After 2023 reality check, Latin American startups hope for better times

By now, startup founders and investors know that the unprecedented investment levels of 2021 were a once-in-a-lifetime event in Latin America. Still, they say there has never been a better time to launch startups than now — and no better place to do it than in the region.

The outlook for 2024 is promising, but only for those who have learned their lesson. We spoke to some of the region’s most active investors and operators to explore what’s next and understand how the ecosystem got to where it is now.

What they thought would happen

Before 2021, life for entrepreneurs in Latin America was much more challenging, as Jimena Pardo, managing partner at Mexico-based early-stage venture capital firm ALLVP, recalls.

“Flashback to 2012, when I was a founder in the almost non-existent world of tech entrepreneurship in Latin America. Those days were rough: no capital, no infrastructure, and few people willing to take a chance on a startup dream.”

Starting in 2017, things began to change, culminating in a funding boom four years later.

By 2021, much of the funding surge in Latin America was led by global, U.S.-based investors such as SoftBank, Tiger Global, and Valor Capital Group. That year, the region was considered the world’s fastest-growing for venture capital investment. But if a rising tide lifts all boats, the falling tide dragged Latin America down in 2022.

Many global firms pulled back in the following years as macroeconomic conditions worsened and valuations of their existing holdings around the world fell. Regional funds, while accustomed to crises, also had to slow down and focus on keeping their portfolios afloat rather than looking for new investments.

“The world went from a situation of very low interest rates and an explosion in valuations of technology companies (between 2020 and 2021) to a moment of global uncertainty, wars, and threats of recession — which created inflationary pressures, increased interest rates, and made ‘cheap money’ no longer available,” says Eduardo Vieira, SoftBank’s lead marketing, communications, and corporate affairs partner for Latin America.

In the last quarter of 2022, the general advice from investors was for startup founders to scale back operations to have enough resources to survive the lack of investment that would come in the following months.

“A lot of startups were bloated, had hired too many people, and were too focused on growth at any cost rather than unit economics,” recalls Brian Requarth, CEO and co-founder of Latitud, a tech entrepreneurship platform and VC firm focused on Latin America.

What really happened

By early 2023, the founders realized that another six months of hardship on top of the previous...