Avoiding the AI hype: A guide to investing in AI-driven companies in Latin America

- April 20, 2023

Latin America has the potential to be a game-changer in the field of artificial intelligence

There are many reasons to say this. One is that the region’s entrepreneurial ecosystem and talented tech workforce are embracing the promises of AI innovation.

The size of the region is another one. With countries such as Mexico and Brazil boasting populations of 120 million and 214 million, respectively, there is a vast market waiting to be tapped. 

As per the Managing Director of Techstars Miami, Andrés Barreto, Latin America has immense potential to emerge as a leader in the development of artificial intelligence, thanks to its robust entrepreneurial ecosystem and experienced tech talent. 

In 2022, AI startups in the region received over $229 million in investment, which is part of a decade-long upward trend, according to PitchBook. 

Barreto also notes that the pandemic has accelerated the search for technological solutions, resulting in a record investment of more than $874 million in Latin American AI startups in 2021.

It’s in this scenario that Latin American companies must showcase their true potential in AI to attract more investment and establish themselves as leaders in this field.

The hype strikes back

The hype surrounding AI has attracted significant attention from investors around the world, including in Latin America. 

However, it is essential for investors to avoid it and focus on practical use cases that can have a meaningful impact on the lives of people and businesses. 

AI can be used to improve healthcare, optimize logistics and transportation, and improve customer service by providing personalized recommendations and solutions, just to mention a few sectors. 

However, investors must recognize that AI is not a silver bullet that can solve all problems. It is a tool that can be used to achieve specific goals, and its effectiveness depends on how it is applied.

AI technology is being increasingly utilized by companies to improve efficiency and productivity in their operations in Latin America. 

In Brazil, for example, only 41% of organizations actively implement AI, according to the IBM Global AI Adoption Index 2022

According to Joaquim Campos, Vice President of Automation, Data and AI, IBM Latin America,  AI has various applications, such as improving cyber security, optimizing real-time decision-making in 5G networks, facilitating sustainability initiatives, and enabling intelligent automation. 

These implementations can reduce response times, unlock more capital for network growth, create more efficient operations, and improve technology management.

The adoption of “digital personas” is gaining traction, and virtual assistants are already a well-known use case for AI. 

Investors in Latin America should focus on evaluating AI-driven companies based on their ability to solve real-world problems and create value for customers. 

Startups should not simply use AI as a buzzword to attract investment but must demonstrate how their AI technology can be practically applied to solve real-world problems and create value for customers.

To avoid the hype, investors must assess the real impact of AI on business operations and its ability to improve business outcomes. They must also be aware of the risks associated with investing in AI-driven companies, such as lack of transparency in the decision-making process, ethical concerns, and potential biases in algorithms.

A means to an end

Andrés Dancausa, general partner at TheVentureCity, believes that AI technology should not be seen as the ultimate solution, but rather as a tool to achieve a greater objective. In his opinion, AI should be viewed as a means to an end, rather than an end in itself.

Furthermore, according to Andrés, investors should avoid the temptation of focusing excessively on AI technology itself, and instead concentrate on the ultimate goal of improving business outcomes through its application. 

“Companies that are driven by AI should be evaluated based on their ability to solve real-world problems and create value for their customers”, says Dancausa.

If an investor is considering investing in AI technology, Andrés suggests that they should avoid the hype and focus on use cases that create value. It is essential to concentrate on solutions that have a real impact on business results and people’s lives, rather than getting caught up in the latest trends.

The opportunity for Spanish startups and investor

Spanish startups looking to expand internationally should consider the Latin American AI ecosystem as one of their first choices. While the United States is often seen as the go-to destination for startups seeking growth, Latin America offers numerous advantages that cannot be overlooked.

Moreover, Latin America’s social and economic conditions create an environment where innovation is essential and AI is thriving, as we mentioned above. 

Startups are forced to develop products that are vital and built to endure, rather than simply “nice to have.” As a result, the market offers many opportunities for innovative startups to thrive and succeed.

The Latin American startup ecosystem has grown significantly in recent years, and 2023 is expected to be a year in which the entrepreneurial fabric proves ideal for capturing talent, capital, and market. 

By looking to Latin America first, Spanish startups can gain a competitive edge in a region with vast potential and a hunger for innovation in exciting new technologies like AI.

However, it is important to avoid hype and view AI as a means to an end, rather than an end in itself. 

Investors should focus on practical use cases that can have a meaningful impact on the lives of people and businesses, and evaluate AI-driven companies based on their ability to solve real-world problems and create value for customers.

With a data-driven approach, investors can identify promising startups and help drive meaningful innovation in the AI field.