Héctor Jirau, operations and investment director at startup accelerator Parallel18, is working to position Puerto Rico as a unique hub for innovative businesses and technology in Latin America.
Given global economic uncertainty and the tech downturn, what are the current dynamics in Latin America?
Let’s take into perspective the last two years: 2021 was one of the biggest years in terms of growth and investment, particularly in early stage startups, in Latin America. Now, given the global economic uncertainty, many capital allocators are moving out of pre-initial public offerings and more into early stage investments. That’s a very good thing moving forward, particularly for startups. Even though macroeconomic conditions are not the most optimal, we’ll still get growth in terms of innovation.
If you were considering public markets as a proxy for this type of investment, of course I would be worried. But private investment is currently more of a safe haven for venture capital. This is a great opportunity, regardless of the current economic conditions. I have zero doubts that we will see a lot of growth, in terms of this type of investment in Latin America. Likewise, you can see that in other emerging markets such as Africa, which is a very hot spot right now for investments. I may be a little biased, but I still believe Latin America is a very good spot to deploy capital right now.
What are the new challenges that are emerging?
There are still the same challenges as before. You have economic uncertainty, in terms of local currencies. You have governance issues. There’s a lot of inequality. And the wealth gap is still a huge problem in Latin America, regardless of the region that you are considering. But nonetheless, people in Latin America are very resilient and have found ways to innovate and develop technologies, regardless of the complications.
Many investors in the mainland United States, when they consider deploying capital outside of the United States, consider country risk premiums in their financial models. Because of that, you get Latin American companies being discounted more heavily than their U.S. counterparts. But that, of course, is also an opportunity. You could even consider these Latin American companies to be mostly undervalued. You get a very similar technology development and quality, in terms of innovation, as you see in more-developed countries, but at a significant discount. That, for me, is a win-win situation.
How is Puerto Rico evolving as an innovation hub?
People are aware of what has happened in Puerto Rico since 2017, in terms of Hurricane Maria, followed by the earthquakes in 2020, followed by the Covid pandemic, so there has been a lot of emphasis on resiliency, in order to make innovation and businesses work here. Puerto Rico is an innovation hub centered between most regions of Latin America but also one that offers access to the mainland United States. We see a huge influx of companies from all over the world, but particularly Latin America, coming to do business in Puerto Rico, in order to achieve easier access to the United States. On top of that, you have all the huge tax incentives for businesses currently operating on the island as well as even more access to investors who deploy capital on the island, given the benefits. As we see it, Puerto Rico is centered as an important intermediary between Latin American expansion and the United States.
What are the most-overlooked opportunities in Latin America right now?
Latin America has been able to expand their remote connectivity with internet access, which is something that you would not have seen 10 years ago. So now, the United States and other countries are seeing that many of the things they did before — like DoorDash and Uber Eats — can actually work in Latin America, like with Rappi.
Many of the big tech companies are now using Latin American markets to explore new adaptations or new technologies they can test out in the region. Once they figure out what works, they deploy it in the United States or Europe. That is the reason why many big tech companies are currently participating in what’s called “corporate venturing,” where you have big corporations doing acquisitions or partnerships with startups and helping them develop and expand. You saw that recently, when Google announced a $1.2 billion fund in Latin America.
