Bloomberg Línea — A recession will not stop investment in startups, according to Juan Orlandi, CEO of Chile-based accelerator and investment fund Magical, who said in an interview with Bloomberg Linea that although there is a slight slowdown in investment compared to the boom in 2021, it will not stop.
Orladi, whose fund specializes in early-stage startups, said seed-stage rounds have seen the least slowdown.
This year looks set to be a record year for seed stage investment in Latin America, as the amount invested has been slightly higher than in 2021, which was in turn a record year for venture capital in the region, with $15.7 billion raised, triple what had been raised in 2020, according to data from the Latin American Private Equity Investment Association (LAVCA).
Magical’s CEO explained that this responds to the fact that, despite market fluctuations, it is still attractive to invest in startups because of the market potential they have.
“It’s an underlying trend that is structural, independent of fluctuation in the market,” he said.
Following fears of a recession next year, Orlandi said that even in the face of this scenario, investment in early-stage startups will continue, as such companies can grow quickly while more consolidated companies will be in crisis and will be looking for the dynamism of an emerging company.
“This crisis hits big companies or corporates much harder, and in order to face those crises, they rely on digital solutions,” said Orlandi, who recently invested $375,000 in the first three startups of his second investment fund.
Investing in times of crisis
Magical’s new fund comprises $5 million and for the first time the accelerator is open to supporting technology startups from all over Latin America, and not just from Chile.
With this funding, Magical aims to accelerate the growth of startups that are currently in pre-seed stage, with a pilot in testing or a sales stage, and seed stage, and which have a viable product in the market and recurring traction.
Magical selected and provided funding for the first three startups that are part of its second investment fund. They are Simbiótica, a healtech from Viña del Mar; Pignus, an HR and productivity platform from Antofagasta, and EdiPro, a proptech from Valparaíso and Santiago. Each received a total of $125,000 and will start with personalized advice from a team of experts to develop and perfect the product or services they offer.
These startups follow the investment thesis that Orlandi described to Bloomberg Linea, as they offer rapidly scalable services that seek to solve a global problem and not just a problem specific to one country.
Early-stage Latin American startups continue to attract investment from non-regional foreign venture capital funds as well, according to LAVCA, which states that Latin American venture capital investment continues at a reasonable pace.
A total of $1.2 billion was invested in venture capital in the region in Q3 2022, in line with the quarterly average of $1.1 billion for 2019 and 2020, although late-stage startups have had to tap credit lines for liquidity.