Why do startups fail in Latin America?

Powder Jose Conte*

Mexico ended 2023 with a significant drop in venture capital investment. At $449.81 million, this figure represents a downfall that has caused and will likely continue to cause problems for many founders and investors.

In the middle of last year, the global accelerator Rockstart presented a study called “Why do startups fail in Latin America?” where the main cases in the region were compiled.

The interesting thing about the study is that it integrated the perspectives of founders and investors, revealing notable discrepancies. While the vast majority of founders (9 out of 10) noted Fundrasing (difficulty in obtaining financing) as the main obstacle, investors identified the lack of a product that meets real demand in the market (Product Market Fit) as the main reason for failure.

And I bring this data because 2023 was not only the lowest year in terms of venture capital activity in the country (compared to the last 5 years), but also a record for the number of layoffs and shutdowns of startups.

It is important to understand that although venture capital can add dynamism to the development of a startup, it in no way reduces the inherent risks. Harvard Business School professor Shikhar Ghosh found that the failure rate of venture capital-backed startups is also high, showing that 75% of companies that raised $1 million or more between 2004 and 2010 failed.

So, what are the real reasons holding you back from succeeding in your startup or business? From my perspective, it’s a combination of three factors: market factors (bad product, shrinking market, regulatory issues), entrepreneur factors (lack of risk appetite, lack of tenacity, discipline, passion, lack of team and experience) and agnostic factors (bad termsunfair competition, political instability, inflation, among others).

Launching a startup has never been easy. However, 2023 was particularly challenging, teaching us all a lesson in resilience and tenacity. While venture capital can accelerate a startup’s momentum and help create a disruptive solution, it doesn’t reduce risk. Therefore, it is important to be aware of the challenges along the way, to work according to the long-term vision and to remember, as Churchill pointed out, that “success is the ability to go from failure to failure without losing enthusiasm.”

Contacts:
*CEO of Quantico and venture partner of Impacta VC.

The opinions expressed are the sole responsibility of their authors and are completely independent of the position and editorial line Forbes Mexico.

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