Located between the vast economies of Brazil and Argentina, Uruguay has traditionally been at a disadvantage when it comes to attracting foreign investment into its promising technology sector.
With the recent appearance of the country's first unicorn and another company developing a sophisticated coronavirus app within a week, the small Latin American economy has positioned itself more firmly on the world map.
Google and Apple praised GeneXus after the Montevideo-based software company advanced the development of a sophisticated Covid-19 advisory app. Early success meant Uruguay was one of the first countries selected by US groups to pilot contact tracing technology.
In September, the country's tech scene returned to the spotlight after cross-border payment processor dLocal, backed by US-based private equity firm General Atlantic, raised $ 200 million to deliver Uruguay's first unicorn will.
"We set the bar high," said Omar Paganini, Uruguay's industry minister, to the Financial Times. “If Uruguay can become a player in this field, it would be very valuable to the country. This goes beyond our government, it is a state policy, ”he added, explaining that the technology sector is of strategic importance.
Uruguay's relatively new Conservative government aims to mimic the success of countries like Israel, another small and open economy with a thriving technology sector. While the country's economic and political stability means it is often compared positively to its neighbors, its competent handling of the pandemic has further sharpened its image in one of the hardest-hit regions in the world.
Small nations like Uruguay with 3.4 million people should focus on “developing and attracting talent and entrepreneurs and being a relevant part of the (global technology) ecosystem,” said Francisco Alvarez-Demalde, managing partner of Riverwood Capital. a private equity firm based in Silicon Valley. "The reality is that the companies that are most successful in technology operate in a parallel universe with no geographic boundaries," he said.
Our main focus is on staying up to date. At the moment I'm looking at China. I don't want to be surprised what happens there.
However, the small size of Uruguay was a success factor and forced companies to look beyond national borders for growth at an early stage. That was the case with dLocal, which has nearly doubled every year since its launch in 2016, and is now valued at $ 1.2 billion.
The company began expanding overseas almost immediately and now operates in 20 emerging markets in Latin America, Asia and Africa, providing services to companies such as Amazon, Spotify, Uber and Booking.com.
“It is important for us to continue expanding. If you want to be a global emerging market payments company, you ultimately need to be in most of the emerging markets, ”said Jacobo Singer, chief operating officer.
They have also managed to attract talent from other countries: earlier this month, dLocal hired two senior executives from MercadoLibre – the largest online trading and payment system in Latin America based in Buenos Aires – as Chief Financial and Technical Officers.
Around two thirds of the nearly 300 employees work in Montevideo, Uruguay's relaxed capital on the banks of the Plate River. "Uruguay has played an important role in delivering great talent," Singer said.
Analysts attribute Uruguay's technical success to several factors, including a concerted effort by far-sighted governments to promote entrepreneurship and innovation that goes back more than half a century. In the 1960s, Uruguay was by far the first country in the region to introduce computer science degrees – just two years after MIT. More recently, it became the first country in the world to introduce a one laptop per child program in public schools in 2007.
This policy has enabled the country to surpass its technical weight. "The whole of Uruguay is (in terms of population) smaller than a district in São Paulo," emphasized GeneXus managing director Nicolás Jodal.
A well-educated population together with the creation of free trade zones against the backdrop of political and economic stability proved fertile ground for the emerging technology sector. An early success was the founding of Scanntech in 1991, a retail and payment software provider supported by Sequoia Capital.
"Covid was just the cherry on top," said Ivonne Cuello, executive director of the Association for Private Capital Investment in Latin America (LAVCA). "What usually happens in Latin America in a decade happened in just a few weeks."
Although Brazil, followed by Mexico and Argentina, has always attracted the lion's share of venture capital in the region, Uruguay has shown that it is now possible to produce unicorns and attract global mutual funds even in small countries.
Other Uruguayan startups that have been funded by international investors in recent years include Meitre, a restaurant management platform in which Andreessen Horowitz invested USD 1.6 million last year, and the digital banking platform Bankingly, which raised $ 5.3 million from impact-driven private equity firm Elevar, raised equity in 2018.
Ms. Cuello argues that Uruguay's relative minnow status is beneficial in other ways: “In the early days of Silicon Valley, it was a small ecosystem with a small, well-educated population. When you have that and people know each other, you start to see momentum. It's like you can sense this is happening in Uruguay (now), ”she said.
Wealthy entrepreneurs from other parts of Latin America like Marcos Galperín, CEO of MercadoLibre, have chosen to move to Montevideo. © © Javier Pierini – FT Commission
A wealthy and relaxed city with a highly skilled workforce © Andia / Universal Images Group / Getty
Despite the success of dLocal, the major challenge facing technology in Uruguay and its neighbors remains funding. There are no venture capital funds in the country and few in Latin America.
For Mr. Jodal, keeping up with the fast moving innovations around the world is the top priority. “Our main focus is on staying up to date. At the moment I'm looking at China. I don't want to be surprised what happens there, ”he said.
By nurturing the talent that enables the sector to grow, Uruguay can also benefit from Argentina's ongoing economic decline.
Many wealthy entrepreneurs – including the co-founder of MercadoLibre, Marcos Galperín – have already made the decision to move to the country. Alvarez-Demalde emphasizes: "Once you have the talent in one place, a lot of good things start to happen."