Having grown rapidly to become “Latin America’s leading e-commerce site,” Dafiti is touting five of the region’s major cities as hubs for launching new Internet-driven businesses.

Buenos Aires (Argentina), Medellín (Colombia), Monterrey (Mexico), São Paulo (Brazil) and Santiago (Chile) are becoming viable alternatives to the likes of Silicon Valley and counterparts in Europe, the company said.

Expanding from its initial base in São Paulo, Dafiti has launched e-commerce brands and businesses in all four of the other Latin American cities on the list. “The entrepreneurial scene has improved significantly in Latin America in the past decade and is emerging as as a strong competitor to its American and European counterparts,” Dafiti stated in a recent press release. “Entrepreneurs from all over the world are flocking to the continent to benefit from a number of brilliant funding programs and networking opportunities.”

Dafiti is one of a rapidly expanding aggregation of online e-commerce startups founded by Berlin’s Rocket Internet Group, whose goal is to become “the largest Internet platform in the world outside of the U.S. and China.” In recent years, Rocket has “cloned” and acquired e-commerce brands outside retail fashion, including online food delivery.

Latin America’s emerging startup hubs

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Headquartered in Brazil, Dafiti employs some 1,500 people in South America’s largest and most populous nation. It has employed over 2,000 more as it expanded and established a physical commercial presence in Argentina, Chile, Colombia and Mexico.

In a press release, Dafiti elaborated the reasons it believes Buenos Aires, Medellín, Monterrey, Santiago and São Paulo qualify as emerging hubs for entrepreneurial, Internet-driven startup businesses:

1. Buenos Aires, Argentina

As well as being the political, financial and commercial center of Argentina, Buenos Aires is one of the most cosmopolitan cities in South America and subsequently the region’s most dynamic startup hotspot.

  • Funding and support: The locally well known seed fund accelerator NXTP Labs provides upcoming startups with a seed investment of US$25,000. Local government has also noted the benefits of successful commerce in the city and recently announced an initiative to invest US$3.5 million to support local startup accelerators.
  • Trump card: The workforce here is both highly skilled and cost efficient: 35.2 percent of the working population hold a certificate in tertiary education, while the minimum wage stands at a reasonable US $548 per month (2015).
  • Success story: Mercadolibre is the Argentinian eBay and the most successful startup in the country. Its service is now available in 13 countries, and eBay is a listed shareholder.

2. Medellín, Colombia

The startup flow in Colombia is growing exceptionally fast. The most recent Colombia Startups meeting, an annual event for entrepreneurs and investors, hosted 1,500 attendees — 164 of whom were investors – which represented a 25 percent increase in attendees.

  • Funding and support: Programs like Ruta N, an innovation and business center created by local government, aim to boost new businesses which promote and strengthen the scientific, technological and innovative development in Colombia. Ruta N offers support for new businesses to grow in departments including finance, recruitment and PR.
  • Trump card: Medellín runs on a similar time zone to the West Coast of the United States, which has its own benefits in terms of ease of communication. In 2013 Medellín was named the most innovative city of the year by the Urban Land Institute due to its progress and potential.
  • Success story: PagosOnline started with just US$5,000 in 2002. Thirteen years, a rebrand and an investment of US$10 million later, PagosOnline by PayU is now is the biggest platform for online payments in Latin America.

3. São Paulo, Brazil

The Brazilian economy is expanding rapidly and is subsequently a good landscape for both foreign and local businesses.

  • Funding and support: The national startup initiative, Startup Brazil, supports companies less than four years old. This program provides support for startups in the form of investment, physical infrastructure, legal advice and training. The Brazilian government is also promoting initiatives for startups through its Tech Sampa program, which aims to create and attract innovative ventures in the field of technology.
  • Trump card: As the largest economy in the southern hemisphere, São Paulo is a great environment for building contacts and expanding operations.
  • Success story: Worth more than US$250 million, Dafiti, Brazil’s largest online fashion retailer, is one of the most interesting startups in Latin America. Available in six countries, Dafiti is helping reshape the future of e-commerce in Latin America through its use of iBeacon technology.

