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What Latin America’s Startup Ecosystem Will Look Like By The End Of 2022

LatAm map

By Wenyi Cai

If Latin America had been referred to as a diamond in the rough for global investment, we’re now living the era of potent gem refining.

As the founder and CEO of Polymath Ventures, a venture studio for LatAm based in Bogotá, Colombia, I have helped create and scale human-centered businesses in the region—and have learned important lessons along the way.

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In January, Crunchbase reported that with $19.5 billion of investor capital poured into the region, 2021 was a record year with triple the growth compared to previous years. Despite a dip in in Q1, funding to the region is still running hot and, in 2022 more social and economic transformation awaits. And as more investors dip their toes into the promising LatAm market, there will be some new factors to consider.

LatAm cements itself as an investment hub

The region’s digital transformation has flourished partly due to the pandemic, with more complex innovations in fintech and commerce maturing. For investors, the growth was hard to ignore, encouraging them to change course from China to LatAm.

Wenyi Cai, founder and CEO of Polymath Ventures
Wenyi Cai, founder and CEO of Polymath Ventures

The surge of funding, with a strong push in Q4 (like a “Santa Claus of VC”), created 18 new unicorns in LatAm last year, including Bitso, Clip and Ualá. According to The Crunchbase Unicorn Board, there are now 26 unicorns in the region.

As a result, investors will be driven by the possibility of successful exits from Latin America. Those that made the first stride last year will take bolder investment steps, with U.S.-based funds leading the way. First-timers will continue to enter, too, a testament to an established level of trust in the market.

Moreover, rising understanding will contribute to more pronounced market analyses and fewer knee-jerk reactions from VCs this year. Assuming that Mexico’s credit market crash with giants like AlphaCredit would be echoed elsewhere, for example, was a mistake that made investors pass on promising opportunities.

The stabilized confidence in the region will drive new opportunities, and more diverse players are expected to enter the space.

Funding fabric shifting

Last year saw big jumps in funding across the market, with two-thirds of capital raised in late rounds. The valuation and round sizes in the early stages ballooned, too. Yet, there was much more growth in the average rather than the median, meaning the top 10 percent swallowed the majority of funding.

In 2022, there will be a trend against this illusion of “overall exuberance.” The curve will flatten, with a substantial space opening for pre-Series A investments in the region.

When public markets were swelling, we saw many massive A, B, and C rounds. But because they are currently down, growth and crossover investors will be less aggressive, with the cascading effect of making rounds A and B more steady. This will advance stabilization, as LatAm has seen those who raised large A rounds struggling to raise B rounds, compared to those with more sober As.

The ecosystem will record fewer jumbo “outlier” deals, but many deals will get done nevertheless. There is a lot of dry powder left with regional and international funds. Some funds were actually waiting for valuations to become more rational.

The diversity of investors will increase, including entrepreneurs who succeeded in LatAm unicorns as individuals. This segment enjoys lasting connections to the U.S. and global funds, often joining VC funds as partners or even starting their own angel funds, resulting in an emerging operator aspect within the space.

Startups serving companies

LatAm maintains a somewhat blank slate of tech infrastructure, favoring full-stack offerings. The trend of customer-facing fintech and commerce in 2021 will be overridden by solutions that enable large service industries to digitize.

Globally, SaaS has brought American VCs the most solid returns—but SaaS can’t be done in LatAm the way it’s done in the U.S. The U.S. has a massive business segment to sell to, but LatAm is similar to China a decade ago: It’s either a few big players or many unsophisticated ones.

For example, Autolab—a Polymath Ventures portfolio company—is a growing platform empowering car workshops in LatAm through digital tools. Ultimately, this platform model integrated with a full SaaS suite, rather than a traditional marketplace model, helps them unlock the region’s unsophisticated business demographics. Investors will look toward a balance between marketplace and SaaS.

Tackling region-specific problems while tapping into the region’s burgeoning middle-class will make service platform startups LatAm’s success story in 2022.


Wenyi Cai is the founder and CEO of Polymath Ventures, a venture studio that builds digital platforms to empower the middle-class of Latin America. Prior to founding Polymath, Cai  was an entrepreneur in Silicon Valley. As the COO of Milo.com, a consumer internet startup that sold to eBay in 2010, Cai led business development efforts with major technology companies such as Microsoft and eBay, and oversaw the product and engineering teams. She graduated cum laude from Harvard College where she studied philosophy and physics.

Illustration: Li-Anne Dias

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