gaining a bigger share of total venture capital investments.
Observed trends represent a mix between new consumer behaviors made stronger by the pandemic and new requirements for thriving in a difficult economic environment. On one side, we have the demand for convenience and cross-border products. On the other, we have the search for healthy margins and efficiency, and strategies vary from nearshoring and more cost-saving delivery formats to investing in artificial intelligence (AI) and the internet of things (IoT).
The medium and long-term opportunities for logistics startups in LatAm are more varied. Founders and investors heard by Latitud point out movements such as providing logistics for soon-to-be-digitalized niches; keeping track of carbon emissions in preparation for public regulations; and deepening the use of AI through applications such as machine vision.
Logistics companies face some challenges that are actually opportunities for logistics startups – such as seeing high rates of theft and building solutions to curb it. Some other challenges are more difficult to solve by innovating and these are the ones we'll focus on in this study: macro environment, cross-border logistics regulations, and infrastructure.
SaaS: growing in venture capital while the overall LatAm startup market recedes
LAVCA – LatAm's SaaS venture capital funding (selected software verticals: ERPs, CRMs, and Other Enterprise Software): 2021) USD 479.3M 2022) USD 150.9M 2023 YTD (Q1-Q3) USD 200.8M
Software as a service (SaaS) startups are well-positioned to grow after the digitalization brought by the Covid-19 pandemic, and in a fundraising environment where asset-light and metric-filled business models are prioritized. LatAm SaaS fundraising has grown this year to date in comparison to 2022, while the overall startup sector has receded.
The trends for software as a service in the region point to a post-pandemic world: hybrid work is the new norm, enterprises are looking to eliminate redundancies, SMBs are continuing their digitalization track, and artificial intelligence is making SaaS better for customers and more productive behind the curtains.
The medium and long-term opportunities for LatAm SaaS startups point to a deepened development of the sector: software focused on niches will expand through vertical SaaS, startups will only go beyond borders if it makes strategic sense, and Gen AI will increase SaaS' portfolios while maintaining efficiency.
Challenges for all startups also haunt software as a service, such as attracting and retaining talent, coupling growth with retention and profit, and dealing with data privacy and security. An added challenge for the SaaS sector is educating the market and showing users that paying for and using software can be worth it in terms of cost reduction and/or revenue expansion.
Proptech: more macroeconomic clarity and plenty of segments to explore
In a post-pandemic world that becomes clearer as time passes, real estate players see the need to adapt. Proptech founders and investors are optimistic about participating in that change. While the amount of capital invested in proptechs fell in 2023 YTD, it receded less than average. That made proptech's share of total capital invested reach 10.1%, a 5-year record.
Some current and short-term trends for LatAm proptechs are tackling the opportunities of making homeownership affordable, revamping offices, digitizing construction processes, and making customer service and operational tasks more efficient through artificial intelligence.
In the medium to long term, LatAm opportunities that proptechs can leverage are Open Finance, regulation over real estate sustainability, and the potential of Generative AI.
Some challenges for proptechs have remained the same for some years: making data less fragmented and obscure, facing difficult macroeconomic conditions, and educating real estate consumers and stakeholders to earn their trust.
Healthtech: looking at habits formed by the pandemic and long-term opportunities
LatAm healthtech is in a more mature moment, after the healthcare tragedy brought by Covid-19. The sector saw increased venture capital investment right at the beginning of the pandemic. Even if that volume of capital receded in 2022 and 2023 YTD, healthtech's share of total VC is at 3.8%, a 5-year high.
Some trends for LatAm healthtech in the short term are to keep improving virtual and home care solutions, looking at niches to build moats, and improving customer service and efficiency with the help of artificial intelligence (AI).
Some opportunities for LatAm healthtech in the medium to long term are catering to the region's growing elderly population, developing precision medicine using regional genetic mapping as a foundation, and exploring the potential of Generative AI.
Healthtech still faces a challenge known to every essential sector: leading with multiple stakeholders and regulations, which in turn causes long development and growth cycles.
Edtech: the journey of digitalizing education and transforming learning continues
The Covid-19 pandemic forced schools and a lot of workplaces to go digital, opening an opportunity to digitalize traditional education and workforce development. Even if that experience wasn't ideal around the world, including Latin America, there's no turning back in digital literacy and adoption. Edtechs can leverage the need to update and improve the education sector.
Beyond continuing to digitalize schools, other trends for LatAm edtechs are improving financial access to education, bringing more engaging learning methods, betting on courses for workforce upskilling and reskilling, and using artificial intelligence to make education more personal and efficient.
In the medium to long term, two opportunities for LatAm edtechs are preparing students and workers to create and think, rather than just applying new technologies, and deepening the sector's relation with artificial intelligence.
While LatAm edtechs see many trends and opportunities, they also face the constant challenge of being in a sector with various stakeholders, long sales cycles, and skepticism from a good share of investors. While investments for LatAm edtech grew in 2020 and 2021, 2022 and 2023 YTD pose a different scenario.
Go deeper into all 7 industries and take note of your own highlights of The LatAm Tech Report 2023. Download the report here.
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