Bloomberg Línea — High interest rates to contain inflation worldwide aren’t driving away from the risk appetite of Limited Partners that invest in the New York/Israel-based venture capital firm Vine Ventures and Brazil’s Maya Capital, led by Lara Lemann -- billionaire Jorge Paulo Lemann’s daughter -- and Mônica Saggioro. Both VCs have raised two new funds, of $140 million and $100 million, respectively, willing to invest in early-stage startups.
It’s the second fund for both firms. Vine Ventures already invested in LatAm-based unicorn Habi, Tul, Cayena, and Israeli Kocomo. Brazilian Maya Capital has NotCo and Merama on its portfolio.
Vine fund’s leader, Eric Reiner, told Bloomberg Línea that the company is looking for fintechs and startups that operate with logistics and supply chain in Latin America, the US, and Israel. Reiner said the company intends to deploy Seed rounds during the next three years and will make four to five investments up to the end of this year.
“We are not in a rush to deploy capital. Regardless of the economy, if founders want to start a company, interest rates don’t matter, it can be a tailwind for whatever reason, and our LPs are open to LatAm,” said Reiner.
However, Vine’s LPs are keeping a close eye on Colombia as Reiner pointed out “risks” due to the new left-wing government - Gustavo Petro - in the country that might affect new investments.
“I’m a strong believer in capitalism, sad to see that LatAm would continue to go in that direction given Venezuela. Wonderful companies can be formed in any region in any environment or political regime as long there is fairness. The leftist regime forming in Colombia makes it harder, increases the bar,” he said.
Vine II is three times bigger than the first fund, which had an internal rate of return over investments of 251% up to last year in audit numbers. As a comparison, in the same period last year, SoftBank Latin America Fund disclosed that its net equity IRR was 62% - the fund was two years old, at that time. The largest driver for the net equity return over investments for Vine was the Colombian startup Tul, which recently pulled off operations from Ecuador.
“The best companies now will focus on the most profitable markets, and will have to make very difficult decisions,” said Reiner.
He recalls there was a tremendous inflow of capital for Latin America in the past couple of years, but thinks now large US funds will pull out of the region because they’re not designed for venture capital in LatAm. “We actually came to Latin America several times, our peers don’t”, he says.
He’s not alone in pursuing Latin America’s early-stage startups from North America. On the other coast of the United States, NFX Ventures and SV LatAm Capital are deploying their money all the way from Silicon Valley to Latin America.
US vying for early-stage in Latin America
Consuelo Valverde, founder, and managing partner of San Francisco-based SV LatAm Capital told Bloomberg Línea that capital is no longer free. “This is unprecedented for many entrepreneurs and VCs who have never experienced a time when money is not free. Early-stage will continue to draw capital, but even in early-stage, things have changed,” she said.
The economist and professor of MBAs at FGV Roberto Kanter recall that investors like Y Combinator have already been taking the path of investing in early-stage for some time because they understand that when they participate in a company “in the middle of the road”, they may lose the power to make modifications.
“With money being more expensive, there has been a decrease in the supply of money, and the whole ecosystem of startups has been suffering a decrease in available money because to get a good return, the venture capitalist now doesn’t have to put it into a company that he has no idea if it will work out. He puts the money in a fund, in an American Treasury Bond, or even in Brazil, with interest rates at 13.25% per year, which gives 9% in dollars per year,” explained the professor.
If the money decreases, investors look to previous stages not only to see better business opportunities but because if the money is short, they can not risk so much. They need to have greater control of the operation.
“They want to interfere in the evolution process of the new business from the beginning and this impacts positively because normally the early stage is unassisted. Getting more money into early-stage is great news for the environment,” he said.
On the other hand, it may not be such good news for the entrepreneur, according to the professor. The VC investor will demand more assets, and equity, and has a higher degree of demand on the company than angels.
“The small entrepreneur is going to be forced to mature earlier and throw less money away. Which is perhaps a very good thing.”
NFX targets 15% to 20% ownership in the companies it invests. Principal Anna Piñol, which oversees NFX investments in the region, says Seed and pre-Seed are like the most protected places to invest. She told Bloomberg Línea that Latin America’s founders are particularly resilient since they have been historically used to recession and working with less capital.
“Early-stage companies are faster to pivot, more adaptable and have a long runway to the public markets, which is where now multiples are going down. Late-stage investors are the ones that are having to correct more.”
Piñol says companies are trying to extend the run rate because there’s a lot of uncertainty about how long the crisis is going to last.
“No one has an answer really. People are trying not to be in a position of needing to have to raise for about 14 months. It’s good for new startups, as long as the ecosystem keeps bringing new startups, the Seed stage continues to be a place where some money is flowing, and a lot of these people [that were laid off] will find a new job in these new startups or become an entrepreneur.”
Miriam Rivera is the CEO, co-founder, and managing director of Ulu Ventures, an early seed-stage venture fund in Silicon Valley that follows SV LatAm Capital in the region. She adds that for VCs, bad times can be better in terms of investing because in recent times valuations were out of proportion that made it hard to find a better investment.
While Patrick Hruby, CEO at Movile holding (owner of iFood) told Bloomberg Línea that in the earlier period of turbulence following the global financial crisis from 2010 to 2012 the road to recovery was paved by smart early-stage investors such as Redpoint Eventures, the first Silicon Valley fund to open an office in Brazil back in 2011.
“Many other global investors followed, leading to Latin America to be the fastest-growing region in the world for venture funding in 2021″.
According to Hruby, in the last decade, the region’s ecosystem has matured rapidly, and it’s well-positioned to bounce back from the current global turbulence.
A move back to early-stage focus, according to him, makes perfect sense, and that funding focus will help uncover pioneering startups that will fuel the next wave of disruptive innovation in the region, he believes.
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