Latin American Tech Industry Maturity

Part
01
of four
Part
01

Latin American VC Investment: YOY Growth

VC investment year-over-year (YOY) growth in the Latin American tech industry for 2015, 2016, 2017, 2018, and 2019 are estimated to be approximately 23.77%, 12.93%, -15.82%, 120%, and 81.82%, respectively.

Growth of VC investment in the Latin American Tech Industry

  • The Year-Over-Year (YOY) growth for VC investment in the Latin American tech industry for 2015, 2016, 2017, 2018, and 2019 are estimated to be approximately 23.77%, 12.93%, -15.82%, 120%, and 81.82%, respectively.
  • On average, the YOY growth for VC investment in the Latin American tech industry from 2014 through 2018 is estimated to be approximately 44.54%.
  • Total investment by VCs in the industry increased from $526 million in 2014, to $2 billion in 2018.
  • In 2018, approximately $2 billion was invested in the industry by VCs.
  • VCs invested approximately $1.1 billion in the Latin American tech industry as of 2017.
  • The industry received $500 million from VCs in 2016.
  • The tech industry in Latin American recorded $425 million, $526 million, and $594 million in investments in 2013, 2014, and 2015, respectively.

Research Strategy

Research through multiple sources, like tech and VC industry reports such as KPMG, PitchBook, and Statista, as well as media sources and industry association databases, like the Association for Private Capital Investment in Latin America (LAVCA), Crunchbase News, and PR Newswire, no preexisting data regarding the Year-Over-Year (YOY) growth for VC investment in the Latin American tech industry was found in the public domain. However, the information is most likely contained in a paid report that sells for $795.

We were able to find the total amount invested in the Latin American tech industry by VCs from 2016 to 2019 in LAVCA's report snapshot, and from 2013 to 2015 in Crunchbase News' database, which we leveraged to triangulate a proxy as outlined below.

Calculations

To triangulate the YOY growth for the VC investment in the Latin American tech industry, the research team adopted this formula:
Year-over-year (YOY) growth = [(present year investment — last year investment) / last year investment] 100.
VC investment in the tech industry for 2013 was $425 million.
VC investment in the tech industry for 2014 was $526 million.
VC investment in the tech industry for 2015 was $594 million.
VC investment in the tech industry for 2016 was $500 million.
VC investment in the tech industry for 2017 was $1.1 billion.
VC investment in the tech industry for 2018 was $2 billion.

Note, that information regarding VC investment were corroborated with other sources like Statista and TechCrunch.

Year-over-year (YOY) growth for 2014 = $526 million$425 million / $425 million * 100 = 23.77%.
Year-over-year (YOY) growth for 2015 = $594 million$526 million / $526 million * 100 = 12.93%.
Year-over-year (YOY) growth for 2016 =$500 million$594 million / $594 million * 100 = -15.82%.
Year-over-year (YOY) growth for 2017 =$1.1 billion$500 million / $500 million * 100 = 120%.
Year-over-year (YOY) growth for 2018 =$2 billion$1.1 billion / $1.1 billion * 100 = 81.82%.

Estimation of Average YOY growth

The average YOY growth for VC investment in the Latin American tech industry from 2014 to 2018 was calculated using this formula, average YOY growth (from 2014 to 2018) = sum of YOY growth / number of items summed
Average YOY growth (from 2014 to 2018) = 23.77% + 12.93% + (-15.82%) + 120% + 81.82% / 5 = 44.54%.

Part
02
of four
Part
02

US VC Investment: YOY Growth

The Year-Over-Year (YOY) growth for VC investment in the US tech industry for 2015, 2016, 2017, 2018, and 2019 are estimated to be approximately 3.65%, -5.77%, 7.14%, 40.32%, and 6.79% respectively. The YOY growth for the VC investment in the US tech industry in the past five years averages to about 10.43%.

US Tech Industry

Growth of VC investment in the US tech industry

Research Strategy

Research through multiple sources, like tech and VC industries reports by reputable research firms such as KPMG, PitchBook, Accenture, and Statista as well as media and industry association's database like the National Venture Capital Association (NVCA), Forbes, CNBC, and PR Newswire, did not uncover the Year-Over-Year (YOY) growth for VC investment in the US tech industry preexisting, not even in paid reports. We, therefore, concluded the YOY growth for the VC investment in the US tech industry has not been compiled.

However, some reports (such as VENTURE MONITOR) uncovered from the above sources provided information on the sectors that make up the US tech industry. We have leveraged this data to triangulate the YOY growth for the VC investment in the US tech industry using the formula, year-over-year growth = [(present year investment — last year investment) / last year investment] 100.

Estimation of YOY Growth

First, we summed the VC investment of the sectors (software and IT hardware) that make up the US tech industry. This was done in this Google spreadsheet.

The YOY growth was then calculated using the formula: year-over-year growth = [(present year investment — last year investment) / last year investment] 100 in this Google spreadsheet.

