Bloomberg Línea — Venture capital investment in Latin America slumped 19.4% in the first half of this year to $5.4 billion, down from $6.7 billion invested in the same period last year, according to data from the Association For Private Capital Investment in Latin America (LAVCA ).
There were 541 transactions in the first half of this year.
LAVCA estimates that 2022 is on course to be the second biggest year for private equity investment in Latin America after 2021, driven by increased deals in digital infrastructure, renewable energy, and early-stage startups.
“Difficult moments will always exist in any entrepreneur’s life. This is undoubtedly one of them. If you have a four-year company history, you’ve only seen the bonanza,” said Camila Junqueira, managing director of Endeavor Brazil, in an interview with Bloomberg Línea.
“Money got more expensive, and I don’t think it was at a disproportionate level. We are going back to a historical average before the record amount we had for technology companies in Latin America,” she said.
Rodrigo Baer, co-founder and managing partner of Upload Ventures (a spin-off of SoftBank), agrees that the market is returning to what it should have been before 2020.
“You had a lot of things that didn’t make sense being invested in 2020 and 2021, we’re getting back to reasonableness. That’s healthy, it’s going to make startups more solid. There were a lot of people who were seeing a way to get rich quickly by coming to venture capital. That’s not how it works,” he told Bloomberg Línea.
Considering all private equity investments in Latin America in the first half of the year, the region raised $15.9 billion in 636 transactions, an increase of about 45% over the same period last year, when $11.1 billion was invested, according to LAVCA.
However, compared to the second half of 2021, there was a slowdown of about 15%, when a record $18.7 billion was invested, counting venture capital, private equity and other forms of funding in the region.
The association’s data shows fund managers are most interested in renewable energy, with $1.3 billion invested in the sector in the first half of 2022 in the region, up from $616 million in the whole of 2021. The investment was focused on the development of new solar PV projects and wind farms.
Notable investments in the first half of this year included Patria’s $334 million acquisition of Contour Global’s hydro assets in Brazil and BlackRock’s $200 million investment in a portfolio of photovoltaic projects in Chile, and EIG’s $260 million investment in Chilean company HIF Global.
In the first quarter, Actis sold two energy platforms in Chile (Aela Energia) and Brazil (Echoenergia) for a combined value of over $2 billion.
A slower pace in late-stage transactions
In line with global trends, LAVCA says Series C onwards investment has seen “a significant adjustment” in Latin America.
The exception, according to CB Insights, is Mexico, which nearly doubled in Q2 compared to Q1 thanks to two mega deals.
However, CB notes that early-stage deals dominate investment activity in Mexico in 2022 so far.
LAVCA adds that in the first half of the year, seed and early stage investment remained strong in the region, recording 113% and 48% growth respectively when compared to capital invested in the first half of 2021.
The average size of an early-stage VC round has also adjusted downwards, to $7.5 million in Q2 2022, compared to a historical high of $12.7 million in Q4 2021, according to LAVCA.
In addition, nearly a third of venture capital dollars went to female-led startups in the first half of 2022, a new record since LAVCA began tracking this metric in 2019.
Female-led startups that received venture capital funding in the first half of 2022 included Miami-based buy now, pay later platform KEO Mundial, Colombia-based proptech Habi, Brazil-based HRtech Sólides, and Ecuador-based fintech unicorn Kushki.
According to LAVCA, in turbulent times, venture capital funds are choosing to put more capital into experienced founders. In the first half of 2022, serial entrepreneurs raised 43% of venture capital dollars invested in the region, a new record, according to LAVCA’s Latin American Startup Directory 2022.
For funds, limited partners are still investing. LAVCA says more than $2 billion was raised in 47 fund closings in the first half of 2022, approaching the record of $2.6 billion raised in 56 funds in 2021. Notable fund closings included Lightrock, Valor Capital Group, Headline Brazil, MAYA Capital, and 17Sigma.
LAVCA data also points out that while VC has slowed, venture debt has continued to grow, totaling nearly $700 million in the first half of 2022, compared to $826 million in all of 2021 and $110 million in 2020.