With destinations as intriguing and diverse as Machu Picchu, Patagonia, the Amazon rainforest and the Galapagos Islands to vibrant cities such as Rio de Janeiro, Buenos Aires and Mexico City, Latin America is home to a active travel industry, attracting both local and international visitors.

According to Phocuswright’s Phocal Point database, total gross travel bookings in the region were worth $60 billion in 2018 and are predicted to increase to $69 billion in 2020 and $78 billion in 2022.

IATA’s 20-year Air Passenger Forecast from October 2018 predicts Latin America will grow by a compound annual growth rate of 3.6% through 2037, serving a total of 731 million passengers.

That is all good news considering the region’s economic and political challenges in the past several years.

According to Brazil-based Phocuswright analyst Carolina Sass de Haro, “We have to consider that the political and economic turmoil that happens often is just a given. We are used to living like that. Of course it does affect tourism and everything, but you see entrepreneurship and the industry moving despite what is happening with the political and economic crisis.”

In fact, the travel startup scene in Latin America has been gathering momentum for several years and investors are starting to take notice.

In part two of our series on Latin America, we take a look at what is happening in the region’s startup ecosystem, including input from one of its largest accelerator programs and two entrepreneurs.

Background

In late April, the Association for Private Capital Investment in Latin America (LAVCA) released its annual report on the amount of venture money flowing into the region.

In 2018, investors pumped a record $1.98 billion into Latin American startups, up from $1.14 billion in 2017 and nearly four times more than what was invested in 2016 ($500 million).

And there’s more to come: In March, Japan’s Softbank announced it is launching a $5 billion fund to invest in technology startups across Latin America.

“Latin America is on the cusp of becoming one of the most important economic regions in the world, and we anticipate significant growth in the decades ahead,” says Masayoshi Son, chairman and CEO of SoftBank, in a statement.

Brazil leads the region for venture investment – capturing more than 55% of the deals in 2018 according to LAVCA. Mexico is second (20.5%), followed by Chile (10.6%), Colombia and Argentina (4.1% each) and Peru (2.4%).

Within travel, some of the most notable activity has been in the transportation sector.

In January 2018, China’s Didi acquired Brazilian ride-hailing startup 99, reportedly spending $600 million to buy out existing investors and $300 million for development capital.

The co-founders of 99, Ariel Lambrecht and Renato Freitas, then launched a bike and scooter company, Yellow, in April 2018. By September it had raised more than $75 million, and in January of this year, Yellow merged with Mexico-based scooter company Grin, which itself had raised $65 million in two rounds last fall.

Together, Grin and Yellow have formed Grow Mobility, which has already raised $150 million in new funding to expand across Latin America.

But while investment activity has been picking up pace, respondents to LAVCA’s Inaugural Survey of Latin American Startups still cite “access to investors” as the top barrier to raising capital.

Challenges and opportunities

As executive director of Start-Up Chile, one of the largest accelerator programs in Latin America, Sebastián Díaz says one of the biggest challenges is helping the region’s investors understand how to deal with startups, and that education is something his organization is facilitating.

“Many investors here are very traditional. They are used to investing in commodities. They don’t know how to invest in startups, how the technologies work,” Díaz says.

“So now there is a big interest in investors in Latin America to learn how to deal with startups.”

Díaz says recent deals – such as Didi’s acquisition of 99 and Walmart’s September 2018 purchase of Cornershop, a delivery startup serving Mexico and Chile, for $225 million – have made investors eager to get in on the action.

“Those kind of success cases are telling investors – you are missing opportunities,” he says.

Since its founding in 2010, Startup Chile has worked with more than 1,600 startups from 85 countries.

One of those is Wheel the World, an online platform created in November 2017 to help people with disabilities find and book accessible trips.

The specialized online travel agency now offers bookings in 13 destinations in Peru, Chile, Mexico and the United States.

