VC Investments in Latin America and Trends to follow.

2021 was a year in which investments in the LATAM region spiked—and the most exciting part about it is that it’s just the beginning of it all. Crunchbase mentioned Latin America being “The World’s Fastest-Growing Region For Venture Funding” and the financial times shedding a spotlight on the Latin American market as VC investments tripled, passing 15bn dollars (Crunchbase reports 19.5bn and Pitchbook reports 14.8bn). 

Latin America has always been overlooked, especially with huge hubs in the USA and Europe, and emerging innovation hubs in Africa, Israel, and Southeast Asia, Latin America was never the go-to destination for many investors. Then how did the VC Market in Latin America grow so drastically?

There are many reasons behind it, and each Venture capitalist, each economist may have their own theory–some may overlap but I believe that the surge in investments and successful start-ups happened due to some of the following reasons.

Lack of “bancarización” and financial infrastructure: According to the Global Findex database. (2017), Latin America has been one of the regions with the lowest bancarización, or amount of adults with a bank account. Although Chile and Brazil have relatively high numbers of people with bank accounts (between 65-89%), many nations, including Argentina, Colombia and Mexico which are the nations with the most movements in the startup industry have very low ratios of people with bank accounts. As the greatest opportunities are in spaces with the most painful, impactful, urgent and frequent pain points, this led to a surge in Fintech Start-ups with some prominent unicorns such as nubank, clip, Kushiki, and many more.

The Pandemic and the need to make a living: The global south is always in a worse place when it comes to pandemics, natural disasters and climate change. And COVID-19 wasn’t different– many people were without jobs, domestic violence surged and those that couldn’t afford to “work from home” or had a family owned business were left without any support whatsoever. There was no entity nor government people can rely on because no government was prepared for what was happening. So people started selling things out of their house, some needed to import face masks from China to sell it for a few bucks more on the street, restaurants needed to learn how to use Uber Eats, Rappi, Loggi and all the similar “super apps” that popped up in each country. I’m not saying all of this is good— especially the “gig economy” has created a separation between the “elite” and those that do delivery, leaving informal workers without social security nor insurance. But it certainly has pushed the “super apps” which I seem to see a lot these days, and many services that are around it.

The first few unicorns paved the way for investors: I think one big factor that contributed to where Latin America is today, is the first few successful “unicorns” that brought the spotlight among the region. The initial unicorns that made it to the headlines in the western markets definitely made an impression among investors that have never even considered investing in the region. Personally, one of the biggest news was when Rappi closed their 1Bn raise through Softbank (they raised 500mn from the Softbank Vision Fund and another 500mn from the Latin America Tech Fund) and when Kavak closed their 385M series C. Everyone in linkedin wouldn’t stop talking about it. That led new accelerators and VC’s to enter the market, Newtopia, Weboost, Platanus Ventures, Flambeau Capital and for existing VC’s to close even greater funds. The growth of VC’s also alarmed Corporates to start investing and innovating, provoking CVC’s to surge for the Superville Group, Bimbo Group, Kaufmann Group, and many more.

Of course, there are many other factors that pushed innovation in the region through empowering entrepreneurs and promoting VC investments. At least in Chile, CORFO (The Production Development Corporation) has helped out many Venture Capitals in Chile through its FET, FT and FC program where they loan you 100%-300% of the amount raised by private LP’s. Despite the restrictions and paperwork, it has definitely helped smaller funds have more capital for investing in early stage startups and following up on successful portfolio companies.

So now that we’re in 2022, what will happen to the market and where are we headed to? Will Latin America follow the same trends as other start-up hubs? I don’t think Latin America will follow all trends, as there are some areas where Latin America won’t be able to catch up by 2022, but there are certainly other areas where Latin America will strive. Here are my thoughts on some industries with a growth potential.

Fintech and decentralized finance:  I don’t think it’s worth explaining how Fintech will keep growing, because they are and have been a great pillar with even more potential to grow. But what I do see is a growth in interest in decentralized financial instruments. I do not believe that 2022 will be the year for decentralized finance startups to become unicorns, but will be a year where more and more people will start jumping on the boat. Collective Financing such as broota, EQSeed, SeSocio will gradually grow as startups grow, while investment platforms such as Fintual, Racional are even convincing local banks to “step up” their investing platforms. 

Shared Mobility and Micro Mobility: Being in the mobility industry for the past two years, I see a great potential in the mobility market, especially in the shared mobility market. Latin America has very low car ownership and public transport isn’t a delight either. As Latin America has a very low rate of “trust” among its peers, I’m not very convinced on peer-to-peer lending models, but car-sharing models will probably keep growing– as long as the start-ups know how to be “liked” by the general public. Micro Mobility is another trend I see, especially due to the increase in roads specifically for cyclists and green initiatives by governments to promote decarbonization. (as we all know, the mobility industry is one of the most contaminating industries in the world). 

Latin American “Superapps”  will continue to grow: If someone had asked me last year, my answer would have been no. But entering 2021, already seeing new last-mile delivery start-ups in the market, I do firmly believe that many last mile logistics start-ups will continue to rise. Just in the “Super-App” section, I’ve seen Loggi (2.2bn+ raised) and Rappi (5bn+ raised) , which are already huge players in the region, but also similar superapps such as Yummy from Venezuela, Hugo from El Salvador and some smaller last mile logistics companies such as RAYO APP, Envio Click Qubiks entering the market. The interesting part of superapps, is that they’re business model isn’t just based on delivery any more— they’re gradually entering the fintech space, they’ve implemented digital wallets, you can even make hotel reservations on the app now. 

I think other industries will have their fair share of growth. FoodTech, EdTech, HealthTech will probably have some large Series A’s and B rounds coming next year but probably a billion dollar valuation will need some more time. I’ve personally been following Foodology from Colombia, Live Green Co from Chile, and looking at some very early dark restaurant start-ups in the market. Mujeres Financiera, a financial education platform for women, and Profe Social, a marketplace for teaching materials are also two interesting early stage start-ups. The famous Platanus Ventures & YC start-up, Examedi seems to be striving with their 6M raise and I’ve also seen Keiron, a Chilean health tech start-up that’s digitizing some very traditional industries. Latin America will most definitely keep growing, and both the late growth “super unicorns” and early stage start-ups are certainly worth following.