Leadership of Latin America capital and growth investments by 2018 were less than $2 billion per year. While quality growth companies were hungry for capital, the few investors active in the region were making a killing. For example, investing in its Latin American franchise in different cycles, General Atlantic has IRRs (internal rate of return) that are more than 50% of those returns.
As a banker covering technology, I thought there was an opportunity to invest in the region and decided to quit my job at JP Morgan and give it a shot. When I called my former boss Nicolas Aguzin to thank him for his support, he said he would introduce me to Marcelo Claure at SoftBank. By March 2019, we launched SoftBank in Latin America with an initial commitment of $2 billion, which was more than the entire industry at the time.
Big companies like Nubank, Inter, Gympass, Quinto Andar and a few others were in their infancy at that time, but it didn’t take long to divide the market. Latin America has become the fastest growing VC region worldwide, with the market expected to reach $16 billion in 2021. In 2020, I founded a new growth fund to fill the funding gap in the region, giving me the opportunity to see how startups from recent vines have gone through the bonanza scenario.
Fast forward to today, and late-stage funding in Latin America has been hit hard – volumes in the third quarter of 2022 are down 93% from a year ago. Our guess is that, going forward, the region will suffer more than other markets due to the lack of available local growth capital.
The chart below shows that of the 290 investors focused on late stages in 2021, only three were active in the third quarter of 2022. In addition, only 24% of those investors in 2021 were local, most of whom were not allocated. Growth capital and a growing number of individuals included hedge funds and family offices.
By solving local problems, startups will build pricing power, which should allow them to move forward.
Early stage funding has remained active so far this year, and many good companies are raising early stages, expecting to come to market in 2023. But Latin America’s more than 200 late-stage companies are holding off as long as they can before trying. add more capital. Foreign capital will cover only part of these financing needs.
I started my career in private equity in 2002, but my first job at JP Morgan was simple: writing portfolio reviews and helping to open a large portfolio of Internet companies that had their share of glory, but with usually then failure. What I learned from those days about how some companies thrived while most failed is part of what we share with our portfolio companies today.
Here are some products:
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Below are some examples of how companies are doing everything they can to stay afloat, and ultimately, thrive:
In 2001, MercadoLibre used a freemium strategy to gain market share in the highly competitive Latin American online auction market. Users can sell their products on the platform at no cost, which definitely boosted GMV growth. In 2003, it went away and the company quickly set charges across its markets.