Latin American Startup Funding Fell Further In Q1

Funding to Latin American startups plunged in the first quarter of 2023, hitting the lowest point in over two years amid a continued sharp contraction in late-stage dealmaking.

Overall, investment in reported seed through growth stage financings in Q1 was down 84% from the year-ago quarter, per Crunchbase data. That puts Central and South America, which just over a year ago ranked as the fastest-growing startup investment region in the world, on the short list for the fastest shrinking.

For perspective, we chart out investment, color-coded by stage, for the past nine quarters below:

Particularly notable in 2023 is the extent to which previous active investors have cut back. SoftBank Latin America Ventures, which participated in 34 rounds in 2021 and 2022, has joined just two this year. Tiger Global Management, another formerly busy dealmaker, has done no deals in the region this year. And Kaszek, the Brazilian firm that ranked as the most active 2021 investor, has also dramatically slowed its investment pace.

Jumbo-sized rounds of $100 million and up are also apparently a thing of the past. In 2022, SoftBank Latin America Ventures alone participated in six such deals. In Q1 of this year, not a single venture round of $100 million or more closed, per Crunchbase data.

Late stage down sharply
Early stage and seed also take a hit
Deal volume drop is less pronounced
Things are down from a very high peak
Looking forward
Methodology
Glossary of funding terms

Late stage down sharply

One can see investors’ recent distaste for big, late-stage financings reflected in funding totals, charted out below:

For Q1, late-stage and technology growth investment totaled just a couple hundred million, down 87% from a year ago. The drop-off is even more pronounced compared to the peak quarter — Q2 of 2021 — when a whopping $5 billion went to late-stage and growth financings.

The lackluster exit environment is likely a contributing factor to the slowdown. There were no acquisitions of venture-backed Latin American companies that exceeded $100 million in Q1 this year, per Crunchbase data. High-profile IPOs also weren’t happening.

Early stage and seed also take a hit

It’s not just late stage that investors are avoiding. Early-stage funding also dropped precipitously year over year, as the chart below illustrates:

For Q1, roughly a couple hundred million dollars went to early-stage deals, down from $1.5 billion in the year-ago quarter.

Things were also down at the seed stage, albeit slightly less dramatically, as the chart below shows:

Per Crunchbase data, reported seed investment was down 73% year over year in Q1. We expect this decline will likely get a bit less pronounced over time, as it’s not uncommon for seed financings to get added to the dataset weeks or months after they close.

Deal volume drop is less pronounced

Deal volume is down too, but not as markedly as investment totals. For Q1 of 2023, Crunchbase tallied a total of 129 reported seed- through growth-stage rounds, down 71% year over year.

For a sense how deal volume compares across stages for the past nine quarters, we charted out round counts below:

Things are down from a very high peak

As we repeatedly note how far things have fallen from 2021 and early 2022, it’s wise to keep in mind that investment was reaching unprecedented heights at that time.

The latest year-over-year declines look a bit less distressing when we compare to earlier years, when venture investment in Latin America was much lower. While current funding levels still don’t look great against these earlier comps, at least they look a little less terrible, as the chart below illustrates:

Looking forward

So what will it take for funding to go up again? For those bullish on the Latin American startup scene, there are some positive indicators that momentum could pick up again.

Most prominent among these is Kaszek Ventures announcement last week that it has raised $975 million across two new funds: a $540 million early-stage fund and a $435 million vehicle for later-stage investments.

So certainly there’s dry powder to be deployed. It’s just a question of when, where and at what valuations.

Methodology

The data contained in this report comes directly from Crunchbase, and is based on reported data. Data reported is as of April 3, 2023.

Note that data lags are most pronounced at the earliest stages of venture activity, with seed funding amounts increasing significantly after the end of a quarter/year.

Please note that all funding values are given in U.S. dollars unless otherwise noted. Crunchbase converts foreign currencies to U.S. dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs and other financial events are reported. Even if those events were added to Crunchbase long after the event was announced, foreign currency transactions are converted at the historic spot price.

Glossary of funding terms

We have made a change to how we include corporate funding rounds in our reporting as of January 2023. Corporate rounds are only included if a company has raised an equity funding at seed through a venture series funding round.

Seed and angel consists of seed, pre-seed and angel rounds. Crunchbase also includes venture rounds of unknown series, equity crowdfunding and convertible notes at $3 million (USD or as-converted USD equivalent) or less.

Early-stage consists of Series A and Series B rounds, as well as other round types. Crunchbase includes venture rounds of unknown series, corporate venture and other rounds above $3 million, and those less than or equal to $15 million.

Late-stage consists of Series C, Series D, Series E and later-lettered venture rounds following the “Series [Letter]” naming convention. Also included are venture rounds of unknown series, corporate venture and other rounds above $15 million.

Technology growth is a private-equity round raised by a company that has previously raised a “venture” round. (So basically, any round from the previously defined stages.)

Illustration: Dom Guzman