Latin American Startups Take On Record Debt In 2022 Amid Dearth of VC Funding

$1.3 billion in debt was disbursed in Latin America in 2022, breaking the previous record of $823 million in 2021

$1.3 billion in debt was disbursed in Latin America in 2022, breaking the previous record of $823 million in 2021
December 22, 2022 | 10:25 AM

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Mexico City — Venture debt investment reached an all-time high in Latin America this year, totaling $1.3 billion, which has surpassed the previous record of $823 million in 2021, according to an analysis by the Association for Private Equity Investment in Latin American (LAVCA).

Late-stage startups opted more for credit lines from traditional investment banks as an alternative source of funding this year amid a dearth of venture capital.

In the midst of a turbulent year for the technology sector, venture investment rounds in late-stage startups are becoming more cautious. This has led unicorns, startups valued at more than $1 billion, to resort to borrowing from international banks to continue growing.

Mexican startups with unicorn status such as Clara, Clip, Kavak and Konfio have opted in recent months to take on debt. Of the eight purely Mexican unicorns, half have resorted to this option, mainly with Goldman Sachs and HSBC.


The phenomenon is not only occurring in Mexico, however. In Latin America, Colombia’s Rappi, Argentina’s Mercado Libre and Brazil’s Nubank have resorted to this resource even though the latter two companies are already listed on the stock exchange.

Why Are Latin American Unicorns Opting for Debt Over Venture Capital?

Kavak, the used-car sales platform valued at $8.7 billion, raised more debt ($810 million) than the $700 million it raised in its last venture capital round with funds such as General Catalyst, SoftBank, Tiger Global and Founders Fund.

Kavak’s credit line is not only the largest granted to a startup in the region, it is also more than the total amount of debt acquired by Latin American startups (excluding public companies Nubank and Mercado Libre) in the last year, and which totals $622 million.

Why Has Kavak, Latin America’s Most Valuable Unicorn, Chosen the Debt Route?

Why was 2022 the year of indebtedness for startups?

Debt is often used among startups in more advanced markets, such as the United States, Denis Yris, managing director of Wortev Capital, told Bloomberg Línea.

“Large companies that were once startups were raising between venture capital and debt,” he said, adding that, at advanced stages, it is a guarantee for banks that other venture funds have already invested in such startups.

Although it sounds very common, it is something new for the market in Mexico and Latin America, adds Luis Felipe Treviño, managing director of the private investment firm Beamonte Investments.

Treviño says that “one of the reasons why they are looking for debt, rather than equity, is because it is currently very difficult to price a deal”.


Valuations of unicorn companies and the way they are analyzed changed in 2022. Before, funds focused on user-based metrics; on growth and acquisition, Treviño stresses.

Yris, of Wortev Capital, adds that with debt, the idea is to avoid a down round (a drop in valuation) because it also hurts venture capitalists and not just the company.

“In those cases, it is possible for startups to wait for a next investor to come along and buy that debt,” Yris says.


Debt as an investment instrument was not only in the unicorn stage, but was also resorted to by startups such as Chile’s Xepelin, which is currently in a Series B and has raised debt twice.

Also, Mexican startups Nelo and Baubap, acquired debt for US$100 million and US$20 million respectively in recent months.

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