"Central America is a very small market."
That is the response that entrepreneurs receive every time they go in search of capital to start or expand a
startup
in this region of more than 61 million inhabitants.
“In the second round with investors they asked us, but what are they going to do there?” Recalled Florence Frech, one of the founders of the Leal application, at this week's meeting with which the Bank's innovation laboratory Inter-American Development Bank, IDB Lab, makes the Central American potential visible.
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"The strongest way to show investors why invest in Central America is to show them the numbers," explained the Salvadoran entrepreneur who four years ago created this application to build customer loyalty with brands in Colombia.
According to Frech's calculations, just six months before the pandemic he took his company to El Salvador, Panama and Guatemala, countries that now represent 40% of its total income.
"When Central America is seen as a whole, the opportunity is enormous," he remarked.
Despite the fact that last year was one of the most difficult for Latin American economies, emerging companies mobilized financing of 4.1 billion dollars, 10% below the figure of the previous year, according to the Latin American Association of Private Capital and Venture Capital.
"These data are positive signs of a resilient ecosystem with great potential for growth," said Reina Irene Mejía, executive vice president of the IDB Group during the forum.
However, the entrepreneurial ecosystem in Latin America is not the same for Central America.
"We are at a time when we see these growth stories, but at the same time we see that there is a gap in terms of access to capital that allows accelerating this growth," said Irene Arias, who directs IDB Lab. According to the expert, In 2019, only 1.3% of the 4.6 billion dollars that went to
Latin American
startups
were in countries other than Brazil, Mexico, Chile, Colombia and Argentina.
"We have the pending task of decentralizing and ensuring that all the countries of the region see this growth," he added.
To decentralize entrepreneurial capital, Central America still must overcome challenges that vary among its seven countries.
"Our geography presents barriers with great variations between Guatemala, Costa Rica and Honduras," said Daniel Granada, partner at Pomona Impact.
"The macroeconomic, political and instability challenges limit the attraction of capital."
This impact investment fund will concentrate 80% of its investments in the region focused on three sectors: agro-processing, basic services and the digital economy.
"They are very important issues to help our citizens have the security of staying in our countries and being able to grow here."
We knew we had a good product and we wanted to show the world that we can do great things in the region
Alejandro Argumedo, founder of Hugo
In the debate, investors agreed that they look to Central American entrepreneurs because of their resilience and their potential to expand to the rest of the region.
"We are investing in those who have encountered barriers, but managed to move forward," said Granada.
That is the case of Alejandro Argumedo, one of the founders of Hugo, the first home delivery application born from El Salvador to Central America.
In order to position his region on the innovation map, in 2017 he created this venture thanks to the capital of friends and family.
"When we started, everyone told us we were crazy."
Building on Hugo's rapid success, they went looking for more capital to expand in other Central American countries.
“We made about 900 calls and we had a lot of no's.
They also asked us why invest in El Salvador ”, he said.
With great persistence, the application accessed the necessary capital to reach Guatemala, Honduras, Nicaragua, Costa Rica and the Dominican Republic.
"We knew we had a good product and we wanted to show the world that we can do great things in the region."
According to
the report
Tecnolatinas 2021
IDB Lab, while about 90% of the value of the ecosystem of
startups
in Latin America is concentrated only in Brazil and Argentina, there are
19 countries, representing 21% of the Latin American population, who have collectively created less 1% of said valuation.
For Argumedo, this is because society does not support its local entrepreneurs.
“There is still the perception that since we are from El Salvador or Guatemala, our business will not work or will not work, but if it comes from another country it is probably better.
We have to change that culture so that it becomes much easier for entrepreneurs to grow ”, he concluded.
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