I was pleasantly surprised by the reaction to last week’s newsletter, African and Latin American tech unite. Interestingly, it was mostly VCs who reached out, keen to signal what seems to be a new age in their investment theses.

Venture capital firms exist to go out on a limb and invest in innovative new solutions. Deep or frontier tech tends to grab headlines with its revolutionary breakthroughs in technologies that have not permeated our societies yet, like advanced AI or bioengineering.

Latin America and most emerging regions do not feature much in the global frontier tech discussion. A few honorable mentions exist: companies like NotCo, the Chilean biotech powerhouse, and Argentina’s affordable satellite company, Satellogic. Both have notably reached the point where they have at least partially relocated to the U.S., Israel, or other regions to continue growing and acquiring the talent they need.

So why were many emerging market funds so interested in South-South investment? 

In part, it is hard-nosed pragmatism. A developed frontier tech ecosystem in Latin America is a long way off. Hernán Fernández Lamadrid, partner at Angel Ventures, a Mexican VC firm, believes the government needs to take a lead in further stimulating R&D, but Latin America’s state investment in that sector is still miniscule. Worse still, Rob Ryan, founder of Latin America-U.S.-focused relationship capital firm GrowthHax, worries that, in Mexico, publicly funded research is banned from being commercialized, decoupling innovation from investment.

Latin American investors are thus left to focus on adapting preexisting tech. Luckily for them, the market for basic technological solutions is huge and growing, so VCs have turned their attention to countries with similar demographics and problems. That’s how you get Mexican used-car unicorn Kavak’s expansion to Turkey. It is also what incentivized the Mexican-South African founding team of FlexClub, a car subscription service for delivery drivers, to use their recent VC investment to expand across the Atlantic and not within their own regions. 

But, South-South technological cooperation and co-investment is also an opportunity that goes beyond a few VCs’ bottom lines. By testing their products and adapting their technologies to similar markets beyond their own regional neighborhoods, companies can grow at a greater pace while helping bridge the technological divide within these countries. 

It bears remembering that famous tech companies, like Uber, or Colombia’s last-mile delivery unicorn, Rappi, often start out mixing and matching existing technologies only to grow large enough to innovate further on their own account. A counterintuitive but intriguing backdoor path to innovation.