Bloomberg Línea — In times of high interest rates and lower liquidity available for venture capital investments, it is striking when venture capital firms manage to raise large sums to invest in new companies.
This is the case of Kaszek, founded in 2011 by Argentines Hernán Kazah, co-founder of MercadoLibre, and Nicolás Szekasy, former CFO of the Latin American e-commerce giant, which this week confirmed having raised $975 million for two new funds.
This is a development that has the potential to generate new momentum for the startup market in Latin America, after a period of declining investment.
The two new funds are Kaszek Ventures VI and Kaszek Ventures Opportunity. The company has allocated $540 million to the early-stage fund and $435 million to the growth fund, aimed at mature and growth-stage startups.
Kazah told Bloomberg Línea that the firm plans to use the funds to “invest in great companies and on fair terms.”
“The current environment, with less capital available, puts some pressure on ‘portfolio management’, but it can also create a great opportunity in ‘portfolio formation’, as most of the best companies emerge in times of crisis. It was the case of MercadoLibre, it was the case of Nubank, for example,” said the investor, citing two of the companies that were close to the fund.
Kazah said that the fundraising began on February 1 and ended on March 31, and that the funds came mostly from the same group of investors who had already contributed to other previous Kaszek funds.
The strategy, he says, is to look at the next 10 to 12 years, following secular trends of technological change.
”We remain industry agnostic. We invest mainly in extraordinary founders who are trying to disrupt or create great markets. Founders are the ones who teach us which sectors are interesting,” he said.Still, Kaszek believes there are good opportunities in fintech, “maybe more on the B2B side than B2C,” Kazah said, adding that the company is also optimistic about companies in financial infrastructure, blockchain, marketplaces, healthtech and climatech.
Kaszek’s fundraising comes at a time of falling investment in startups around the world and in Latin America. In Brazil, one of the main markets in which Kaszek operates, venture capital investments declined 18% in 2022 compared to 2021, according to Sling Hub, following the global trend of risk aversion as interest rates rose worldwide.
In 2022, $12 billion was invested in Latin America, down from $18.5 billion in 2021, but up from the $5.8 billion in 2020 and $6.4 billion in 2019, according to Sling Hub.
Last year, the Spanish-speaking region of Latin America performed better than Brazil in terms of investment volume for the first time, largely due to a decline in rounds above $100 million.
Kaszek is one of the most active venture capital firms in the region, managing more than $1 billion in capital and has 86 active companies in its portfolio across the region, according to PitchBook data. Kaszek says that it has invested in more than 100 companies.
Among the startups in which it has invested are unicorns Kavak, Bitso, Gympass, Loggi, QuintoAndar, Creditas and NotCo.
Some of them have already recorded exits and delivered returns.
One of Kaszek’s biggest successes was its investment in Nubank (NU). In total, Kaszek records 41 exits to date, according to data provider PitchBook.
Kaszek was also involved in the acquisition of PedidosYa by Delivery Hero, Love Mondays by Glassdoor, VivaReal by Grupo ZAP and the IPO of Netshoes in 2017. According to PitchBook data, 2021 was Kaszek’s most active year, with 55 rounds and eight exits. This year the company had three rounds and one exit.
Not all the companies in which the fund invests have been successful, however, which is part of the game when operating in this sector. Startups such as Neta Mx, NetCom and Hash, for example, closed their doors, generating losses on the company’s fund balance sheet.
“During a bull market, write-offs typically go down as excess of capital hides or delays some write-offs. Then, during bear markets, the opposite happens, so now we should expect to see more write-off for a while until the market finds its balance again,” Kazah said.
Asked about the possibility of leading rounds at lower valuations than previous investments, Kazah said that “if valuations are higher or lower compared to the last few rounds, that would be on a case-by-case basis, but it’s not unlikely that some cases [of rounds at lower valuations] might make sense but at redefined valuations.”
Kaszek raised the $95 million KV-I in 2011, the $135 million KV-II in 2014, the $200 million KV-III in 2017, the $375 million KV-IV and $225 million KV Opportunity Fund I in 2019, totaling $600 million, and the $475 million KV-V and $525 million KV Opportunity Fund II in 2021, totaling $1 billion.
Kazah does not disclose the funds’ returns but says the first of them, dating from 2011, “has had a strong dollar return, much stronger real returns, and we think it may be at the top among funds of its vintage,” he told Bloomberg Línea.
For the other funds, Kazah believes “these funds will produce strong returns for our LPs [limited partners, i.e. the pension funds, family offices, endowments that contribute to the funds].”
The money managed by Kaszek comes mainly from the US, but also from Europe, Asia, and Latin America.
“We have no LPs in the Middle East for now,” Kazah said.