Which Are Latin America’s Biggest Venture Capital Funds?

Venture capital funds are transcending borders and seeking to conquer Latin America. Which are the most powerful in the region right now?

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May 11, 2022 | 10:51 AM
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Bogotá — The wave of startups in Latin America is producing changes in the structure of venture capital (VC) funds, which last year made investments of almost $16 billion in the region, a 10-year high.

A key aspect regarding new trends in venture capital funds is their focus on regionalization, as explained by Latin America Venture Capital Association’s (LAVCA) associate research director Emanuel Hernández in an interview with Bloomberg Línea.

“What we are seeing is that there are VC fund managers specifically who started in their countries and have already reached a scale where they are thinking about how to support not only a Colombian venture, but are thinking on a regional scale,” Hernández said.

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Figures from Transactional Track Record, Datasite and Aon indicate that Latin America recorded 253 venture capital transactions in the first quarter of this year.

Of those, 208 transactions have a non-confidential amount totaling nearly $3.06 billion, with an increase of 6% in the number of transactions and 9% in value compared to 2021.

Brazil is a good example of the regionalization of VC funds, as in first quarter firms such as Canary, Maya Capital and DOMO Invest closed the largest number of deals in Latin America, with 12, eight and seven respectively.

And although with fewer deals registered (10), Argentine fund Kaszek Ventures was first in deal value with $533.20 million in the first quarter of 2022, ahead of German fund Global Founders Capital ($209.83 million) and U.S.-based Y Combinator, with $110.34 million.

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LAVCA’s Emanuel Hernández referred to the strategy of venture capital fund leaders who, he said, are looking to invest in startups with a philosophy that matches their internationalization plan.

“So, they are saying: ‘We are going to launch a fund that not only invests in Colombia, but in all of Latin America, we are going to support entrepreneurs that from day one have in mind not only to be in Colombia, but are thinking about an expansion to Mexico, Brazil or Peru,” he said, citing the case of several Colombian companies such as La Haus and Merqueo.

“I think this is a very important trend because we see it from both sides, we see it from the entrepreneurs thinking on a larger scale, a more regional one, but we also see it from the side of the funds, which also look for entrepreneurs who have that approach,” he said.

LAVCA’s executive director, Ángela María Tafur, also referred to the trend of corporate, large companies such as U.S.-based Uber that are interested in startup ecosystem players, and decide to make moves, such as the 2020 purchase of Chile’s Cornershop.

“It is interesting because these are companies that are incurring in venture capital because they are buying other companies,” she said.

She also highlighted the opportunities that large players in the financial sector are finding in fintech, while others such as U.S. software giant Salesforce have created their own investment arms, in this case, focused on the ecosystem of cloud companies.

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“It’s a very interesting trend. Local funds are looking to be regional, and these corporates are also entering the competition, which are also going to enter the ecosystem,” she said.

Founder and CEO of Polymath Ventures, China’s Wenyi Cai, spoke in an interview with Bloomberg Línea earlier this month about the importance of having a network of local venture capital funds in the startup space, since “there are many businesses in Latin America that foreign investors would not understand”.

Elenas is a very good example. In the United States there is no need for social commerce in the way Elenas handles it, but in Latin America there is, because of the traditional direct sales industry, and how problematic it is, and how middle-class people use it as an alternative source of income,” she explained.

This is why she believes that it would be more difficult for these companies to finance themselves if the majority of the capital comes from outside, as well as to grow properly in the case of those in the initial, pre-seed phase.

“For example, if you are a Colombian company and you get a pre-seed round from an international venture capital fund, often you have to promise to expand to Mexico, because of the size of the market, etc., even though sometimes it doesn’t make sense to expand to that country or to expand at such an early stage,” she said.