Startup investments are on the rise in Latin America, and there’s now more capital available than ever before. A look into five-year investment trends in the region revealed that investors had closed deals worth $2.3 billion, according to the Latin American Venture Capital Association (LAVCA).
However, it’s worth noting that a majority of these investments take place in just two countrie, Brazil and Mexico. For most Latin American startups outside of these two countries, raising funds from VCs or angel investors has rarely been an option. In many cases, investments tend to come in the form of $50,000 to $100,000 grants or smaller loans. Outside of Brazil and Mexico, there are very few funds that can write a check in the $3 million to $5 million range.
And yet, despite the difficult fundraising environment, we’ve seen plenty of Latin American startups solving real problems succeed without million-dollar rounds of funding.
Startups in Latin America have to be extra scrappy to build their ventures, and many of these startups are proof that it can be quite advantageous to grow a business this way. Rather than raising outside funding to get a product off the ground, startups in Latin America have come up with their own strategies for success. And most of the time, it has been simply out of necessity.
Whether it’s bootstrapping, hiring only when necessary or focusing on revenue first, there are plenty of lessons U.S. entrepreneurs can learn from Latin American startups. Here are just a few of those lessons.
1. Focus on acquiring real, paying customers first.
Because there tends to be less later-stage funding available outside of the U.S, startups in regions like Latin America, whether they’re building products for the Latin American or U.S. market, must focus instead on generating revenue much earlier on to keep their companies alive.
When startups can’t depend on someone else’s cash, they keep their focus on customers rather than investors. This focus on real, sustainable growth forces a startup to build something that actually works and generates money. Operating costs are lower not because Latin American startups want to pay employees low salaries, but because they have to be in order to survive.
In Latin America, startups are rarely in a position to access large sums of money to put towards growth. At the same time, investors in Latin America are traditionally more risk-averse, therefore generating revenue is often the only way for startups to prove their concept or business model and raise VC funding. In sum, startups are much more likely to get them to write a check when, and only when, they’ve shown that they can make money for them.
U.S. startups often focus their efforts on hyper-growth rather than real, sustainable growth. This hyper-growth and traction are often the most important factors for investors and make sense for a certain subset of companies. But, many U.S. startups burn themselves out chasing unsustainable hyper-growth. Latin American startups are used to putting their own money on the line, rather than VC money, forcing them to truly listen to their customers. The benefit of focusing on customer retention, and not just high growth, is that it allows your company to be extremely tuned in to the problem you’re trying to solve — and can even lead to discovering opportunities beyond what you had initially envisioned.
2. Adaptability is key when expanding into new markets
Many startups from the U.S. and Europe struggle to expand into new markets abroad. They usually raise funding to battle their way into a new country, one at a time, and then hit a number of roadblocks due to language barriers, cultural differences or poor attempts at…