Venture capital numbers are booming in Latin America. Last year, startups raised over $4 billion in venture capital across 488 deals, according to LAVCA’s data. These deals targeted mainly Brazil, the region’s most prominent and more mature market. But that’s not where Santiago-based Alaya Capital Partners wants to invest. The 10-year firm recently closed its third fund of $80 million focused on Spanish-speaking Latin America’s startups.
The so-called “The future economy of Latin America” fund targets companies in Mexico, Colombia, Peru, Chile, Uruguay, Argentina, Central America, and the U.S. What? Yes, Alaya Capital encompasses Miami/Florida scope targeting Hispanic entrepreneurs that live in the U.S. “It’s everything except Brazil,” says Claudio Barahona, managing partner at Alaya Capital, in an interview with LABS.
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“Brazil is already covered with a lot of funds. We want to pick local leaders and help them to regionalize their solutions to expand to other countries.” Startups that are born in Brazil are already steps ahead because of the size of the market. A company that operates nationwide in Brazil, Latin America’s largest economy, has potentially 211 million people to achieve. To have a similar scale, non-Brazilian Latin America’s entrepreneurs have to be at least in three countries in the region to be attractive for US-based venture capital firms and even for a possible exit, according to Baharona.
“When global companies want to acquire a startup, they look for regional leaders. They don’t look for the best startup in Argentina; they look for the best startup in Latin America. That means all these companies need to have a regional footprint.”
Barahona presents Alaya Capital as a fund specialized in making non-Brazilian LatAm’s companies expand to the region. So that deals such as the recent acquisition of auth0, Argentina’s cybersecurity company, for $6.5 billion to the US-based Okta, happen more often.
“That kind of exit wasn’t seen before. So I think things are happening. The new billionaires in Latin America will be tech entrepreneurs. There’s no doubt about that; they will replace the traditional billionaires in these countries.”
Alaya’s first fund was a small one and backed seven companies, of which three had exits. The second fund was born in 2017 and backed 25 companies with Seed rounds, and still, there were no exits because the companies in the portfolio are still growing.
“Last year, we invested in five companies amid the pandemic. Four of them I never met personally. I only know them through Zoom, and it works. It gave us opportunities to see more startups from different countries. I like remote investing, and I think we will do it after the pandemic in the long road.”
Barahona says Alaya intends to make its third fund’s first investment by the end of this year, focusing on Series A tickets between $1 million and $5 million. The firm is mainly looking for companies that provide solutions to the new digital consumer. Barahona finds food tech timing engaging, not only because of the pandemic and delivery boom but because the millennials are consuming food very differently.
Yet, he is not that interested in another e-commerce platform, marketplace, or Uber-of-whatever type of business. “I think that is already done. There could be some disruption, but it will not be so big and so important as the new wave of disruptive technologies coming out there.”
Which wave exactly? Well, Barahona is keen on startups that provide tools to help companies be more data-driven so that decision-makers lead their companies based on data. “There is another thing I don’t see so much in the region, but I really like it: cybersecurity and cloud-based solutions. As everything is going to be digital, it has to be secure for companies and individuals. We see that a lot from Europe, Israel, U.S. I think we have talent in Latin America, and there is a cultural shift that we can put in that solution for all customers.”