Irene Arias, CEO of IDB Lab: “It is urgent to invest in models that meet development objectives”

Although the venture capital boom and the proliferation of startups are a phenomenon that has exploded in the last five years in Latin America, the Inter-American Development Bank (IDB) has been dedicated to supporting entrepreneurship and innovation in the region for 30 years.

First, through the Multilateral Investment Fund (MIF), which in 2018 became the IDB Lab, it has invested about 2 billion dollars in the development of an ecosystem that is now being consolidated in the region, but that still has many challenges. to face.

Irene Arias, the CEO of IDB Lab, recognizes that there has been a leap.

“In the last five years there has probably been more investment than in the last 25,” he says from one of the offices of the Convention Center where the annual meeting of the IDB Board of Governors takes place in Punta Cana. The Spanish woman directs the laboratory of innovation and entrepreneurship at the IDB since January 2018 and before that he spent 20 years at the International Finance Corporation (IFC) of the World Bank, where he directed the Financial Institutions Group.

For this reason, she knows well how the ecosystem has evolved and also the challenges that still lie ahead.

Precisely, that is the reason why one of the highlights of the IDB Board of Governors aims to strengthen IDB Lab with a new, more scalable, sustainable business model and with new resources that will allow it to triple its resources.

“With the resolution that we are presenting, for the next seven years we could be investing at least 1.3 billion dollars,” explains Arias.

Question:

How is the entrepreneurial ecosystem evolving in the region?

Answer:

The jump we have seen in the last five years has been exponential, with a peak of more than $5 billion of all

venture capital

investment in 2022. It fell a little in 2023 and is now recovering.

But compared to other countries in the world, it is still more than three times below the next entrepreneurial ecosystem of the world's emerging countries.

There is still a lot of potential to grow.

Q.

In which countries and sectors is the region most advanced?

A.

Geographic concentration remains extremely high: five countries concentrate 90% of this investment.

Mexico, Brazil and now Colombia as third party take the majority.

In terms of sectors, it is beginning to diversify, but it is still 80% concentrated in

fintechs

and

marketplaces

, because the region still has very large gaps in basic services.

But we think that there is a lot of potential in deep technologies,

deeptech

,

education and digital health, which concentrate only 3% of all that investment in entrepreneurial capital.

Q.

After a financing boom in 2022, it has been falling.

What happened there?

A.

There were many companies that at that time received financing from some international funds that expected very aggressive growth rates.

And they put too much pressure on us to grow for the sake of growing.

This pressure for growth, regardless of profitability, created companies with very inflated valuations that raised capital easily and that generated models that were not very sustainable.

So there has been a correction.

Now there is much more discipline and those that have survived are companies that did have much more solid business units, greater focus and better consolidated teams.

Of the 54 unicorns that have been created since 2018, some did not have a model that would resist and some, if they have, have had to change their business model.

Q.

What are the innovations that you are interested in addressing as IDB Lab?

A.

For example, the rapid aging of the region and how to create services for the elderly population.

Or the rapid change that has occurred in the type of employability.

Employment platforms do not offer any type of insurance coverage or access to future pensions, which can become a huge social gap or a problem for countries that do not have the fiscal space to address it.

The objective is to have tools to delve into very specific gaps that the region has, but to accompany it with a versatility of instruments that allows us to go from the generation of the system, such as specific investment in the companies and the funds that support them.

Q.

Are Latin American entrepreneurs and fund managers interested in these issues, do they see them as an opportunity?

A.

The answer is yes, but much more needs to be done, because not all funds or investors place equal value on measuring impact.

So that is a fundamental area in which we are working with fund managers to help make that happen, that they are sustainable companies, and therefore that there are many capital managers who have a long history of investing in many of these unicorns. .

We help them put more prizes in the impact thesis.

Even in the management of the fund itself in terms of the diversity of its teams.

We have seen that fund managers with diverse teams have 1.5% more profitability.

But to get there we need support.

Q.

How key is innovation to solving global challenges?

A.

Without innovation and new applied technologies, the challenge we face of climate change will not be resolved.

Furthermore, we are facing an absolute transformation of the financial system, which we have already seen with the

fintech

revolution and how it has greatly changed the way in which people access or consume financial services.

But what's to come is the entire tokenized asset industry to take advantage of the ability to fractionalize ownership and how that can monetize.

Around all of that is this Web3 revolution and the combination of this with the increasingly increased capabilities of generative artificial intelligence.

Everything that can happen is explosive and if we do not deliberately take advantage of it to create models that, through design, aim to close social gaps, we may have unintended consequences.

I believe that more than an opportunity, it is an urgency to act and invest in good models that meet the development objectives we have.