Latin America has emerged as the best growth market for start-up expansion, with 37 per cent of venture capital companies viewing the region as the most attractive outside of North America and western Europe, while only 13 per cent see China as the most compelling, according to a survey by VC firm Copec Wind Ventures.
This is a shift from the San Francisco-based firm’s 2020 survey which indicated China to be most favourable with 37 per cent, while Latin America stood at only 8 per cent.
The survey, published this week, looked at the VC community’s outlook on global growth markets outside of North America and Europe, and is based on surveys with 50 venture capitalists from a range of specialisms. While the majority (53 per cent) of those surveyed were early-stage investors, 32 per cent were seed-stage investors, and 15 per cent were growth investors.
The report also showed that VC sentiment is shying away from south-east Asia as an attractive start-up growth market, with interest dropping 51 per cent from 2020 to 2023.
“[Our] fourth annual survey reveals a notable shift in sentiment since we started this survey in 2020, positioning Latin America as the preferred growth market for start-ups,” said Brian Walsh, head of Copec Wind Ventures, which focuses on Latin American and US markets, in a press release. “We believe the surge in optimism for Latin America’s innovation landscape underscores the region’s tech-enabled transformation.”
Market size and tech adoption are viewed as the most important aspects when considering new regions to expand into, the report notes.
The research also looked at specific sectors that continue to show promise, with 51 per cent of VCs surveyed indicating fintech as the “hottest” investment area in the region, while climate tech and energy came second and third at 17 per cent and 15 per cent, respectively.
However, political risk remains a key challenge for start-ups expanding to Latin America. The primary challenge is perceived by VCs to be political for 89 per cent of the people interviewed. Since 2020, however, VC perception around economic or cultural risk to start-up growth in Latin America has consistently improved year on year.
“The Latin American region’s potential for explosive technology adoption is driven by the region’s digital transformation and a total market size larger than that of the United States — 650mn people — and it is great to see investor perception continue to acknowledge this,” said Walsh.