Venture Capital in Latin America 2018

Latin America is a vibrant and emerging tech hub for startups. The end of 2017, Latin America’s GDP rose by 2%, setting a good start to the New Year. Deals in tech companies there saw a new all-time high with a value of US$1.35 billion. With this in mind, it’s little surprise that venture capital investments in technology-based startups in the region are on the rise. Here’s what you need to know about venture capital in Latin America.

The State of Venture Capital in Latin America

As of right now, the technological revolution has reached a phase of maturity and over-saturated markets of first world countries are driving the sector to less technologically advanced countries. This is why beginning 2017, a breakthrough occurred in Latin America in the venture capital market. Investment in venture capital in the region reached a total of US$1.1 billion in 2017, up by over $600 million in one year alone – a 128% increase.

This funding boost is likely a direct result of the mega rounds in tech companies in Latin America. As companies in the region finally begin to raise amounts of over US$100 million, namely 99 ( a company acquired by Didi Chuxing), Rappi, and Nubank. There have also been many companies raising large rounds of US$90 million or US$50 million, and in 2017 over 30 deals approximating US$3 million or more took place. While 30 seems like a small number, this is triple the number of transactions of this variety from 2016. Also, 2017 saw 25 new global venture capital firms make their way into Latin America, and this trend looks to continue in 2018.

A good number of firms in the United States have decided to invest in tech venture capital in Latin America, namely companies like the LATAM Fund, LEAP Global Partners, Babel Ventures, and LatinSF. Huge companies such as Amazon, Google, Facebook. Netflix, Airbnb, Spotify, and even Uber have been working on increasing their presence in the region.

Other foreign countries have made acquisitions in this sector. Chinese venture capital investment in Latin America jumped to $1 billion since the start of 2017. Many others are beginning to follow in these footsteps, seeking to bridge the gap between these regions.

Despite these numbers, the actual amount of both local and international investments are still trumped by Silicon Valley and others, mainly because of the nature of Latin America’s startup and small business scene. The main reason behind this is the lack of acquisitions made by large Latin American companies in startups within their region. Despite there being more than US$1 billion in large companies within the area, 75% are family run. The startups are more focused on dividends and cash flow, as opposed to continuing to build out their business and brand. On top of that, although we’ve mentioned some US companies making acquisitions in the region, these are still considered somewhat rare and are often done at lower multiples.

This is not to say that venture capital in Latin America isn’t experiencing more or better investments and acquisitions. This is simply a slow process and may take some time to hit the same activity levels as other regions.

Venture Capital in Brazil

Brazil currently leads much of the development of Latin America in venture capital. It has received the most funding in the region thus far. In 2017, Brazil closed 45.4% of related deals in Latin America through 113 transactions worth US$859 million in total – an increase of 208% compared to the previous year, and this trend is carrying on in 2018.

The first quarter of 2018 saw US$150 million being raised by Nubank, one of the largest FinTech companies in Brazil, which led to the company’s US$1 billion valuation. This makes the company one of the very first in the country to earn the unicorn classification. Another FinTech company, PagSeguro, raised US$2.27 billion in their IPO – the largest one this year.

Some of its largest deals include 99, raising over US$200 million (then acquired by a Chinese company in 2018), Movile, raising US$135 million, and Grupo Netshoes, raising US$215 million. The country also has its share of venture capital firms including:

• Valor Capital Group which specializes in cross-border relations.
• Monashees+ which is a global firm that finds its home in São Paulo.
• ACE which has invested more than US$500,000 in startups annually.
• Redpoint eVentures, which is still in its starting phase but already boasts a portfolio of more than 15 companies.

Venture Capital in Mexico

Mexico is right behind Brazil in many aspects of the venture capital market, with 50% of all non-Brazilian deals being closed by Mexico. Still, it has been zigzagging up and down. With its deal numbers dropping to only cover 15% of Latin America in 2017 from 19% in 2016 – despite the number of actual deals increasing to 57 from 44 – Mexico has been slow to rise to the occasion. The first quarter of 2018 was a halting start for Mexico as well from a FinTech and even an EdTech perspective. Although investments and deals were made, their values stayed relatively small, although some did rise above and raise a good amount of funds.

With that being said, venture capital availability in the country did increase thanks to Nexxus Capital, which revealed a locally focused fund amounting to US$350 million. IPO processes are also expected to improve this year with the addition of the BIVA stock exchange. The government also looks to pass approve new FinTech regulations.

Venture capital firms are still going strong in Mexico. These include:

• 500 Startups which has invested in over 1,800 companies.
• Avalancha Ventures which is now worth US$15 million.
• Hackers and Founders which is based in the US and has provided aid to several companies thanks to a portfolio that is valued at US$400 million.

Venture Capital in Other Latin American Countries

The U.S. kept on pulling in the larger part of VC financing in the Americas. While the Bay Area was the essential draw, different U.S. urban communities like Boston, San Diego, Austin, Philadelphia and New York have possessed the capacity to draw in huge interests. Brazil and Mexico have really been at the center of most venture capital in Latin America.

Argentina has moved to help VC venture. In 2017, Argentina presented another enterprise law went for making it less demanding for new businesses to work together by decreasing formality and giving simpler access to capital. AI, blockchain, and health tech are relied upon to stay high on the investor radar, while fintech will probably keep on driving all of VC interest in Latin America.

Argentina experienced a dip in deals from 26 in 2015 to a mere 18 in 2016, has risen back up to achieve 24 deals. It is home to Kaszek Ventures, with their largest fund of US$200 million. And NXTP Labs, which is one of the most active funds in Latin America. The country also houses Patagonia Ventures, which has 21 investments, with 40% being successful exits.

Colombia has also come a long way, making 20% of all large non-Brazilian deals. The application Rappi earned one of Latin America’s largest rounds, one which closed at US$185 million. The country is home to First Rock Capital, which is valued at US$30 million, and FCP Innovacion, which is valued at US$40 million.

Expect more venture capital investments to land in Brazil, Mexico, Colombia, Argentina and Chile in 2018. These countries are proving to be a strong and stable base for entrepreneurs, better funding opportunities, liquidity, and corporate support. Companies will continue to bring innovative ideas that will attract even more venture capital at better valuations.