Startups Venture

Latin America Has ‘Arrived’ Among Global VCs

I’ve been tracking venture funding into Latin America since 2017. Overall, it’s not only increasing—it’s skyrocketing. And with a growing number of global investors (like SoftBank) putting money into the region, it seems to have turned a corner in terms of its maturity.

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Last week, the Latin America Private Equity and Venture Capital Association (LAVCA) released its annual report on how much venture money went into the region, detailing which sectors and which countries got the most. The organization found that VC funding into the region nearly doubled in 2018 to a record $1.98 billion compared to $1.14 billion over 2017. Last year’s number was quadruple the $500 million invested in 2016. Take a look below.

Last month, we reported that SoftBank Group Corp. (SBG) had unveiled plans for a $5 billion SoftBank Innovation Fund, or what it described as “the largest-ever technology fund focused exclusively on the fast-growing Latin American market.” The news was validation that investors are starting to take the region more seriously.

In fact, LAVCA also found that co-investments between global and Latin American investors are on the rise, representing 59 percent, or $1.2 billion worth, of VC investment dollars. That compares to 57 percent, or $633 million worth, in 2017.  

 Julie Ruvolo, director of venture capital for LAVCA, said the surge in funding has been “fun” to watch.

“One of the significant things that has shifted is the presence of global investors, and notable ones too, in the market,” Ruvolo said, noting that SoftBank’s investment has served as somewhat of an inflection point. “Latin America’s moment has arrived.”

Transaction sizes are also growing. Brazil’s iFood closed the largest known VC round to date ($500 million) in November 2018. Plus, the top five investments in 2018 all exceeded $100 million per round and collectively totaled  $1.2 billion, more than the total invested for all of 2017. Yet at the same time, early stage and seed/incubator deals drove the record 463 VC transactions in 2018, up from 249 in 2017.

Also unsurprising is the breakdown of where the majority of venture dollars have gone in Latin America. As you can see in the chart below, Brazil led the region across all stages of VC investment, capturing 55.9 percent of VC investment dollars in 2018 (259 startup investments totaling $1.3 billion). Mexico was the second most active market by number of deals (95 startup investments totaling $175 million), but Colombia saw nearly double the money invested ($334 million over 19 deals).

Meanwhile, LAVCA also found more startups than ever reported surpassing $1 billion valuations including Sao Paulo-based mobile commerce platform Movile, the aforementioned iFood, Brazilian fintech startup Nubank, Colombian last-mile delivery service Rappi, and Brazilian ride-hailing startup 99. Two companies – Brazilian fintech startup Stone Pagamentos and PagSeguro –  listed on the Nasdaq and NYSE, respectively.

While fintech has historically been the sector receiving the largest amount of investment dollars in Latin America, 2018 saw a shift with more money going into logistics and distribution startups.

Here’s a short list of bigger deals that took place during the year:

VC Perspective

Federico Antoni and Fernando Lelo de Larrea founded Mexico City-based venture firm ALLVP in 2012. The pair has since invested in 28 tech startups across Latin America and Spain focusing on fintech, healthtech, edtech and the future of commerce. They are currently investing out of a $100 million fund focused on early-stage investing from seed to B rounds.

Some of the firm’s portfolio companies include: weex, a challenger bank for Mexican millennials; Slang, an AI-enabled English-learning platform from Colombia and Y Combinator company Fintual, a robo-adviser asset manager from Chile. And ALLVP announced three exits last year, including the sale of on-demand grocery delivery service Cornershop to Walmart; checkout lending platform Aplazame to Spanish bank WiZink and petcare ominichannel e-tailer Petsy to Maskota.

To Antoni, Latin America represents the world’s “largest untapped VC opportunity.”

“Despite the size of its huge internal market and the large pool of talented entrepreneurs, global VC firms have been slow to invest accordingly in the region,” he said. But that’s a mistake considering technology adoption has been accelerating across the region, he points out.

“Mexico is Amazon’s fastest market to reach $1 billion in sales, Sao Paulo is Uber’s largest city in rides in the world, Mexico City holds Spotify’s biggest user base, and Brazil and Mexico are Facebook, Instagram and WhatsApp’s largest markets,” Antoni told Crunchbase News.

In line with popular opinion, Antoni thinks that when Softbank recently announced its intention to invest as much as $5 billion into Latin America, “VC investors could no longer ignore the region.”

However, he acknowledges that Latin American startups face similar challenges to other emerging ecosystems around the world, including access to capital, access to talent (technical talent in particular) and cultural support.

“These distinct challenges are compensated by fertile ground for innovation and modest competition,” Antoni said.

Startup Side

Sao Paulo-based QuintoAndar was founded in 2013 by Gabriel Braga, CEO, and André Penha, CTO, who met while getting their MBAs at Stanford University. As many startups do, the company was founded out of Braga’s personal “nightmare” of an experience in renting an apartment in Sao Paulo.

Braga on left in photo, Penha on right; Photo courtesy of the company

The search process was difficult as there was not enough information available online and renters are forced to provide a guarantor, or co-signer, from the same city or pay rent insurance, which Braga described as “very expensive.”

“Overall, I felt it was a very inefficient and fragmented process with no transparency or tech,” Braga told Crunchbase News. “There was all this friction and high cost involved, just real tangible problems to solve.”

The concept for QuintoAndar, an end-to-end solution for long-term rentals that connects landlords and tenants, was born.

“Little by little, we created a platform that consolidated supply and inventory in a uniform way,” he said.

The company took the search phase online for the first time, according to Braga. It also eliminated the need for tenants to provide a guarantor, thereby saving them money. On the other side, QuintoAndar also works to help protect the landlord with the guarantee that they will get their rent “on time every month,” Braga said.

So far, QuintoAndar is doing well. In the first quarter of 2019, the number of rentals it helped facilitate, of which it takes first month’s rent and a percentage fee, surged four times year-over-year. It’s nearly tripled its number of employees to 850 compared to 350 in the middle of last year.

Over time, QuintoAndar has raised a total of about $93 million in venture funding from the likes of Kaszek Ventures, Qualcomm Ventures and General Atlantic. Along the way, Braga acknowledges that some U.S.-based investors liked the premise behind the company but were intimidated by the complexities of investing in Brazil, such as the exchange rate risk and a turbulent political, and uncertain economic, environment.

“Although the company was doing well in terms of traction, it was hard at first to convince investors,” Braga said.

Its last raise was a $70 million Series C led by New York-based General Atlantic, who Braga said “was committed to Latin America and not afraid of Brazilian risks. They knew firsthand the importance and relevance of the problems we were solving.”

In addition to its funding report, LAVCA also last week published an Inaugural Survey of Latin American Startups, commissioned by Facebook, to establish a baseline of critical information at an inflection point for Latin America’s entrepreneurial and tech ecosystem. The survey captured insights from 227 startups, with 88 percent of responses coming from founders and C-level executives. Among its findings – 73 percent of startups surveyed are using some form of big data, machine learning, or artificial intelligence. Eighty-nine percent reported positive net revenue growth for 2017-2018.

As we continue to monitor funding activity in Latin America, one observation is certain: the numbers don’t lie. With VC funding nearly doubling in 2018 and mainstream investors funneling not only cash but confidence into startups there, Latin America is more than worthy of watching.

Illustration: Li-Anne Dias