4. Monterrey, Mexico

As México’s richest city, Monterrey is considered to be one of the best places to do business in the country and stands as a symbol of progress in Latin America.

  • Funding and support: Startup Studio Monterrey, a Mexican startup incubator, recently launched a program to provide entrepreneurs with projects in the IT sector with specialized mentoring and workplaces. Entrepreneurs don’t have to pay to be part of the program, but the incubator takes 6 percent of each project’s profits.
  • Trump card: The tech industry in Monterrey has grown three times faster than the global average in the last 15 years. This rapid growth is generally attributed to the support and funding available in the city.
  • Success story: Huichol Vertical Gardens has grown from a hobby to a thriving startup. Since growing the niche market in Monterrey, they have extended their operations all over Mexico and plan to expand from residential to corporate projects this year.

5. Santiago, Chile

Santiago is the economic, cultural and now the financial center of the country. Its increasing appeal to international entrepreneurs is one reason why the startup scene here is quickly becoming known as the “Chilecon Valley.”

  • Funding and support: The Chilean government’s program Startup Chile aims to attract world-class entrepreneurs to the country. If accepted onto the program, participants receive an initial US$40,000 grant, a year-long resident visa and support from entrepreneurs in the relevant sector.
  • Trump card: Due to Chile’s reduced regulatory complexity, businesses are fully registered within an average of 5.5 days — a drastic difference to the continent’s average of 30.1 days (World Bank Group).
  • Success story: Motion Displays is an app which optimizes client-sales team contact for businesses. The startup currently has a partnership with Falabella, the largest department store in South America, and plans to expand into larger foreign markets in the coming year.

“Cloning” e-commerce brands and sustainable development

Rocket Internet Logo hires PNGE-commerce sites alone do not a sustainable business make, however. Having raised billions of dollars in capital from a diverse mix of investment groups, including the World Bank Group’s International Finance Corp. (IFC), Rocket Internet has also convinced the likes of J.P. Morgan Asset Management and the Ontario Teachers Pension Plan of its commercial merits and prospects.

Others question those merits. In particular, critics question the justification of the investments in Dafiti made by the IFC. (The World Bank Group member’s primary mission is to provide equity capital for business ventures and projects that “end extreme poverty by 2030 and boost shared prosperity” in developing countries worldwide.)

Yet the billions it has raised from private- and public-sector investment groups has given Rocket the capital required to expand rapidly across world regions. Along the way, it has bought up small, local companies in each of the business sectors it targeted, including online food delivery.

To date, Rocket’s Internet-based, “on-demand” food delivery businesses “cover over 140,000 restaurants across 64 global markets,” TechCrunch’s Jon Russell reported. As Russell points out:

“Rocket Internet gained notoriety for a perceived policy of ‘cloning’ successful start-ups in a bid to make a quick buck by selling them later … An IPO in Germany last year left many divided on its future plans, particularly with regard to exiting many of its global ventures — some of which have taken in hundreds of millions of dollars from investors.”

In advance of its IPO on the German stock market, Rocket and one of its biggest co-investors, Kinnevik, announced they would “consolidate five of the fashion brands that [Rocket] has established in emerging markets into a single entity that will have a combined valuation of €2.7 billion (US$3.5 billion),” Tech Crunch reported.

“The companies getting consolidated have florid, fantasitcal names — they include Dafiti (Latin America), Jabong (India), Lamoda (Russia and CIS), Namshi (Middle East) and Zalora (South East Asia and Australia). In contrast, the new umbrella group has a distinctly more prosaic moniker: It will be called Global Fashion Group (GFG).”

Along with the facts and arguments presented by Rocket Internet management in the business group’s defense, the IFC has defended its investment in Rocket. It stated that Rocket’s strategy of launching regionally-focused e-commerce brands and acquiring local businesses is helping to build a foundation for sustainable economic development, growth and job creation.

 

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James