Latin America is spawning tech ‘unicorns’

Nubank is a financial technology company created in 2013, whose founders, including 37-year-old Colombian David Vélez — wanted to “break from the system’s inertia”. (Paulo Whitaker/Reuters)

Nubank is a financial technology company created in 2013, whose founders, including 37-year-old Colombian David Vélez — wanted to “break from the system’s inertia”. (Paulo Whitaker/Reuters)

Nubank is the online bank with the greatest number of clients outside of Asia. Fellow Brazilian startup 99 is a platform that connects 300 000 taxi drivers and chauffeurs to provide a competitive service in which passengers pay less and drivers earn more.

Rappi’s orange-clad bicycle couriers have sprung up in 27 Latin American cities offering services as varied as delivering cash and pizzas to walking dogs or looking for lost keys.

These are among a new breed of South American “unicorns”, young digital companies that defied struggling economies and flourished to such an extent they are now worth at least $1-billion each.

Since the dot.com boom years, successful tech companies have sprung up all over Asia, the United States and Europe but Latin America remained a relative backwater.

Little by little, that’s starting to change with a number of companies, mostly based in Brazil and run by dynamic young entrepreneurs, breaking the mould and acting as regional pioneers.

Brazilian Nubank, 99, PagSeguro, Arco Educação and Stone Pagamentos, along with Colombian Rappi, are the latest in the region to cross the billion-dollar value threshold, and they have done so in ingenious ways.

What’s more, their success is attracting unprecedented levels of investment.

Six years after its launch, 99 became a unicorn this year after receiving a $100-million investment from the Chinese Uber, DiDi Chuxing.

Its presence has spread to 500 cities and, after riding out the recession from 2015-2016, 99 grew 500% in 2017, said its 31-year-old president, Matheus Moraes.

To do so, 99 had to overcome classic Brazilian problems relating to infrastructure and price competition.

“Our strategy is to offer more competitive fares with greater guarantees for the driver.”

He says 99’s 300 000 employees earn 20% more than independent drivers and its 14-million passengers pay 15% less.

Nubank is a financial technology company created in 2013, whose founders, including 37-year-old Colombian David Vélez — wanted to “break from the system’s inertia” and demonstrate that “there are no sacred industries” without room for innovation.

In March, it passed the $1-billion mark.

“The macroeconomic environment was a huge challenge given that, since we launched, Brazil’s gross domestic product has shrunk by 8%,” says Vélez.

But legal barriers remain in an industry 90% controlled by banks.

The overall aim is to reach Brazilians excluded from the banking system, says Vélez. “It’s the first minute of the first half of the match.”

Since launching in 2015, Rappi has spread into Colombia, Mexico, Brazil and Argentina.
In September, it received a $200-million investment from a group led by Hong Kong-based venture capitalists DST Global.

Originally picked up by seed accelerator Y  Combinator, which previously invested in the likes of Airbnb, Reddit and Dropbox, Rappi has since become the first Colombian unicorn.

Investment in such firms is on the increase, with more than $1-billion shelled out by risk investment funds in 2017, an unprecedented sum, according to Julie Ruvolo, the venture capital director at the Latin American Association of Venture and Private Capital.

“In 2018, there were individual investments of more than $100-million, with greater

participation from global investors”, such as SoftBank or Tencent, says Ruvolo, who expects new records to be broken this year.

Brazil led the way in 2017, attracting $859-million spread across 113 agreements.

In the cases of PagSeguro’s online payment system and Arco Educação’s education platform, both gained value after launching on Wall Street.

Soon an Argentinian company will be in that crowd, when video games and mobile apps developer Etermax reaches the $1-billion threshold, according to a ranking list by Surfing Tsunamis and NXTP Labs.

Created in 2009 by Maximo Cavazzani, now 33, Etermax produced the Apalabrados game, which was the most downloaded in Spain in 2012, and Preguntados, which went viral in Finland, Turkey and the US, where it’s known as Trivia Crack. Etermax has expanded into Germany, Mexico, Uruguay and soon into Brazil, too.

But expanding a startup in Argentina isn’t as easy as in Silicon Valley, where funds are readily available, Cavazzani says.

Added to that was the difficulty posed by a highly sophisticated product that requires a rare expertise.

Even so, Etermax is thriving and well on its way to joining the ranks of the increasingly commonplace Latin American unicorns.— AFP

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