On July 7-8, Polymath Ventures co-hosted the first online Venture Summit of Emerging Markets with The Passage. It was the first global event that aimed to bring together business and government leaders from 30 countries to explore partnerships and growth opportunities among each other and to discuss how the current context is impacting our businesses and the upcoming opportunities post-COVID. A total of 445,000+ people watched the event through live streaming platforms.
We had the great pleasure to have 16 amazing experts from VC, Fintech, E-commerce, and Digital Entertainment industries in Latin America. Let dig into some of the key learnings we got from them
Latin America’s tech industry is staying resilient despite COVID-19
Rafael de Haro, Co-Founder & Managing Partner at Cometa, demonstrated the massive post-COVID opportunities that the region presents compared to other regions. Latin America has one of the highest middle-class representation in the demographic structure in the world, with substantial consumption power and high penetration of smartphones and Internet users.
Wenyi Cai, Founder, and CEO of Polymath Ventures, articulated with data that E-commerce, E-logistics, Fintech, and Digital entertainment are growing at record speed since COVID-19. The lockdowns have boosted the customer behavior shift from offline to online and accelerated the digital adoption of various services.
Rafael also highlighted the acceleration of the e-commerce and Fintech sectors. According to him, e-commerce which now accounts for just 4% of the region’s retail sales, will surge to 25% in a decade, where previous forecasts estimated penetration of 18% by 2030. At the same time, 7 out of 10 new users of digital payment tools in Latin America expect to continue transacting through digital payment methods.
Besides the sector-specific opportunities, both Wenyi and Rafael pointed out the opportunities for venture capital to invest in Latin America post-COVID. There exists a significant funding gap for startups in the region compared to other emerging markets, and the crisis has effectively cooled down valuations for investors to access the deals at better prices.
Fintech sector: The behavior change from offline to online is here to stay
For the Fintech panel discussion, we had Edwin Zácipa, Latam Top Fintech Influencer; Juan Carlos Riveroll, Head of Wallet at Mercado Pago; Lauren Connelly, Partner at QED Investors; and Maia Eliscovich Sigal, Head of New Business Units at Uala.
The panelists agreed that the digital financial services got accelerated due to COVID-19 and expanded to a wider demographic with more demand.
- At Mercado Pago, the payment arm of e-commerce giant Mercado Libre, they saw activities increasing 8 times compared to the same period last year, and QR payment has started to be more regularly utilized.
- For Uala, one of the fastest-growing digital banks in Argentina, growth was also observed in all products offered: 40% increase in consumption, 3 times usage in bill payment, and 30% increase in money market account.
- For Lauren, customers are not going back to offline once they have gotten used to the convenience and quality of service provided by the Fintech companies. However, how lending fintech companies are going to evolve still remains to be seen, as the risk increases due to the severe economic shocks to many households and SMEs in the region.
Fintech companies in Latin America have played an important role in financial inclusion. In the case of Uala, 70% of their clients have never had a bank account before, and now they are using Uala to pay for services and make investments online. At the regional level, the massive opportunity in the unbanked population makes it easier for digital banks to acquire new customers and design products accessible for many.
In terms of new opportunities, QED Investors has been paying extra interest to the “e-commerce enablers”, such as logistics, digital inventory management, and online business tools. At the same time, QED also continues to invest in HR tech companies that connect people’s paycheck with their financial activities, since they are forecasting this will be an important part of the ecosystem going forward.
E-commerce: Latin America will look more like China
For the E-commerce panel discussion, we had Bruno Yoshimura, Co-founder and General Partner at ONEVC; Zach Oschin, Founder and CEO of Elenas; Ricardo Weder, Founder and CEO of Justo; Alejandro Ponce, Founder and CEO of Aiyu; and Carlos Alberto Mira, Founder and CEO of Truckpad.
All of the four entrepreneurs in this panel have either took investment from China or have been inspired by Chinese business model innovations to build their own. From cargo freight marketplace to social e-commerce, fresh e-commerce, and community buying platform. What allowed for the Chinese business models to be applicable in Latin America is the demographic similarities and economic foundations, such as industry segmentation, smartphone adoption, urban density, and social media usage.
