Internationalization of startups has been a significant accelerator for Latin American businesses. However, to achieve this, some structuring challenges must be faced, and the best time to take this step must be understood. Learn more about the subject in this article!
In many cases, a startup will consider expanding its operations to other countries for the following reasons: when there is a significant business opportunity, because of the human capital in a specific region, or as a strategic decision to be closer to suppliers – learn more in the next section!
However, to take this step, it is important that the startup is already established in its country of origin and can make this decision confidently. To understand the maturity stage of businesses at the time of internationalization, it is common for startups to do so from the Series B round – except for those born with a focus on serving more than one country.
Fundraising is an important tool to ensure that the company is sufficiently capitalized to successfully complete this new phase – keep reading to learn more.
Main reasons for the internationalization of startups
Market potential, human capital, and geographic location are some of the factors that lead to the internationalization of startups:
Market potential: when the product-market fit is excellent in another country, it is natural for the startup to seek to expand its operations to reach that potential. Often, the company may be in Brazil, for example, but constantly receive opportunities coming from the United States. In this case, there is likely something to be explored in this new market.
Human capital: in this case, there may be a common knowledge within a certain market of professionals that will help expand the company’s operations. An example would be the development of a key technology for the startup that Brazilian employees may not master.
Geographic location: being geographically close to strategic suppliers can be crucial to the growth of a business and lead a company to deploy part of its operations in another country.
How to take the next step and internationalize the startup
A crucial factor in international expansion is the need for financial investment to sustain the entire process. In many cases, Brazilian startups seek investment from foreign venture capitalists, who in turn, have an interest in investing in national businesses for various reasons, such as currency gains and the desire to find the next Latin American unicorn after the success of companies like Nubank.
However, it is essential to remember that when receiving investment from a foreign VC, it is usually required that the startup has a structure outside of Brazil, known as a sandwich structure, including a holding company in the Cayman Islands and, below, an incorporated company in the United States, in addition to the operational one that operates in Brazil.
This requirement is due to the fact that the investor feels more secure sending money to the United States or the Cayman Islands, for example. And from these locations, it is possible to bring the capital back to Brazil.
This is a rule that many founders are unaware of and can be crucial to the success of the startup’s internationalization. By receiving this investment capital, and assuming there is already sufficient maturity, the startup will have support to take the business to the next level and establish itself in a new country.
To learn more about the internationalization of startups, watch the “Brazilian Startup Internationalization” webinar by Trace in partnership with Atlas and check out insights from experts on the subject!
Count on specialized partners on your internationalization journey
Trace develops financial solutions designed for Latin American startups that have a relationship with foreign VCs or are expanding operations to other countries.
Among the services offered is Global Banking, a banking solution that allows for the management of international funds, with the possibility of opening an account in the United States and the Cayman Islands.
The account also features integrated currency exchange, allowing startups to transfer funds to Brazil quickly and easily.
