Latin America is set to become a global powerhouse for innovation. Here's why

Latin America has made remarkable strides as a key hub for innovation and entrepreneurship.

In 2022, more than 220 startups were founded across the region. Moreover, the emergence and exit of renowned unicorns and the arrival of significant venture capital firms such as Sequoia, Andreessen Horowitz and Accel Partners, and accelerators such as Y Combinator, have firmly positioned the region on the global map for startups and entrepreneurial enthusiasts worldwide.

The latest edition of the 1,000 Global Startup Ecosystem Index 2023 saw the rising in rank of 77 cities from 11 countries in the region, with stalwarts such as Brazil, Mexico, Chile, Colombia and Argentina surpassing more established innovation markets outside of Latin America.

What factors have contributed to the emergence of Latin America as a prominent hub for innovation and entrepreneurship? How did the interplay between the public and private sector contribute to advancing the region's status as a fertile ground for the creation, growth and prosperous expansion of startups?

Let's examine those questions and hear insights from five members of the World Economic Forum's Innovator Communities, a group of leading startups, scaleups and unicorns.

Latin America has historically grappled with challenges that remained unaddressed for a long time. Unmet needs, such as consumption accessibility, banking and payment solutions, were not addressed by the public or private sector for many years, paving the way for local entrepreneurs to seize substantial opportunities and create solutions for these waiting-to-be-solved problems. This was a great chance for entrepreneurs to both test new ideas and replicate models that had already been proven in other markets.

Emerging startups have worked on connecting, collaborating and fostering a robust entrepreneurial ecosystem, while the market successes of many unicorns in the region have set an inspirational precedent in the startup community. Simultaneously, the rapid growth of prominent startups and unicorns has catalysed the birth of new startups, driven by the need to create solutions to the evolving demands of these industry giants as they diversify their business ventures. This is the case of the 'Rappi effect', whose exponential growth resulted in the creation of more than 100 new startups by former Rappi collaborators, many of them focused on addressing the needs of the Colombian unicorn.

In addition, governments are increasingly recognizing the significance of supporting innovation and have taken measures to promote it. These measures encompass regulatory frameworks that facilitate entrepreneurial access to resources and funding, as well as initiatives to establish the necessary digital infrastructure for seamless integration into the market landscape.

Countries such as Colombia have created a favourable regulatory climate, granting funding access for local entrepreneurs, supporting the startup scene's need for skilled personnel and increasing technological literacy in smaller cities around the country. Other initiatives such as Startup Chile, a globally recognized seed accelerator created by the Chilean Government that is not restricted to local entrepreneurs and supports more than 2,000 founders around the world through an accelerator in Santiago, have unlocked potential in the entrepreneurial ecosystem.

The convergence of private initiatives with governmental support has also captured the attention of prominent venture capital, resulting in funding opportunities, knowledge exchange, connections and scalability. According to a report by CB Insights, the region raised more than $600 million and saw more than 98 mergers and acquisitions in the first quarter of 2023.

The convergence, however, of public and private efforts should evolve beyond fortuitous occurrences into solid and collaborative joint ventures. Governments and startups must work together to fortify the innovation ecosystem. This partnership holds particular importance in areas such as regulatory frameworks for new technologies, where innovators possess unparalleled insight into the intricacies, benefits and potential risks associated with these transformative applications.

Latin America is also acknowledged as an important talent hub and the collaboration between governments and the private sector is essential for strengthening workforce skills. As star players in predicting market trends and needs, startups could help predict the training areas to effectively respond to the demands of the market.

This dynamic public-private alliance has the potential to foster remarkable technological advancements and nurtures a resilient ecosystem looking to tackle the multifaceted challenges of the present and the future.

According to IDB Lab, Latin American and Caribbean tech startups are projected to reach $2 trillion in value by 2030 and, even though startups in the region are facing a big reduction in venture capital funding, they will have to boost their way towards profitability, a path in which public-private cooperation will be crucial. As this decisive collaboration between government and startups continues to evolve, Latin America's trajectory as a global innovation powerhouse appears destined to thrive and endure.