The opportunity in e-commerce for Latin America exists in bridging the mistrust that the mass consumer segments have towards transactions online. For both Elenas and Aiyu, the prevalence of direct sales in Latin America works in favor of client acquisition when it comes to a social e-commerce platform – it is easier to build trust with the social sellers leveraging an existing behavior. For brands, especially international ones, it is attractive to work with digital direct sales channels because it offers them the opportunity to tap into an attractive category that have been traditionally dominated by their local competitors.
The way the industry has been organized also creates opportunities for fresh e-commerce like Justo. Latin America’s e-grocery penetration is only 2%, compared to China’s 20+%. The market is dominated by large supermarket chains like Walmart, whose main focus on digitization is around non-perishable goods like electronics, not on fresh. Fresh e-commerce requires a different set of skills and complexity of operations, including logistics, supply chain, and inventory management, which will become the barrier to entry for competitors.
In the cargo freight space, an online marketplace drastically increases the efficiency of shipper and trucker matchmaking. In the case of Truckpad, before the platform existed a truck driver would spend on average 15 days searching for their next client, and they run empty 40% time. With the platform, it not only increases the utilization of the trucks but also improves the transparency and traceability of the cargo for the shipper.
COVID-19 has given a strong boost to all players in e-commerce. Companies are experiencing 3-4 times the growth, more organic conversions of the user base, and higher frequency in the usage of the digital channels.
Digital entertainment: Latin America is an important and attractive market
For the digital entertainment panel discussion, we had Veronica Henao, Advisor of International Cooperation at the Colombian Ministry of Culture; Diego Maldonado, Global Head Rights Management at ONErpm; Arturo Nunez, Senior Games Evangelist at Unity Technologies; and Lucky Zhang, Founder, and CEO of Kalo.
For each of our speakers, the pandemic has played out differently in their industries. For gaming, the good news is that there has been a 40% increase in the number of people playing games and time spent on games. This behavior translates into higher revenue for game developers. On the other hand, the lockdowns have also caused delays in new games launching due to not having access to critical hardware.
For digital music, the consumption lost 30-40% at the beginning of the pandemic due to the loss of some of the strongest use case scenarios like commuting and in-office work hours. But as Diego puts it, “Music always finds its way in our lives”, now the consumption has recovered to pre-COVID level.
Social media has been one of the most boosted industries by the pandemic. Daily organic traffic on Kalo has increased 3-4 times compared to the beginning of the year, and the content creators are spending more time producing and uploading videos to the platform.
Latin America represents a massive opportunity for digital content and entertainment due to its population size, relatively young demographic, and high internet penetration. In the gaming sector for instance, according to Unity, Latin America has 130-150 million game players, who are mostly mobile gamers and console game lovers. In particular, Latin American consumers are fans of hyper-casual games, because of simplicity and the free-to-play characteristics due to lack of digital payment tools and habit. At the same time, Latin American users are also heavy users of gaming streaming platforms – for instance, Brazil is the second-largest market for Twitch.
When it comes to the music industry, the streaming platforms have reinvigorated the growth momentum for the industry. Latin American countries have quite diverse behaviors with paid streaming services. According to ONErpm, Mexico has more than 10 million paid users for music consumption, whereas Colombia has not even 1 million of them. On the contrary, there is a lot of music streaming through YouTube. The need is there, and it’s a matter of how to make monetization possible for this segment.
Kalo, the short video social app, has built an interesting platform that allows everyone to express themselves and showcase their lifestyle, no matter the socioeconomic status. This is an important feature that distinguishes the platform from Instagram and even Tiktok, which have been more in tune with the higher-middle to high economic segments.
To conclude, we are very excited to learn that across the spectrum of industries, digital innovation is thriving even during the pandemic and the post-covid opportunities are promising.
We believe that the upward momentum for the tech industry will continue to grow, representing excelling results for the existing companies, but also generating new insights that allow founders and investors to build and bet for companies designed to transform people’s lives in the region.