Photo: Sergio Furio, CEO and founder at Creditas/Courtesy
Business

VC investors were decidedly bullish on Latin America despite pandemic's challenges

LatAm’s fintech sector led the pack in a record year of 488 VC deals closed during 2020 as exit activity and M&As ticked up while region’s tech startup ecosystem matured, shows LAVCA's data

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As most of the world went into lockdown last spring, undeterred venture capitalists poured more than $4 billion in bets spread across a record 488 deals tied to Latin American startup investments during 2020 with continued “strong dealmaking activity spilling into Q1-2021,” according to a new report, 2021 Review of Tech Investment in Latin America, released by  LAVCA, the Association for Private Capital Investment in Latin America, released today. 

During the last 12 months, six new Latin American unicorns were born, new records were set for total capital invested in Mexico ($831 million) and Chile ($136 million), well-known global investors such as Accel, Andreessen Horowitz, General Atlantic, Sequoia Capital, SoftBank, and Silver Lake made large-round investments of $50 million or more, and there was a new, emerging trend of diversity-focused vehicles including Microsoft’s WE Ventures, Google for StartupsBlack Founders Fund and Nubank’s Semente Preta

Carlos Ramos de La Vega, VC manager at LAVCA. Photo: LAVCA/Courtesy.

2020 was a record for the region in terms of the number of transactions, and it was the second-best year we’ve seen in history in terms of the total capital invested, which was only about 10 percent less than 2019, which was a blockbuster year just because of the participation of SoftBank and its $5 billion Latin America Fund

Carlos Ramos de la Vega, manager of venture capital at LAVCA.

“And, we can actually see the continuation of that into 2021 where we’ve seen three unicorns raising subsequent rounds in the first three months of this year.” 

Ramos de la Vega noted that the total transaction value and number of transactions are only one part of the story. For him, a big headline to represent the last 15 months is the continuing maturity of the ecosystem in terms of increases in exits, M&As, and new listings on B3, Brazil’s stock exchange, instead of fast-growth Brazilian tech startups listing on NASDAQ or other foreign stock exchanges. 

The six new unicorns that emerged during 2020 include Brazilian consumer lender Creditas, cross-border payments processor dLocal based in Uruguay, the Mexican online platform to buy and sell used cars Kavak, the Brazilian proptech Loft, the Brazilian online marketplace specializing in home products MadeiraMadeira, and New York-based VTEX that focuses on e-commerce strategies for major retailers and consumer brands. 

Latin America saw “strong momentum around liquidity events during Q1-2021 with approximately USD $6.9 billion represented in two disclosed transactions,” according to the LAVCA report. There was the sale of RD Station (former Resultados Digitais), the Florianopolis-based marketing automation platform, sold to TOTVS for BRL 1.9 billion, in addition to the sale of AuthO, an identity verification cloud solution founded by Argentines Eugenio Pace and Matias Woloski through a $6.5 billion all-stock sale to Okta

READ ALSO: From Kavak to Bitso: 10 major investment rounds raised by Mexican startups in 2020

Fintechs continue their five-year reign as most invested sector 

For total capital raised, the fintech sector continued to dominate for the fifth consecutive year with $1.63 billion raised for Latin American fintech startups during 2020, a 40% share of the total pie.

The e-commerce sector came in second with 12% of deals valued at $507 million, followed by “super apps” ($300 million – 7%) and proptech ($257 million – 6%). 

According to Ramos de la Vega, “the financial [inclusion] gap in Latin America has drawn a lot of attention for investors because they can tackle the issue in two ways. First, they can actually get a great ROI – for sure, in terms of monetary opportunity, but at the same time, they can do a lot of good.” The financial gap impacts underbanked women in the region the most, he said. 

For many years, Mexico – which moved into the second slot for Latin American countries with the most VC investments last year – has been a “conundrum” because it’s “been successful at growing its economy and integrating with global markets,” according to a 2020 report from the Center for Global Development. “On the other hand, its level of financial inclusion, at 36.9%, is about 20 percentage points lower than for other countries at comparable levels of per capita income, and is far below the level of such lower-middle-income countries like Kenya and India. Among its peers in Latin America, Mexico is the worst-performing relative to its income.” 

Kaszek partner Santiago Fossati notes that “we typically invest in people, not sectors.” The VC firm co-located in Buenos Aires and São Paulo has made significant investments in fintechs focused on the democratization of financial products and services – including companies such as Creditas, Nubank and Warren.

Kaszek partner Santiago Fossati. Photo: Courtesy.

Undoubtedly, another major focus has been e-commerce and mainly tools that allow people to sell online such as Nuvemshop

Redpoint eventures’ managing partner Romero Rodrigues noted that the Sao Paulo-based VC firm’s managers immediately went into “red-alert mode” during the second quarter of last year and “stayed very close to the portfolio” to understand how much cash was on hand, what needed to change for some to survive and became quite involved in helping their startups manage through the crisis caused by the global pandemic’s fallout. 

Redpoint eventures’ managing partner Romero Rodrigues Photo: Courtesy.

The sectors that were hurt the most because of COVID-19 included those tied to events and tourism. But, right away, the sectors that benefited most and caught a very high tailwind (in 2020) were e-commerce, logistics and online delivery – the intersection of e-commerce and logistics

ROMERO RODRIGUES, managing partner at REDPOINT EVENTURES.

Rappi (the foodtech and online delivery super app), ABC da Construção (which sold lots of home refurbishing products), and Olist (an e-commerce platform for sellers that connects merchants and their products to big marketplaces), were among the startups in the Redpoint eventures’ portfolio that did very well despite the pandemic. 

In addition, the healthtech sector benefited, noted Rodrigues. For example, Memed, an e-prescribing tool for doctors to treat patients, had been on the market for many years but adoption of the platform was slower than anticipated. During the pandemic, “everyone started using Memed because there was no other way to do medication prescriptions,” said Rodrigues. 

“In healthtech, we’re seeing the emergence of or the normalization of telemedicine as an appropriate platform to do pre-diagnostics,” said LAVCA’s Ramos de la Vega. “For example, we saw a $20 million round led by San Francisco-based fund Index Ventures in a company called Sophia (an online platform that matches people with licensed mental health therapists), which is the first digital healthcare insurer that had approval to operate.” 

Another Brazil-based healthcare provider called Alice received a round for $33 million, which is the second-largest round for the healthtech industry in the history of Latin America,” said Ramos de la Vega. “It’s a change that we think is here to stay because we see continuously higher rounds of capital going to this sector.” 

To view or download the full LAVCA report out today, visit: https://lavca.org/research

In collaboration with LABS’ U.S. Bureau