Colombia and Chile have both become vibrant markets in the Latin American startup scene and both face somewhat similar challenges to enable a business environment that allows the growth and development of these companies, according to analysts.

While fintechs rule the roost in the two countries, as in other Latin American markets, startups in both countries, especially smaller ones, also encounter difficulties in structuring their businesses and diversifying sources of funding.

A 2023 KPMG report on Colombian startups, based on data from 2022, pointed to a 19.5% increase in the number of startups operating in the country, with the consultancy mapping 1,327 active startups in the Colombian ecosystem.

Of those, some 59% were focused on the B2B market, spanning 31 segments but with six chief sectors dominating the market: fintechs (15% of the total), followed some way behind by retailtechs, healthtechs, deeptechs, martechs and business management in general.

“Despite financing problems in general, Colombia has seen a large number of startups emerge in recent years. Bogotá remains the epicenter, but Medellín and other cities are already emerging as hubs. The ‘bancarization’ possibilities for the population explain this fintech environment,” Juan Diego Méndez, KPMG Private Enterprise Lead for Colombia, told BNamericas.

According to the latest report by the TTR Data platform, Colombia ranked third in Latin America by volume of private equity, venture capital, M&A and asset acquisition deals in 1Q24, with 61 transactions, most of which involved startups.   

However, the aggregate value of the deals increased 309% to US$2bn, based on 26 deals disclosing such figures.

The Latin American venture capital and private equity association, Lavca, reported that venture capital investments in Colombia aimed at technology-based startups reached US$373mn in 82 deals in 2023. That was a decrease of 63% compared with the US$1.2bn investments seen in 124 deals in 2022.

KPMG created a specific unit to serve the startup sector in Colombia around three years ago. The consulting and auditing company supports firms with financial planning, business structuring and even connecting with investors.

That work also includes preparation for international expansion, as many of these companies end up expanding to neighboring Spanish-speaking markets to achieve growth in scale, while others export services to the US under the outsourcing and nearshoring model, said Méndez.

Colombian unicorn Rappi, for example, received support from KPMG for its expansion plans, according to the executive.

Méndez believes the regulatory framework for early-stage tech firms is relatively adequate in Colombia and says that the country is one of the most important in the region for investment in startups, along with Brazil, Mexico and Chile.

Nevertheless, one the big difficulties for Colombian startups is the poor level of English among entrepreneurs and startup leaders, he says. 

Other hurdles include the country's current macroeconomic and political environment and greater caution on the part of venture capitalists regarding funding for startups – a trend that has affected most startups globally in the post-pandemic era.

“With the current government, there’s a somewhat turbulent environment, not only for startups but generally for the capital, production, construction and commerce markets… but I would say that the long-term prospects are good,” said Méndez.

CHILE

In Chile, startups that have received consultancy from KPMG in recent years include Osoji, deemed one of the largest suppliers of robotic equipment for domestic use, and the unicorn Betterfly, focused on personal benefits for employees.

At present, there is currently a relative balance between the pros and cons for the country's startups.

“It’s a difficult country to launch entrepreneurship, initially due to the issue of permits, but people are achieving it. There are services, there is manufacturing, and what we see in general is a lot of innovation coming from startups," KPMG partner for Chile, Enrique Margotta, told BNamericas.

Chile was one of the first countries in Latin America to create a government program for supporting startups, Startup Chile. The Chilean model ended up becoming a benchmark for other programs across Latin America.

According to Margotta, the government continues to support startups economically, as long as the projects are strategic and viable, as well as through Startup Chile.

"But today, due to the economic conditions, entrepreneurship is more difficult. We’re in a much more complicated economic period than the one that existed during the pandemic," said the executive, referring to the COVID-19-era startup boom.

The obstacles for local early-stage innovation companies include struggles with cash flow, interest rates that have remained high for a long time and the strength of the dollar against the peso, Margotta said. 

The key advantages for the country include legal security, transparency and a mature financial market, in addition to a recent bilateral tax agreement signed with the US, Margotta highlighted.  

However, from a macro standpoint, the executive says that political and economic conditions in the country, which is due to face elections for municipal mayors and regional governors later this year, muddy the waters for innovation.

"Startups are working and growth is taking place in various sectors. But I would say that it hasn’t been as big as it could have been. The companies are maturing, growing, but it hasn't been easy," he said.

As in the case of Colombia, fintechs and companies focused on financial services and payments generally rule the startup scene in Chile. 

Chile was ranked fourth in the region in 1Q24 in terms of private equity, venture capital, M&A and asset acquisition deals, reaching a total of 61 deals, down 40% year-on-year, according to TTR Data. The 29 deals with disclosed values were worth US$511mn, which was a 79% year-on-year drop.

Source: Business News Americas / BN Americas - Chile