While the US is the goal for many European founders plotting international expansion, more European startups are looking to Latin American markets too. And it’s not just hispanophone and lusophone teams either — startups from Poland to Romania are also taking note.
Benoit Menardo wanted to enter Latin America since he cofounded the fintech startup Payflow in Madrid in 2020. Three years later, the company, which allows employees to get paid whenever they want, has expanded to Portugal, Colombia and Peru. Latin America represents one-third of all Payflow’s business nowadays — and Menardo predicts it could reach half soon.
“The region has a high potential. Investors always ask about market size — which is huge here,” Menardo says, pointing out that the Colombian market alone was similar in size to Spain.
Investors and founders say Latin America offers hundreds of millions of customers, less well served by tech startups than in Europe and the US. A sharp rise in tech graduates in countries like Mexico, faster regulatory processes for the approval of new innovations and public policies to attract foreign companies are also intensifying the region’s pull.
But that doesn’t mean it is without its risks and challenges, including high salaries for top talent and governments’ requirements on companies to prioritise local workforce in their recruitment strategies.
Jumping continents
The list of Iberian startups taking root in Latin America goes on and on and includes companies in sectors as diverse as ride-hailing, insurtech and proptech.
But Iberian founders are no longer the only ones attempting to cross the Atlantic.
Lithuanian startup Plag.AI, which helps spot texts produced by AI chatbots such as ChatGPT or Bing rather than humans, is planning to expand to the Latam region in late 2024, as is LiveKid, a Polish kindergarten platform that plans to open a 20-strong office in Mexico this year and enter Brazil later on. Romanian remote work startup Pluria has made Latin America its primary market.
Talent pros and cons
Despite the interest, the region has its challenges.
Spanish and Portuguese founders have had a tendency to underestimate the difficulties of taking their businesses to Latin America because of their linguistic and cultural ties, says Paloma Vila, insights director at Endeavor, a global organisation that supports founders. She warns the reality is that these markets are “complex to enter, volatile and with a time difference” with Europe.
In order to succeed in the region, Payflow’s Menardo says it is crucial to hire a strong local team. Although Latin America has excellent tech hubs such as Monterrey in Mexico or Montevideo in Uruguay, where skilled technicians and engineers are available at a lower salary level than in Europe, recruiting experienced leaders in Colombia turned out to be more expensive than what he had expected.
“Leadership talent in Latin America is a lot more expensive than in Europe. You can save in other profiles, but there are very few leaders there and you end up paying US-level salaries,” Menardo says. “You’ve got to invest in local leadership and focus on transferability of teams between Europe and Latin America — sending employees on exchanges from Spain to Latin America and vice versa.”
“The lowest skilled profiles cost less than in Spain, but the highest skilled ones are more expensive than in Spain, because you compete for talent with the US,” agrees Borja Aranguren, CEO and cofounder of Cobee, a platform allowing employees to manage all their employee benefits which is considering an expansion to Colombia and Brazil after consolidating its Mexican business. The highest skilled professionals in Latin America can cost 30-40% more than in Spain, he adds.
National authorities in countries like Chile are very open to European startups setting a footprint in their territories, but want to ensure foreign companies hire a minimum share of employees locally before agreeing to support them with public funds, says Gabriel de la Rosa, partner at Add Ventures, a VC fund that invests in Latin American entrepreneurs and European funders seeking to jump continents.
They might also be wary of European founders expanding to other Latin American countries later on, out of fear of losing tax income and seeing talent previously based in Chile crossing the border, he adds. Imposing restrictions on the nationality of the employees that a startup can hire is likely to hinder its growth, de la Rosa argues, because the most productive teams tend to be the most diverse.
Chile opens the door…
Despite local concerns over its capacity to retain foreign startups within its borders, investors say Chile has made it easiest for foreign founders.
But in order to overcome the bureaucratic and cultural differences between continents, it’s helpful to engage with local partners, such as the state-funded Start-Up Chile accelerator or Endeavor, which offers support from its offices in Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru and Uruguay, says de la Rosa.
“Travel the path of least resistance and go to the easiest place first,” he adds. “Chile right now is the easiest country for European startups seeking to expand to Latin America and it’s very well connected with the rest of the region.”
Payflow’s first attempt to enter the region was through Chile, Menardo says, but instead of scaling its business there it decided to sell it at a good price and focus on Colombia and Peru instead.
Maria Hahn, a Polish entrepreneur who founded the Basel-based healthcare startup Nutrix, also felt the Chilean appeal. After establishing the company in Switzerland and Poland, she entered Chile in 2020 with support from Start-up Chile, which offered them non-diluted funding.
Innosuisse, Switzerland’s innovation agency, helped Nutrix get in touch with lawyers and tax experts on the ground, through programmes aimed at helping Swiss startups enter specific Latin American markets, she says.
… but Mexico is the real target
Obtaining regulatory approval to operate in Chile and more recently Mexico, the next country Hahn is targeting, took a lot less time than in the EU, she says, and this has helped Nutrix — a SaaS platform that uses medtech devices and AI to monitor patients with chronic diseases — improve its product and obtain revenue much sooner than competitors in Europe.
“We realised that Latin America has a huge overweight and obesity problem that affects 202m people, with about 13% of the population suffering from diabetes,” she says. “We are a three-year-old startup with revenue, whereas our competitors normally start getting revenue in their seventh year. We went for this strategy of reaching the market as soon as possible.”
Cobee’s founders spent two years mulling how to attack the Mexican market, attracted by its huge dimension and the stability of its currency, says Aranguren. They visited the country on numerous occasions prior to making the decision to expand, to gather as much information as possible from meetings with other founders, potential providers and customers.
Cobee’s entry into Mexico was achieved by purchasing a small local company, which allowed them to obtain a license to operate in the country and some initial customers. They also hired law firms on the ground to navigate the national regulations on fintech, following a “turbulent” few years, Aranguren says.
“In the case of Spanish founders, sometimes we think we are very similar because we share the same language, but culturally we are very different,” he adds. “It takes time to understand their ways.”
