Marcelo Claure in Miami (Florida), April 2022. Eva Marie Uzcategui (Bloomberg)
So far this year there has been a lack of funding for tech companies and start-ups in Latin America, but some breaking news has excited the industry. First, the Kaszek venture capital fund, known as venture capital, managed to raise nearly $1 billion in April. Later, a former SoftBank executive announced the opening of his own fund, called Bicycle Capital, which is expected to invest $500 million.
Both aim to fund Latin American tech companies in search of the next multimillion-dollar IPO deal that would crown them the “unicorn.” The region, home to the likes of Rappi, Kavak and The Not Company, is confident the drought is ending.
“This fund from Marcelo Claure and Co., all former Softbank, is a missing link in the capital chain for entrepreneurs in Latin America,” said Diego Noriega, an industry veteran. Noriega has founded 23 companies, some directly in technology, others funding, such as Newtopia, a fund of which he is managing partner. For his part, Claure is the founder and CEO of the Claure Group, a multi-billion dollar global investment firm spanning industries from telecoms and media to real estate and sports. Bolivian Claure shares on his social media the story of a tireless worker who began selling cell phones from the trunk of his car in the United States, until he built a telecoms company so profitable he sold it to SoftBank. He later became its CEO.
Funding for companies classified as high-risk is divided into phases, which occur in the following order: pre-seed, seed, series A, B and C, depending on how advanced the idea, business model or company is. Bicycle is a growth fund, meaning they would fund from Series B, while Latin America has historically had more concentration between seed and Series A, Noriega says. Investors from the United States and other parts of the world are interested in funding Latin American ideas and would be much more likely to do so if they had a local partner, Noriega adds. “It is well known that those at Bicycle or we at Newtopia understand the region, the progress that is happening in the countries where they see opportunities,” the businessman says in a video call.
What Latin American startups have seen over the past two years has been a rise to the top and then a catastrophic fall. When the Federal Reserve pumped an unprecedented amount of resources into financial markets in 2021, many of those resources ultimately went to funding tech startups in Latin America. Twelve Latin American companies became “unicorns” this year, setting a record for the region.
Their luck changed when inflation started to soar and the Fed was forced into an about-face. In addition, the failure of a mid-sized US bank specializing in financing Silicon Valley has shaken investor confidence again. Around $7.4 billion was invested in the region in the second quarter of 2021, a record quarter, according to research firm CBInsights. The latest number for the first quarter of this year is only 600 million. According to a 2019 report by the Inter-American Development Bank (IDB), Latin America and the Caribbean invest $7 a year per capita in startups. “This is a shadow of what other countries are investing in business innovation,” says the report. Israel invests 117 times more per capita than Latin America, Estonia 42 times more, Ireland 17 times more and China seven times more.
This does not reflect the potential. The so-called fintech sector alone, which refers to digital financial companies, can add $3.7 billion to emerging market gross domestic product (GDP) by 2025, according to consulting firm McKinsey. That’s a 6% increase, creating $2.1 billion in new credit, creating 95 million new jobs and attracting 1.6 billion people to the financial system.
“I’m very optimistic,” says Sergio Fogel, a Uruguayan and co-founder of emerging market payments technology company dLocal. The current financial climate with high interest rates is not particularly favorable for raising capital, but there are many examples of successful start-ups. Among them is Uruguayan e-commerce platform Nocnoc, which raised $14 million a few weeks ago to fund its expansion into Mexico and other countries in the region. “Ultimately, it’s entrepreneurs who find and fix inefficiencies, and Latin America is full of inefficiencies,” Fogel says over the phone.
Noriega is also enthusiastic. He says that he estimates that venture capital investments for Latin America have increased 100-fold over the past 12 years. “If an entrepreneur comes today and tells me that everything is wrong, that there are no investments and so on, I feel a mixture of anger and pity,” says Noriega, “because if there is no capital now, you don’t know what.” it was before. That is the reason to spot the trend and see growth beyond the 2020-2021 bubble. The development is very positive.”
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