Seed Capital Availability in LatAm Could Make 2023 a Good Year to Start a Business

Bloomberg Línea looks at which sectors are the most attractive in which to launch a startup in Latin America next year

The most attractive area for investors are the technology sectors that do not require a huge amount of capital, according to Brian Requarth, co-founder of startup accelerator Latitud.
December 20, 2022 | 08:42 PM

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Mexico City — This year has been a difficult one for mature startups, but not so for those recently created, which maintained a peak in investment. In Latin America there are still several problems that new companies seek to solve with innovative business models, and, given those opportunities, Bloomberg Línea has consulted specialists who advise on what you could be good businesses to launch in 2023.

For starters, 2023 will be a good year for entrepreneurship. According to Brian Requarth, co-founder of Latitud, seed capital is the least affected by the investment slowdown.

Requarth, who is also the author of the book ‘Viva the Entrepreneur’, believes that in order to determine what kind of company to start in 2023, the most attractive area for investors are the technology sectors that do not require a huge amount of capital.

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These sectors, Requarth says, can be the verticalized software service and B2B businesses, because in comparison with B2C, they require less capital, whereas B2C needs a greater investment to attract users.

What businesses to launch in 2023

In recent years, there has been a transformation in value chains and sectors such as mobility, education, health, welfare and food, says Mariano Mayer, co-founder and managing partner of Argentine fund Newtopia.

And for his part, Daniel Bronsoiler, senior VC analyst at DILA Capital, believes that given the macroeconomic environment, inflation, rising interest rates and a possible recession, countercyclical industries such as healthtech and cybersecurity will become more important in the coming year.

Latin American venture capitalists agree that entrepreneurship in 2023 in the following industries could be a good business.

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Fintech

In 2023, the sector will continue to be the industry in which most capital is invested. This will not change in the near future, Bronsoiler told Bloomberg Línea. “In particular, I think embedded finance will pick up steam in the next year, not as a sector, but as a second layer for different industries.”

Mayer agrees that the new opportunities are in second- to third-generation projects that are looking to provide support and infrastructure to everyone on the front lines looking to transform.

“Despite our efforts, we still need to achieve greater adoption, because financial inclusion is much more than just having a card, there are many things behind it,” says the co-creator of Newtopia.

Insurtech, Web3 and crypto will also grow, despite the downward trend that reigned this year, and the fall of FTX, one of the world’s largest cryptocurrency exchanges.

E-commerce

Cristóbal Perdomo, co-founder and general partner of Mexican fund Wollef Ventures, says that online sales are not the only thing offering opportunities, but all the enablers around them that drive it, such as payments, logistics, security and traceability.

With the explosion of digitization in Latin America, delivery services and tools supporting e-commerce and other aspects of consumption, this industry and those companies that add value to it will be highly relevant during 2023, adds DILA Capital’s Bronsoiler.

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In addition, due to the US-China trade war, there has been a large migration of manufacturers and suppliers from China to Mexico.

“In search of greater efficiency and productivity, innovative technological solutions have been incorporated into this supply chain and it is in this sector where we are seeing very interesting opportunities,” Bronsoiler says.

Edtech

Bronsoiler assures that educational technologies (edtech) “are an industry that is little talked about, however, the opportunity, and the impact it will have, is enormous. I see companies in this sector with a lot of potential for growth and interest from investors”.

Software as a Service (SaaS)

Latin America has seen a growth in the volume of capital raised for Software as a Service (SaaS) startups. Venture capital injections in the space grew 100% between 2013 and 2021, and between 2020 and 2021 alone grew sevenfold. Rounds are increasingly larger, growing from $3 million in 2013 to $500 million in 2021, according to Latitud’s The LatAm Tech Report.

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Climate Tech

Investment in climate tech is recession-proof, with growing demand for solutions, and even during 2022, investment has remained steady.

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A PitchBook analysis shared by TechCrunch shows that the average value per deal was $23.6 million at the end of Q2 2022, more than triple what it was five years ago.

Globally, some trends are looking at biotech replacements for high-emission foods, providing carbon calculation and accounting tools, encouraging agroforestry and reforestation, providing electric transportation, and tokenizing carbon credits and other environmental assets.

Current and cross-sector trends in Latin America include for adaptation responses, such as paid ecosystem protection, ocean and coastal initiatives, urban water and housing management, climate-smart agriculture and reforestation.

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Healthtech

This is a sector that is seeing an increase in capital injection at a faster pace. In 2021, health-related startups increased their annual funding by 4,700%, with an overall startup ecosystem growth of 1,800% in the same period, according to Latitude’s report.

Among the immediate trends, the study highlights the increased impact and opportunity for technology in telemedicine, mental health, health insurance, wellness, dental solutions and employee benefits.

In the medium and long term for Latin American healthcare technologies, the greatest opportunities are detected in data interoperability, remote patient monitoring, virtual reality for surgeries, wearables, the internet of medical things, and big data and artificial intelligence.

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Wellness

The wellness industry was boosted during the Covid-19 pandemic, which further exposed the importance of healthy living, says Newtopia’s Mayer.

Among the sub-sectors in which to launch a business in 2023 are startups that have to do with the promotion of physical activity, with mental wellness, and the relationship with medicine, which is also related to foodtech.

“Sectors are linked with others, and what is interesting about this moment is that there are cross-cutting themes across all sectors,” Mayer says.

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HR tech

One sector that is very much combined with fitness, says Mayer, is human resources technology (HR tech).

“It’s super strong, with different optics and tools, at a time when the world of work is at the peak. On the one hand, we have a lot of people who have jobs, but are not very happy, and on the other hand, the challenge of making a mix between remote and on-site,” Mayer says.

In Latin America, within HR tech, there are also emerging startups that are seeking to connect supply with demand of technological talent, or those that are providing retraining, flexible benefits for employees and those that combine the financial part and give salaries on demand, loans or corporate cards to their employees.

Translated from the Spanish by Adam Critchley