LatAm Startups’ Strong Growth May Offset the Volatility That Affects VC’s Multiples

Bloomberg Línea gathered views of the 2022 ecosystem from some of the prominent investors in Latin America’s venture capital

2021 was a record breaking year for venture capital in LatAm. Venture capitalists expect a more moderate 2022.
February 26, 2022 | 03:12 PM

Compared to global deals that QED Investors makes, Mike Packer, partner at QED, said that on-balance revenue multiples in Latin America are lower because of implied volatility and foreign exchange currency issues. Yet, in his view, LatAm companies grow faster than others, especially due to market dynamics. “We have seen this sometimes offset by growth which can be higher than other markets,” he said. “Very hard to generalize.”

Packer’s statement was done during the 2022 LABA (Latin America Business Associations) Conference about VC in Latin America on Friday, where venture capitalists debated the change in the ecosystem. Some time ago, Latin America’s successful entrepreneurs used to study abroad and were not interested in going back to the region. Now, they are coming back and building startups that are becoming unicorns.

Sergio Monsalve, the founding partner at Roble Ventures, adds that with the pandemic a lot of people went to Miami to do business, but others started to go back to LatAm.

He said that the most different thing about investing in the region is that entrepreneurs are not just copying U.S. models. Some of the most interesting companies are not copycats. “To be successful in the region, these companies need to create true creative companies,” he said.


That was why Mercado Libre has done a lot better than its US counterpart, eBay, according to him. MELI’s specialty is to serve Latin American customers.

Mariana Donangelo, a partner at Kaszek, says that at first LatAm companies needed to be able to handle logistics, and do payments if they wanted to operate e-commerce.

The need to solve local problems in the infrastructure to build a business in the region made those entrepreneurs successful, in her view. “Now entrepreneurs are more prepared and have a lot more tech background,” she said, explaining why some rounds that had tickets to be Series A are now treated as Seed. “It is just a sign of maturity of the ecosystem.”


Packer stated that in 2021 the huge amount of capital activity in the region changed the ecosystem and continued to push early-stage deals.

He says that QED doesn’t do special treatment for its Latin America investments, however, the region has some major differences regarding market dynamics, as regulation on financial services “change extremely fast”.

New capital for a new generation of entrepreneurs

American angel investor Kevin Efrusy says that a decade ago the ecosystem wasn’t so robust and was mostly focused on Brazil. He also pointed out that the first generation of Brazil’s businesses were “a bit different” in terms of compliance standards before the Lavo Jato (Car Wash) corruption scandal in the country.

“Early on there was a corruption shift. We had to terminate the ecosystem. I think in some ways even to this day prior leadership didn’t quite understand why we were so upset. Once I asked a Brazilian friend doing business in the government, how many major government contracts are done with bribes, he said it was like 100%.”


Francisco Alvarez-Demalde is the co-founder of Riverwood Capital, a 14-year-old venture capital firm that started investing in growth technology 12 years ago. “We have been investing in Latin America from day one”, he told Bloomberg Línea.

“Even though we are a global firm, LatAm has been our focus since the first day, and we have invested a relevant percentage of our funds.” Riverwood recently led a $92 million round in Gupy, a Brazilian HRTech that used the proceeds to acquire its competitor Kenoby.

In the last decade, Riverwood invested in 25 companies in the region, nearly four to seven investments every year. “When we started, if we go back to 2010, for example, in the region there was an interesting entrepreneurship ecosystem in Argentina, built in the late 90′s, in the first wave of the internet.”


Alvarez-Demalde was part of that Buenos Aires energetic ecosystem. At that time, there was scarce capital, some good entrepreneurs, and a lot of opportunities.

“When I look at it today, the entrepreneurship ecosystem had increased a lot in size and capacity, and they are not concentrated in any country or city.”

As the first employees of those successful companies are now starting their own companies, nowadays, successful entrepreneurs invest in other companies, like David Vélez, from Nubank, or Nico Barawid, from Casai. This supports the ecosystem, according to Alvarez-Demalde, it is an indication that now the market gathers entrepreneurs and different sources of capital.

A moderate 2022 for venture capital

Capital markets are more volatile because they correlate to different waves and trends, like interest rates. That scenario worries late-stage startups that could go public with a lower valuation.


Alvarez-Demalde says that in the last three years there has been an acceleration of capital flowing to technology because interest rates were very low, which created that channel into more risk-taking investments. “Latin America was a recipient of that excitement, as were some sectors in the US, in India, and some other regions.”

A lot of new capital came to the region in 2020 and 2021. Now, for 2022, Alvarez-Demalde feels the excitement would be a little bit lower, an adjustment due to high-interest rates.

“You have volatile capital cycles, but I don’t think that means technology is going to disappear in Latin America. It’s a movement. I think that operationally the opportunities are very significant, and I think that companies that are growing well will be able to access capital.”


He says the firm is less focused on the cycles, as it has been investing in the region in the good and bad moments. “Even when we have faced significant recessions, crisis, (and) less excitement, our portfolio companies continue to grow very nicely, because of the penetration of e-commerce, the penetration of digital payments, the need for cybersecurity. All these trends continue even if there’s a recession.” However, the number of IPOs seen in last year would be difficult to repeat in 2022, according to him.

“For us is not a game of velocity, but a game of finding great companies, partnering, trying to help them.”

He doesn’t talk about fund performance, but says Riverwood’s companies have “consistently growing in the last years”. Four days ago, one of the startups supported by the company was acquired. Technisys was bought by SoFi Technologies for about $1.1 billion.


“I think this will continue because of the penetration of e-commerce, digital payments, and fintechs. Forget about the cycles of capital, which are always volatile, but if you look at the operation opportunity, I’m excited, not only about our portfolio, but a lot of tech companies in LatAm are growing and offering great services and will continue to do so,” he adds.

Asked about the risk of failing, Riverwood says it invests in late-stage firms, so Alvarez-Demalde explains it’s not as risky as early stage. Funds focus on established companies. “I think for us the risk and the assessment is a very different dynamic. It’s really different. I don’t think the companies we support have this kind of risk, most of our companies, have scale, they’re working. For us the big risk, if we think about the future, is more about competition, about execution, and of course, when you’re investing you’re taking a risk, you need to do so, but I think the question is more targeted at early-stage, but we don’t do that part.”

While some venture capital firms like Kaszek have decided to create a SPAC, Riverwood says such a vehicle is not in the pipeline, even if the company is focused on late-stage.

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