It has also secured about $740,000 in funding from an angel investment from Silicon Valley and several grants, including ones from Start-Up Chile, Google Launchpad and Booking Booster, Booking.com’s accelerator program.

Co-founder and CEO Alvaro Silberstein says Wheel the World wants to raise a seed round by the end of the year to help it expand to at least 30 destinations, but he knows that will be more challenging than the funding he has secured to date.

“There are a lot of pre-seed programs, but for the next rounds, it is challenging to find VCs and investment funds that are familiar with startup investments,” Silberstein says.

“It’s not that there is a lack of resources – there is a lot of money in Chile, Brazil, Mexico – the challenge is how we convince them in to be more aggressive in investing in new technologies.”

One startup building success in Latin America is Arrivedo, which provides curated neighborhood guides that hotels use in their websites and apps to drive search engine optimization, ancillary sales and a positive guest experience.

Founded in 2015, Arrivedo closed a $2.3 million seed round in 2018 and received the People’s Choice Award at HITEC Amsterdam. The company currently works with 1,400 hotels in 103 countries, with content from a network of 3,000 freelance writers.

But the majority of Arrivedo’s core staff is in Peru and Mexico, and product development and testing starts in Latin America. Co-founder Alonso Franco says the decision to run the company this way is based on both economic and cultural factors.

“If you are trying to do marketing to hotels in the United States first while at the same time you are learning the purchasing behaviors of these hotels, each of those leads will be super expensive,” Franco says.

“All the marketing to attract a hotelier to your website from Chicago, San Francisco and New York is going to be 10 times [the cost] of attracting a hotelier from Santiago, Buenos Aires and Lima. So we think our own area it is more economic to learn. And then we take those learnings and put it outside.”

When it comes to hiring, Franco says there is not only a large pool of highly skilled talent in Latin America, but the cost to attract and retain those workers is much lower than in places such as Silicon Valley. And those local workers contribute additional value through innate characteristics unique to the region.

“If you think about hospitality, it’s a lot about warmth and about being a great host, and that historically has been quite related to the nature of our cultures in Latin America,” Franco says.

“To me it’s not a coincidence that the product that is giving a platform for hotels to communicate as a local host is coming from a country that is historically a good host.”

And entrepreneurs from around the world seem to be taking notice of the opportunities in Latin America.

Díaz says about 70% of Start-Up Chile’s participating companies come from outside Chile – with many from the United States and India.

This is in part because Chile has made it very easy for entrepreneurs to set up shop. Since 2017 the country has offered a streamlined visa program that grants work visas to technology companies within 15 days. Díaz says incorporation can also be done in a matter of hours.

But even with these simplified processes, Díaz says he still advises startups from outside the region to find a local partner, such as an incubator, accelerator or venture capital firm.

“Culturally, Latin America is way different to other developed countries,” he says.

“In Latin America, when people say yes, it means no. And when someone says ‘I’ll call you back’ – that call will never happen. And when you say, ‘Let’s meet at 9 in the morning,’ the meeting will start at 9:45. If no one is telling you this is how it works, they get super frustrated, and that can have a negative impact on the business.”

The Bottom Line: 

Latin America is a quickly-growing hub for travel–  and foreign investment in it. This year, Japanese Company, Softbank, plans to invest $5 billion in technology startups across the region, with a firm belief in the area’s future economic dominance. Also, Chinese enterprise, Didi, bought out a Brazilian ride-sharing startup, whose ambitious owners then merged into a flourishing scooter company. Each year, growth seems to happen exponentially. However, accessing investors is one of the biggest difficulties for Latin American startups, who face a culture that is not yet well-versed in investing in a business rather than commodity. Other challenges include cultural differences such as timeliness and social commitment. Yet despite the disadvantages, many travel and tech start ups are booming, drawing interest of new investors and supporting the region’s industries. 

For the source of this original article, and more fascinating and cutting-edge travel news, visit: https://www.phocuswire.com/Latin-America-part-2-startups-and-VC

 

 

 

Author: Shannon Cantor