Latin America has startups. Now it needs systems that let them scale

Oct. 6 (UPI) -- Latin America no longer needs to prove that it can create startups. The harder question is whether it can give them what they need to scale.

A new report from the Association for Private Capital Investment in Latin America, or LAVCA, suggests the region is struggling with that second task.

Of the 3,032 Latin American startups that have raised venture capital since 2020, only 27% secured more funding in the past 18 months.

Investors put about $2.4 billion into the region's startups in the first half of 2026, but that money is going to a narrower group of companies, and fewer new firms are receiving their first investment.

The problem, in other words, begins after a company is created. One way to understand why is through the Triple Helix model of innovation, developed by the scholars Henry Etzkowitz and Loet Leydesdorff, which sees universities, industry and government as interdependent parts of an innovation ecosystem.

Latin America already has entrepreneurs, investors, universities and public programs. The question is whether they are connected well enough to work as a system.

In the United States, a young company can usually find different kinds of investors at each stage of its life, from its first small funding round to larger ones, then expansion, and eventually a sale or a stock-market listing. Latin America's investment market is much thinner.

For the region, the central issue is less how much money arrives than whether it keeps flowing. A startup that raises its first round needs to know that larger investors will be there when it is ready to grow.

Investors also need to know they can eventually sell their stake, whether to a larger company or on the stock market. When they do, their money and experience flow back into the next generation of startups.

On paper, Latin America has an advantage when companies expand. Countries are close together, and much of the region shares language and cultural references.

For startups born in smaller Latin American economies, however, regional scale often needs to be part of the business model from the start. That ambition soon meets a region divided by different tax, labor and financial systems, and by separate rules for operating across borders and moving capital.

A February 2026 Inter-American Development Bank study found wide regulatory differences in trade in services across Latin America and the Caribbean, with greater divergence associated with less cross-border trade.

For digital startups, regional expansion often becomes a series of regulatory adjustments rather than a natural move into a larger shared market. A U.S. startup also faces differences among states, but it can grow within one currency, one financial system and a national market of more than 300 million consumers.

That is where government becomes more than a funder of entrepreneurship. One of its roles is to write rules that let new business models emerge and expand without unnecessary friction.

National reforms can make a startup easier to create, but regional scale requires another step: reducing the regulatory gaps companies meet each time they cross a border. Otherwise, a business can be easy to launch at home and still difficult to scale throughout the region.

The region has universities and highly trained professionals. The deeper question is whether universities turn the knowledge they produce into innovation that reaches the market.

Beyond educating, they can generate applied research, develop intellectual property and create spin-offs, new companies built on knowledge produced in classrooms and laboratories.

Chile offers an example close to my own field. The Pontifical Catholic University of Chile identifies Elemental, the architecture firm led by Pritzker Prize winner Alejandro Aravena, as one of its university spin-offs.

In 2007, the university licensed a modular construction system developed by university researchers to the firm, helping translate university-generated research into practical social housing solutions.

In much of Latin America, however, university spin-offs remain relatively uncommon. More knowledge-intensive startups will appear only when universities become places where companies originate, not just places that supply them with graduates.

Paraguay is a useful case because several of these pieces are appearing at once. Entrepreneurs can now register a simplified company, known as an EAS, online with no minimum capital.

Distrito Innova, a government-led project explicitly modeled on the Triple Helix, is under construction, with its technology park due to open in late 2027. Cooperation with Taiwan adds another layer, from the Taiwan-Paraguay Polytechnic University to Yguazú Digital, a sovereign artificial intelligence computing center the two governments agreed in May to build.

The real test is not how many projects are announced or how much infrastructure is built. It is whether advanced training produces research that reaches businesses, and whether the companies that emerge from that process can find the capital and regional markets they need to grow. That happens only when universities, companies and government stop working in parallel.

Unicorns are outcomes, not strategies

Startup success in the region is often measured by its "unicorns," privately held startups valued at $1 billion or more. A unicorn shows that one company reached exceptional scale. It says much less about whether the ecosystem can produce the next one.

A city is not defined by its most iconic building, but by how its public spaces and services work together. Innovation ecosystems are similar: their strength lies less in isolated successes than in the connections that allow the whole system to function.

If Latin America strengthens the links between capital and companies, brings more research to market and makes regional expansion easier, more unicorns may follow, not as the goal of the strategy but as evidence that the ecosystem is working.

Andrea Villalba is a Paraguayan architect whose work and academic interests focus on project management, regional development and innovation. She holds a diploma in Regional Integration for Latin America and the Caribbean and is pursuing a master's degree in Project Management. The views expressed are entirely her own.