The SaaS ecosystem in Latin America is growing rapidly. With a growing number of unicorns, and a healthy availability of capital, the SaaS community has found its feet.
But what does it actually take to start, build, and grow a SaaS company in Latin America? We chatted to four industry leaders in the region – Diego Gomes, founder of Rock Content; Rodrigo Baer, Partner at Redpoint eventures; Daniel Sgambatti, founder and CEO of Kludo; and Marcelo Lombardo, CEO of Omie – to hear their insights.
1) Access to funding
Daniel put it simplest: “In Brazil, the market is not as mature as in the USA or Europe.”
While there’s a growing ecosystem of VCs and investors looking at SaaS, this is concentrated in Brazil – and even there, it’s on a much smaller scale than in the US or even Europe.
Rodrigo offered a more detailed explanation: “Brazilian startups have always been super cash efficient as they had a shortage of funding.”
Brazil has the most established startup ecosystem in Latin America, so if Brazillian startups experience a shortage of funding, that’s likely to be the case throughout the rest of the region.
Diego acknowledged that it can feel like there’s not much capital available for growing startups, and advises finding a way to work around that – such as having a revenue source that’s not product-driven: “Professional services are a great way to get super close to the customer, acquire deep problem understanding and navigate the early stage funding gap that still exists in LatAm.”
But even for companies that do secure early-stage funding, success is far from guaranteed. Marcelo shared this sobering insight:
“The VC fund that invested in Omie at early stage (6 years ago) also invested in 3 other companies in the very same batch. Omie was the only one that made it to Series A and B, and now is among the largest SaaS from Brazil. All others were sold for $1 or shut down.”
While this sounds like an ongoing challenge for growing SaaS startups in the region, Rodrigo noted that it’s not all bad news: “The impact of the slowdown will be much smaller on them [LatAm startups] than on their US peers.”
2) Find the problem first
Diego’s top piece of advice for new founders was to understand the problem first – and in great depth and detail – before you write even a line of code:
“Find the customer’s problem, build a services offering to solve it, then build the software to scale that.”
In Latin America, the markets are very different from one country to the next, so having a clear understanding of the problem you’re solving with your product is essential for getting the positioning right as you expand into new regional markets.
Daniel advised: “Be sure that you have a solution for a recurrent problem for many customers. Especially in Brazil, the market is not as mature as in the USA or Europe, so it is important to guarantee that your product is a must-have solution and not a nice to have one.”
Diego added: “If you’re solving a new problem, more often than not the customer is still to discover how that problem affects their business. You need to push courses, videos, blog posts and become a knowledge multiplier to achieve early traction.”
3) The importance of focus
One of the most common missteps we see early-stage founders make – here in Europe, in the US – is thinking the target market for your SaaS product is everyone. Or even just having an incredibly wide target audience. Marcelo reveals this is a common mistake in Latin America, too:
“I cannot stress enough how important it is for early stage SaaS to focus in just ONE client segment and ONE sales channel.”
He explained that when Omie was raising early-stage funding, a VC invested in three other companies at the same time. Unfortunately, all three of them never made it to series A or B. Their biggest mistake?
Their sales approach was: “I will sell to small and mid and enterprise companies, through digital marketing and channels and partners network”. Compared with Omie: “I will sell to small companies through accounting firms partnerships”.
4) Don’t chase growth at all costs
The SaaS industry often champions the idea of ‘growth at all costs’, but if the global pandemic has taught us anything, it’s that sustainable growth is far better than all-out growth.
Diego advised: “Growth is amazing, but growing with efficiency is even better.
“As you grow, sometimes you get sloppy with some of your business inefficiencies and you might end up delaying automating stuff, investing in data analytics and financial controls and processes. 2020 will be a reminder that efficiency pays off, so the next time you decide to delay facing an efficiency gap in your business, remember 2020, COVID-19 and speed it up.“
With access to funding being more limited in Latin America than in the USA, following the US startup script doesn’t deliver the same results. For a SaaS startup in South America, it makes more sense to raise a funding round and focus on growing efficiently, rather than burning through that capital and needing to raise another round soon after.
Building a SaaS company in Latin America? Learn from the best
On August 31-September 1 we’re bringing together 600+ SaaS founders, executives, and investors for SaaStock LatAm Online: an online conference dedicated to intensive knowledge and networking, all in the name of traction, growth, and scale. We’re putting together a line-up of game-changing SaaS speakers, including Marcelo Lombardo and Diego Gomes. Don’t miss your opportunity to be part of it! Get your tickets now.