VC Funds, Unicorns Remain Optimistic About Latin America Despite Economic Crisis

While the effects of the crisis will not be immediately felt, unicorns such as dLocal and Kavak are upbeat about their growth prospects, while investors say they will continue to deploy capital in the region

Argentina represents 2% of global venture capital.
May 23, 2022 | 01:21 PM

Bloomberg Línea - What have the players in the tech and funding space had to say over the past week? Welcome to our weekly roundup of the tech and startup ecosystem in Latin America.

The entrepreneurial ecosystem has not yet collapsed in Latin America, unlike what we have seen in the United States, where even the giant technology companies are seeing their shares fall. In this region however, the effects have yet to arrive, but it may not be long before they do. Meanwhile, in the last quarter dLocal - the former Uruguayan unicorn, since it is already listed on the New York Stock Exchange - reported triple-digit growth.

As reported by Bloomberg Línea this week, dLocal (DLO) said that total payment volume was $2.10 billion during the quarter, a year-on-year increase of 127% and also an advance on the $1.9 billion reported in the last quarter of 2021.

The company’s CEO, Sebastián Kanovich, said in a statement that revenues grew at a triple-digit rate for the fifth consecutive quarter in the year-on-year comparison, to $87 million, an increase of 117% compared to the first quarter of 2021.

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Likewise, the company’s first-quarter net earnings were $26.3 million, compared to $16.9 million in the first quarter of 2021, while adjusted EBITDA was $32.9 million, a year-on-year increase of 84%.

Kavak, another Latin American unicorn, also said it has seen triple-digit growth, although it did not specify figures, and assured that it will soon make some important announcements.

Meanwhile, Nubank’s CEO David Velez said last week that most of its shareholders have reinforced their position as long-term investors in the fintech.

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“The majority of shareholders have no intention of selling shares with the end of the lock-up, which shows that Nubank is a long-term opportunity,” he said optimistically in the presentation of its Q1 2022 results.

The fintech, which was Latin America’s most valuable unicorn, had record total revenue of $877.2 million in first quarter, 226% up on the first quarter of 2021, and which surpasses Bloomberg analysts’ average revenue expectations of $630.9 million.

Venture capital investors remain optimistic about the region. This week Juan Franck, managing partner and and head of Mexico at SoftBank Latin America, told Bloomberg Línea that the company’s mission remains to invest a significant amount to further transform the region, and to mitigate the effects of the pandemic. The Japanese fund will expand its investment over the next 12 to 18 months regardless of global economic phenomena, such as the effects of the war in Ukraine, inflation and interest rate increases.

In Mexico, venture capital fund Ignia, which focuses on early-stage companies, is also optimistic. In an interview with Bloomberg Línea, the fund’s co-founder and managing partner Álvaro Rodríguez Arregui said it is preparing its second fund focused on early-stage investments for $150 million.

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“The value-generating capacity of the entrepreneurs we invest in is so great that it overcompensates for any macroeconomic volatility,” he said.

Microsoft Raises Salaries, Netflix Lays Off Staff

The two sides of the coin in the economic crisis are evident with Microsoft (MSFT), which is raising salaries in an attempt to retain its talent, while Netflix is laying off 150 employees after losing subscribers during first quarter.

Microsoft said in a statement Monday that it plans to “nearly double” its budget to boost employee salaries and increase the range of stock compensation it gives some workers by at least 25%, an effort to retain staff and help people cope with inflation.

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The software giant is locked in a fierce battle for tech talent with companies such as Amazon.com Inc (AMZN), Google (GOOGL) and Facebook owner Meta Platforms Inc (FB). The website Glassdoor estimates that a recent graduate working as a software engineer at Microsoft earns around $163,000 per year.

Q1 Investment Up 67% Compared With Q1 2021

The first quarter of 2022 has not been as positive as previous quarters in terms of investment in the region. According to data from the Latin American Private Equity Investment Association (LAVCA), $2.76 billion were invested in first quarter, compared with $3.87 billion in the fourth quarter of 2021.

However, investment was higher compared with first quarter 2021, with a 67% increase, while the increase against first quarter 2020 was 375%.

This contrasts with the downward trend of venture capital investments in the United States. Disregarding the decline with respect to the last quarter of 2021, this is the fourth largest quarter on record for investment in Latin America.

This week’s early stage startups that received venture capital are: Spot2, Smart Doctor, Tractian and Nextron.