BUENOS AIRES – Sitting in his air-conditioned conference room in the capital’s trendy Palermo neighborhood, laid-back Agu de Marco keeps pouring hot water in his mate, a traditional tea with an astringently bitter taste, despite the suffocating heat.
The tattooed 32-year old man is the Founder and Chief Executive Officer of Wideo, a platform to create online animated videos. He launched the first version in December 2012.
“I wanted to start a business linked with technology that would be global,” he explains, as he sports the Wideo logo on his grey t-shirt.
Today, Wideo has more than 350,000 users across 200 countries. Agu often hops on a flight to the United States, Europe or Asia, to seek funding and speak at conferences. He first got investment from 500 Startups, a seed fund and accelerator in the Silicon Valley. His 12-people team includes employees from the United States, Canada, Russia, Israel and Venezuela.
In 2005, the bubbly young entrepreneur founded Road2Argentina, immersion programs for foreign students and travelers in Argentina. Five years later, he launched EmprendING, a faculty program to foster an entrepreneurial culture in the South American nation, and interSpanish, a language school.
“My dream now,” he says, “is that Wideo becomes the first Argentine start-up known globally,” as he refers to Estonia’s Skype and Sweden’s Spotify.
Catalyst for the economy
Small and medium-sized companies (SMEs) in Latin America are key to the business fabric. They represent an overwhelming 98.7% of all businesses in Argentina, 98.9% in Brazil and 99.4% in Chile, according to a report by the United Nations Economic Commission for Latin America and the Caribbean (CELAC) titled “Latin American Economic Outlook 2013: SMEs policies for structural change”. They also employ about 67% of the region’s workforce.
“SMEs bring creativity to the economic system, always innovate, add value to production [and] create stable employment,” says Vicente Lourenzo, Spokesman of the Argentine Confederation of Medium-sized Enterprises (CAME) in Buenos Aires.
While 15 years ago, successful companies like Mercado libre – the local eBay – and Despegar – an online travel agency – adapted existing business models to the local market, Latin America has today more potential to innovate.
The main challenge is attracting the right talent, argues Agu. He takes pride in the fact he hired an American girl from San Francisco who preferred working for Wideo in Argentina than LinkedIn in California.
Beyond market conditions
Agu embodies Argentina’s growing entrepreneurial spirit and resilience. The country has a high percentage of entrepreneurs per capita, despite the economic turbulence and political mayhem.
In 2001, the state defaulted on its debt, thereby becoming ostracized from international sources of capital. The economy now suffers from rampant inflation and the devaluation of the local currency, the peso. This has thus created uncertainty for investors.
“SMEs went through a period of strong growth between 2003 and 2012 but in the past two years, the economic context got complicated and many companies are being affected by the fall in demand, both internal and external,” says Mr. Lourenzo.
Latin America too is troubled with sluggish growth. Although it grew by about 4% a year between 2003 and 2012, the region is subject to the volatile price of raw materials – on which it depends.
In addition, investors fear risk in Latin America as they are used to investing in copycat projects rather than innovative ones.
“The main challenges facing Argentina and Latin America are the lack of successful cases entrepreneurs can use as a reference, as well as the lack of an active market for initial public offering that provide liquidity to the investment of venture capital,” says Sebastián Ortega, Executive Director of South Venture, an online venture capital (VC) fund based in Buenos Aires.
South Venture gathers more than 5,000 investors from over 20 countries. It invested over USD$3,000,000. In other words, if a VC fund invests in a qualified start-up in Brazil or Argentina, it might not recover its investment.
Data from the International Labor Organization and the World Bank found that creditors in Latin America get back about 17% of their debt compared with 68% of it in countries of the Organization for Economic Cooperation and Development (OECD).
It also set out that businesses in Latin America need about four years to close down and liquidate their assets whereas companies in OECD countries need 1.7 years to do so.
Finally, access to financing is a notable barrier to SMEs’ development in Latin America because banks prefer to finance large businesses.
Hence, entrepreneurs in the region have to be ever more resourceful than their counterparts in the United States, for example.
One encouraging factor, though, is that 80% of SMEs’ loan applications in Brazil and Argentina are successful, according to the CEPAL report.
Governments’ boost
The intervention of the public sector in the region is thus crucial for SMEs’ viability.
There have more public initiatives in the region to spur financing of SMEs based on company size, type and sector, and foster a business-friendly environment.
Public financial institutions, for instance, significantly contribute to the development of SMEs as they represented 23% of the loan portfolio in the region’s banking system in 2009, or USD$600 billion.
“In Latin America, the governments are increasingly dedicated to the start-up scene,” notes Jacques Chauvin, Director of Emprear Business Angels, an investors’ club in Buenos Aires that connects innovative and socially responsible projects with investors in Argentina and the region.
It deals with projects requiring USD$100,000 to USD$500,000 investment.
For example, the Chilean government launched Start-Up Chile in 2010. This accelerator program seeks to turn the South American nation into the region’s entrepreneurship hub.
Start-Up Chile offers qualified entrepreneurs worldwide US$40,000 in equity-free financing to relocate to the capital Santiago. It also grants them a one-year visa to develop their project.
It has graduated more than 1,000 start-ups from its accelerator program and they have raised hundreds of millions in follow-on funding.
Similarly, the state-backed Start-Up Brasil initiated a program investing up to US$78 million in 100 local and foreign start-ups that moved to Latin America’s first economy and hired local staff.
Also, the federal Funding Authority for Studies and Projects (FINEP) and the Brazilian Development Bank started the Investment Funds Program to overcome the strict regulations of the Brazilian market and boost companies’ capitalization.
In Mexico and Colombia, the government co-invested on start-ups with VC funds. “These company are led by foreigners [because] it is a mechanism to attract high-quality and global entrepreneurs,” says Mr. Ortega.
Going global
SMEs in Latin America have struggled to access foreign markets. About 10% of them take part in export activities, compared with 40% in Europe, CELAC reported.
Yet, to avoid being trapped in the economic woes of a country like Argentina, the “mobility of start-ups is often a necessary condition for success,” says Mr. Chauvin. “Argentine is a fertile ground for start-up creation, Chile enables them to develop in good conditions, and Brazil and Mexico are targeted markets,” he explains.
Wideo is one of the success stories in the region as it internationalized. “There are three things we wanted for Wideo: to be global, scalable and to not depend on the market in Argentina to be successful,” says Agu.
With humility and a hint of idealism, he adds: “The limits to be global are in people’s head rather than in reality.”
This article was published in the April-June 2015 print edition of International Finance Magazine. Click here to download the PDF version.
