VCs Say There are More Startup Opportunities to Chase in Latin America

In recent quarters, locations that previously disregarded by the venture capital sector have racked up spectacular investment totals. African startups, for example, have long overlooked by the global venture capital community, with totals for the continent’s young technology companies comprising a fraction of the sums made available to other areas’ next-generation businesses.

However, investment in African digital businesses has increased dramatically in recent years, and just today, investment firm Juven announced intentions to increase its investments in the continent, while Google put aside $50 million to do the same.

In terms of drawing outside attention, Latin America’s startup scene is similar to Africa’s, albeit a few years later. SoftBank’s statement last month that it will invest another $3 billion in the region’s startups was noteworthy, but not startling. In Latin America, the Japanese corporation and investment behemoth had already invested $5 billion.

We wanted to go into the structural drivers in the area to have better understand the upcoming figures ahead of Q3 numbers that will update our thinking about the present health of the Latin American startup sector. As a result, The Exchange reached out to Latin American investors for some numbers crunching. Nathan Lustig of Magma, Julio Vasconcellos of Atlantico, and Antonia Rojas of ALLVP contacted to help us flesh out our ideas.

We will discuss what is driving capital flows in Latin America, the speed of investment and whether it can remain strong, why China is relevant, and where there may still be ignored firms that investors are overlooking due to institutional blind spots. Let us get started!

According to Atlantico’s 2021 digital transformation study, which serves as a backdrop for today’s essay, Latin America had 26 unicorns as of August. The statistic reflects the fact that eight additional unicorns minted in 2021, as Vasconcellos stated through email. 

In 2018, the area had only four unicorns, and it wasn’t evident at the time that other Latin American businesses would go on to list their shares publicly in the United States (VTEX, dLocal) and in Brazil.

Another intriguing statistic is that the total market capitalization of Latin American unicorns has more than doubled. Their overall post-money valuation increased from $46 billion in 2020 to $105 billion in August 2021, according to Atlantico.

This reflected in funding totals as well: According to Crunchbase, venture capital financing into the region’s unicorns has totaled $10 billion so far this year. “It ratifies the potential of Latin America and the extraordinary influence that the SoftBank Latin America fund has had on the area,” SoftBank Group International CEO and Latin America advocate Marcelo Claure tweeted in response to the statistics. There is still more to come: Claure said during TechCrunch Disrupt that SoftBank expects to invest between $8 billion and $10 billion in Latin America in 2022.

Even more intriguing, according to ALLVP’s Rojas, unicorns are fueling a self-reinforcing trend. She wrote that the deal “generated a virtuous circle, in which investors all over the world increased their confidence in our region and in the fact that it’s possible to realize amazing returns while changing the way traditional industries operate,” referring to Uber’s acquisition of ALLVP’s portfolio company Cornershop. “The rise in unicorns and IPOs coming from the area… proves that success is feasible and draws more global money,” Vasconcellos said.

However, taking a step back, what is driving these cycles is the “second wave” of digital transformation, as described in the Atlantico research. Vasconcellos defined it as the “second- and third-order impacts of the [COVID-19] catastrophe,” which has pushed the ongoing “continentwide tech boom to a pace beyond any estimates,” according to a guest article on TechCrunch.

While the pandemic acted as a catalyst for digitization, it also triggered structural changes. For example, Vasconcellos remarked that the growth of e-commerce “needed a considerable change in the quality and size of the infrastructure provided by shipping, payments, and e-commerce platform providers.” On a larger scale, the region’s structural difficulties have always seen as possibilities for companies to use technology to solve them.