How To Be a Rock Star in LatAm’s Startup Ecosystem

Latin America is setting an all-time record in venture capital dollars invested this year. In the first six months of 2021, startups in the region raised $9.3 billion, practically doubling the funding reached in 2020 and 2019 combined.

The excitement around the LatAm startup ecosystem is no coincidence; rather, it is the result of multiple variables over the last 20 years including a maturing market, increasing technology adoption in the region and entrepreneurs being more ready to take risks. Adding to this are startup accelerators that play a key role in encouraging and helping entrepreneurs refine and pivot their ideas to find product market fit. In LatAm, 71% of the startups in are early stage meaning they are just ‘incubating’ or testing their idea.

A startup accelerator is a fixed-term, cohort-based program that provides seed money (at a fixed valuation), mentorship, networking and educational components for early-stage startups in order to help them to grow. The program usually finishes with a demo day where entrepreneurs present their business to potential investors.

Since the creation of YCombinator (YC) in 2005 by Paul Graham, more than 7,000 accelerators and incubators have been created around the world hoping to find and help grow the next Dropbox or Airbnb.

The most well known accelerators -- other than YC -- include Techstars, 500 Startups and Plug and Play, all of which are notoriously difficult to get into with only a 1-3% acceptance rate (Stanford has a student acceptance of 5%). Nonetheless, these accelerators have helped companies like Udemy, GitLab, Dropbox, Rappi, PayPal and Stripe achieve unicorn status and impact millions of people around the world.

In the last decade there has been a proliferation of local and international accelerators in LatAm. 500 Startups, Seedstars, Founder Institute, Latitud, Endeavor, Wayra, NXTP and Startup Chile, to name a few, have led the way and created the bedrock for early stage startups in the region.

The Org spoke with Felipe Santamaria, Cofounder of Netherlands-based accelerator-VC Rockstart Latin America, to learn about startup trends in the region, and accelerators’ role in the current boom. Under Santamaria’s leadership, the accelerator has become one of the top three programs entrepreneurs aspire to be part of.

Thriving through the valley of death

Rockstart’s mission is to be the place where potential high impact entrepreneurs find everything they need to succeed and thrive in their first 1,000 days, or "the valley of death" as it is known.

“Since 2017, we have run four cohorts in which we have directly helped grow more than 150 startups and invested in 40 from seven different countries,” Santamaria said. The accelerator’s portfolio has achieved a valuation of over $200 million and includes high potential startups like NEU Energy, Vecindario, Hoytrabajas, Tualy, SaludTools and Foody, among others.

Of the companies supported by Rockstart, 90% are still operating after 4 years, an impressive figure compared to the average survival rate, whereby 21.5% of startups fail in the first year and 30% in the second year.

Today the company has 30 direct employees, a network of more than 200 top level mentors and one of the most robust communities of angel investor and VCs in the region.

“80% of Rockstart’s mentor network are founders from the top 50 startups in the region,” Santamaria said. “It is part of our secret sauce, to have people helping that know how things really are on the field.”

Rockstart’s hard work, but especially its results, have been acknowledged by the ecosystem where more and more startups are looking to get accelerated. Santamaria said last year it became the accelerator with the most applicants in LatAm, with 2,200 applicants for the last batch. That translates to an acceptance rate of 0.5%.

Despite being the most difficult regional accelerator for entrepreneurs to get accepted into, Rockstart has developed two new business lines to widen its impact. The Rockstar Investor Network connects startups (not necessarily coming from Rockstart) with investors, and it has already connected more than 100 investors with hundreds of opportunities, and Rockstart Impact, a 90 day acceleration program focused exclusively on impact driven startups.

LatAm’s startup ecosystem

Santamaria said that breaking LatAm’s markets down by country might not be as attractive compared to other markets, but taking the region as whole was extremely attractive -- not just by size but due to similarities between cultures.

“We speak the same language (except for Brazil), have the same problems, live in similar time zones and share common cultural aspects,” he said.

Santamaria is conscious that LatAm still has many problems to be solved due to socioeconomic inequality, a lag in technology adoption, a huge unbanked population and the lack of access to basic necessities. This makes Latin America, in his own words, “a fertile terrain for entrepreneurs to create, scale and disrupt.”

“And this spot, between unsolved needs and new avid tech entrepreneurs, is where us and other accelerators can have a major impact.”

VC’s funding boom

Santamaria said that when he brought Rockstart to LatAm in 2016, raising investment capital to grow a nascent company was mission impossible. Today, thanks to cases like Rappi, the startup term has become popular, he says, but despite Latin America being home to more than 600 million people across 20 countries, with a combined GDP of $ 5.7 trillion, “the road has been, and still is, tough for early stage startups to scale.”

When asked about the impact the venture capital boom is having in the region, Santamaria points out that this is just the beginning, pointing to the capacity LatAm’s startups are showing in terms of impact, growth and disruption. But, he adds, the money won’t have a direct short-term impact on those startups that are going through pre-seed and seed rounds.

“More money does not mean that more entrepreneurs will raise money. The money will stay in the same 5% - those who are already fundraising and who are showing results. VCs will not democratize. The challenge will be to get more startups into that 5%.”

Santamaria is right, 20 of the 396 deals made in 2021 account for the 70% of the $9.3 billion invested in LatAm so far. These companies are unicorns or at least valued at $100+ million, and include the likes of Nubank ($30 billion), Rappi ($5 billion), Kavak ($4 billion), Loft ($2.9 billion), HABI ($1 billion) and QuintoAndar ($1 billion).

“This isn’t a bad thing at all, because it gives more awareness to the whole startup ecosystem,” Santamaria says. “But while some focus on growing the already big ones in the short term, others must focus on creating and growing the small ones for the future to come.”

Growing the ideas of tomorrow

In terms of trends, Santamaria predicts four main industries where a lot of movement and energy will be displayed: proptech, edtech, agrotech and fintech.

Rockstart has announced a $30 million fund that looks to invest in 50 to 60 early stage startups in the region in the next three years. With this fund, Rockstart will not only help to further empower their alumni’s startups, but will also help to grow the ideas of other high potential entrepreneurs in the region.

“We will seek to be the most important early-stage accelerator and investor in the region,” Santamaria says of the accelerator’s future plans.