By Patrick McGinnis
When the Latin tech community gathers to discuss the state of the industry, the conversation inevitably turns to the subject of business models. There is usually some debate as to whether Latin American entrepreneurs will migrate away from so-called “copycat” models lifted from the US and Europe to focus on homegrown technologies.
I have no quarrel with copycats or adaptations, as I prefer to call them. Even if a business model works in a developed market, translating that model to the operating realities in Latin America requires innovation, creativity, and strong execution. Moreover, building copycat businesses is endemic to the tech industry regardless of geography. Just look at all the daily deals sites that were funded in the United States (and consequently Latin America) in the last several years.
Historically, most of the capital and much of the success in Latin America has gone to consumer-focused adaptations, many of them e-commerce businesses. Looking forward, however, I expect to see a shift towards locally developed innovation that spans not only consumer-focused businesses but also the B2B space as well. There are several reasons for this emerging trend.
First, the entrepreneurial ecosystem in Latin America is growing deeper and the flow of people and ideas between places like Buenos Aires and Rio and places like New York and Silicon Valley is increasing. Second, e-commerce remains a difficult business in Latin America, especially when the business requires last mile logistics. Third, investors in Latin America are becoming more sophisticated. As investors become more comfortable with technical business models, they will also consider these as opportunities for investment.
In March, LAVCA’s entrepreneur profile featured Alex Torrenegra of VoiceBunny, a “CrowdVoicing” start-up that is leading the charge towards homegrown technology in Latin America. VoiceBunny is largely a B2B play that targets customers in the United States and other developed markets.
Down in Brazil, another team of Colombians is also generating innovation in Latin America. Aentropico, which is currently taking part in the 21212 acceleration program in Rio, taps into demand for Big Data in Latin America. Aentropico is building a predictive analytics platform that provides managers with user-friendly and data-driven solutions to solve the most acute business concerns. The company aspires to be the Amazon for data science.
Aentropico is a prime example of the new breed of globe trotting Latin American entrepreneurs that are transforming the tech space. Founders Sebastian Perez Saaibi and Juan Pablo Marín Díaz both received Masters degrees from the Eidgenössische Technische Hochschule Zürich in Switzerland. Pérez Saaibi studied Econophysics while Marin Diaz studied Electrical Engineering and Information Technology. Both founders are Edmond J. Safra Network Fellows at Harvard, where they are working on a computational statistics-based system to monitor international corruption. In short, they are exactly the kind of entrepreneurs who are capable of building globally-oriented technology products in Latin America.
Susan Segal, who backed multiple LatAm tech start-ups over a decade ago as a pioneering VC investor (and a mentor of mine), has asked what it will take for Latin America to develop the next Skype. I believe that developing the next Skype or Adobe or Citrix in a place like Medellin or Santiago or Rio is within reach. The quality of engineering talent has grown significantly over the last decade and the flow of capital, talent and ideas between the region and Silicon Valley is greater than ever.
Moreover, governments in the region are developing public policy oriented toward deepening the overall entrepreneurial environment. These programs aren’t perfect and the return on investment remains unclear. Still, investment in talent—especially by strengthening the region’s education systems— will yield real results.
Inevitably, one constituency will dictate the nature of the businesses that entrepreneurs build in Latin America: the entrepreneurs themselves. To that end, I asked Alex Torrenegra what he feels it will take to drive more original business models out of the region. His advice? “Stop trying to copy the business models from the United States, and realize that there are opportunities unique to Latin America. Perhaps even look at businesses in China. In some cases, Latin America’s market dynamics are closer to China’s than to the US ones.”
With continued investment and more talents like Alex, Juan Pablo and Sebastian, perhaps one day not too far into the future we will see the tide of innovation reverse and flow northward. I look forward to the day when companies in the United States rush to create copycat companies based on Latin American technologies.
Growth Capitalism is a regular column in the Latin America PE/VC Report from Patrick McGinnis. McGinnis has been a private equity and venture capital investor in Latin America and the emerging markets for over a decade, first at Chase Capital Partners/JPMorgan Partners and later at AIG Capital Partners (now PineBridge Investments). He is the founder of Dirigo Advisors and is a co-founder of Real Influence. Patrick is actively involved in the Latin technology space, with investments in NXTP Labs (www.nxtplabs.net), InBed.me, and Altodot. He also sits on the Board of Directors of The Resource Group, a global BPO company. Fluent in Spanish and Portuguese and an avid traveler, he blogs about travel at www.huffingtonpost.com/patrick-mcginnis. He can be reached at firstname.lastname@example.org