It is worth noting that other sub sectors (healthtech and cybersecurity) of the US tech industry were captured in the software and IT hardware sectors.

Estimation of Average YOY Growth in the Past Five Years

The average YOY growth was determined by dividing the sum of YOY growth in the past five years by the number of YOY growth summed up as shown in the attached Google spreadsheet.


Part
03
of four
Part
03

Latin American Tech Startups Exits

After an exhaustive search through industry reports, articles, and databases, the percentage of Latin American tech startups that have gone public or have been acquired in the last 2 years could not be determined using data on the public domain. Some helpful findings, as well as the methodology used for this project, can be found below. A Google document with screenshots of paywalled content has also been attached to this project.

Helpful Findings:

  • Brazilian ride-sharing startup 99 became the first unicorn of the LatAm region after it was acquired by Didi Chuxing for US$900 million in 2018.
  • A few weeks after 99's acquisition, Brazilian online payments startup PagSeguro went public and raised US$2.3 billion from NYSE investors, making it the second unicorn of the LatAm region.
  • Stone Pagamentos, another payments startup from Brazil, went public in 2018; attracted the attention of companies such as Berkshire Hathaway, Tiger Global Management, and Valor Capital; and managed to raise US$ 1.1 billion from NASDAQ Investors
  • In September 2018, on-demand delivery startup Cornershop, Inc. was acquired by Walmart for US$225 million. This is the largest venture capital-backed exit in Chile and Mexico since 2008 as well as Walmart's first known startup acquisition in the LatAm region.
  • In the same month, ed-tech startup Arco Educação went public and raised US$220 million. A few days later, the company's stock prices went up and the company's valuation reached a market cap of US$1.2 billion.

Research Strategy:

We started our search by looking for market reports that detail the number or percentage of tech startups in Latin America that have either gone public or been acquired in the last 2 years. While we were able to find several reports and articles on startup funding, mergers and acquisitions, and those that have gone public, most were focused on the "top", "major", and "significant" transactions in this regard and not on the overall tech startup industry. The research team also consulted platforms that provide details on startups such as CBInsights and Crunchbase, but these platforms also did not publish aggregated data on the exits in the tech startup scene.

From the above strategies, it was evident that we needed to pull data together from different sources to triangulate an estimate. We needed to have the number of mergers and acquisitions in the tech startup scene for the past two years (2018 and 2019) as well as the number of tech startups that have gone on to host an IPO. Lastly, the research team would also have to identify the number of tech startups in Latin America for 2018 and 2019.

We were able to find that there are over 330 startups in Latin America in 2019 and about 256 in 2018, however, these are only startups that have received over US$1 million in verified venture funding and does not include startups that have been acquired or realized an IPO. We further explored public databases such as Crunchbase and Angel.co to see if we could use the sites' tools to make a list of startups sorted by location and sector. With Crunchbase, we were able to come up with 7,517 companies in Latin America in the technology sector, however, the tools could not discriminate between startups and non-startups. On the other hand, we were only able to filter the results of startups on Angel.co by location, which yielded only 1,872 startups. We decided to expand the scope of the project to include all startups in Latin America. We were able to find that there are 10,418 startups in Brazil in 2019, however, a total number for Latin American startups could not be found in the public domain.

Sufficient data was not available in the public domain therefore a triangulation for the percentage of Latin American startups that have gone public or have been acquired in the last 2 years could not be done. We have opted to provide insights into some highlighted startups that have either gone public or were acquired in 2018 and 2019 as helpful findings.
Part
04
of four
Part
04

US Tech Startups Exits

Based on a rough estimate, 2.18% of tech startups in the United States have gone public or have been acquired in the past two years. Additional details on the United States tech startup scene as well as the research team's calculations have been detailed below.

United States Tech Startups Exits

  • Just over 2% (calculations below) of United States tech startups have been acquired or gone public in the last two years.
  • In 2019, there were 40 mergers and acquisitions (M&A) in the technology services sub-segment, while there were 61 M&As in the healthcare technology sub-segment.
  • Some of the biggest IPOs in 2019 were Uber ($8.1 billion), Lyft ($2.56 billion), Pinterest ($1.64 billion), Tradeweb Markets ($1.24 billion), and Zoom Video Communications ($864 million).
  • The biggest tech M&A activity in 2019 was between Fidelity National and Worldpay for $35 billion.
  • In 2019, software was the most active sub-segment with 854 M&A transactions valued at $180 billion. This is 52% of deal volume and 69% of deal value.

Research Strategy

The research team commenced our research by searching for market reports that detail the number or percentage of tech startups in the United States that have either gone public or been acquired in the last two years. While the research team found many reports and articles on startup funding, mergers and acquisitions, and those that have gone public, the bulk of these sources were focused on the "top", "major", and "significant" transactions in this regard and therefore not encompassing of the overall tech startup industry. Other reports by firms such as PwC and Deloitte provided general trends analysis concerning these exits and few value-related numbers. The research team also consulted platforms that provide details on startups such as CBInsights and Crunchbase, but these platforms also did not publish aggregated data on the exits in the tech startup scene.

From the above strategies, it was evident that we needed to pull data together from different sources to triangulate an estimate. For this to happen, we needed to have the number of mergers and acquisitions in the tech startup scene for the past two years (2018 and 2019) as well as the number of tech startups that have gone on to host an IPO. Lastly, the research team would also have to identify the number of tech startups in the United States for 2018 and 2019.

While we were able to identify the number of tech M&A deals in 2018 and 2019, as well as the number of IPOs in the same years, the number of tech startups in the United States was more difficult to procure from the public domain. To identify the number of tech startups in the United States, we first consulted the Census Bureau and found out that it publishes the Business Dynamics Statistics, which provides data such as the number of startup firms and the number of jobs created. However, the last published data tables were from 2016. Moreover, the data did not indicate the number of startups that were tech-related.

We further explored startup databases such as Angel.co and Crunchbase to see if we could at the very least use the tools provided to sort the list of startups by location and sector. Crunchbase publishes the list of companies across different technology sub-segments such as software, information technology, edtech, and 3D technology. On the other hand, we were only able to filter the results of startups on Angel.co by location, which yielded only 20,164 startups. We further explored organizations that publish reports on the United States startup scene regularly such as the Silicon Valley Bank and the Information Technology & Innovation Foundation (ITIF). We found a report by the ITIF where it stated that the number of tech startups in the United States in 2016 was 171,000 firms. In the absence of more recent data on the subject matter, we have used this 171,000 figure as the number of startups in 2018/2019 with the caveat that the number would have most likely changed due to the nature of startup failures and startups. Our calculations have been detailed below.

Calculations

Tech Mergers and Acquisitions

According to PwC, the number of tech mergers and acquisition deals in the United States between 2018 and 2019 breaks down as follows:
  • Q1 2018: 506
  • Q2 2018: 420
  • Q3 2018: 485
  • Q4 2018: 442
  • Q1 2019: 396
  • Q2 2019: 429
  • Q3 2019: 394
  • Q4 2019: 429
Therefore, the total number of tech M&A deals in 2018-2019 is the sum of the above numbers, which equals 3,501 deals.

Tech IPOs

According to data from FactSet, the number of IPOs across the United States in tech-related sectors for 2018 and 2019 were:

2019
  • Health technology: 61
  • Technology services (Lyft, Uber, and XP): 40
  • Electronic technology: 4
  • Total: 105

2018
  • Health technology: 82
  • Technology services (Lyft, Uber, and XP): 39
  • Electronic technology: 4
  • Total: 125

Therefore, the total tech IPOs in 2018 and 2019 is: 125 + 105 = 230

Therefore, the total number of startups that have gone public or have been acquired in the last two years is: 230 + 3,501 = 3,731.

Percentage of United States tech startups that have gone public or been acquired in the last two years is:
(3,731/171,000) * 100 = 2.18%


Sources
Sources

From Part 01
Quotes
  • "VC investment in Latin American startups has quadrupled since 2016 to a record US$2b in 2018"
Quotes
  • "Slightly over US$2b in IT-related investment activity was driven by large follow-on rounds for some of the region’s most successful tech startups, including iFood, Rappi, Nubank, and Loggi (see dedicated section on VC Investments)"
Quotes
  • "In 2017, VC tech investment in the region had an all time high of $1.1 billion. A major breakthrough when we compare it to the five previous years, which had remained steady at around $500 million."
  • "This trend continues today, with more than $600 million invested only during the first quarter of 2018."
Quotes
  • "Last week, the Latin America Private Equity and Venture Capital Association (LAVCA) released its annual report on how much venture money went into the region, detailing which sectors and which countries got the most. "
  • "The organization found that VC funding into the region nearly doubled in 2018 to a record $1.98 billion compared to $1.14 billion over 2017. Last year’s number was quadruple the $500 million invested in 2016. Take a look below."
From Part 02
Quotes
  • "The term technology sector is frequently shortened to tech sector and is used interchangeably with the term technology industry."
  • "The technology sector is the category of stocks relating to the research, development and/or distribution of technologically based goods and services. This sector contains businesses revolving around the manufacturing of electronics, creation of software, computers or products and services relating to information technology."
  • "The technology sector was initially anchored in semiconductors, computing hardware, and communications equipment."
Quotes
  • "The Information Technology Sector covers the following general areas: firstly, Technology Software & Services, including companies that primarily develop software in various fields such as the Internet, applications, systems, databases management and/or home entertainment, and companies that provide information technology consulting and services, as well as data processing and outsourced services."
  • "Secondly Technology Hardware & Equipment, including manufacturers and distributors of communications equipment, computers & peripherals, electronic equipment and related instruments; and thirdly, Semiconductors & Semiconductor Equipment Manufacturers."
Quotes
  • "Year-over-year Growth = [(This Year – Last Year) / Last Year] 100"