More time spent on their portfolios, less on new deals: The new normal for VCs in Latin America

Amid the crisis, Latin American startups have been adapting their operations to survive

On the one hand, companies adapting their businesses to survive the crisis. On the other, there is less capital injection by investment funds, which are more skeptical and investing with tighter criteria. “The common ground among investors is a 20% reduction for at least the next 12 months. The average deals will be 20% to 30% below the pre-crisis deals,” summarizes Flávio Dias, partner at 500 startups, a San Francisco based venture capital fund, in an interview with LABS.

It’s no longer a novelty that the venture capital market is already feeling the effects of the corona crisis. Whether by deals on hold, term sheet renegotiations (pulling the valuation of startups down), or for more severe criteria in the choice; investments in startups are currently being rethought. The funds, according to Flávio, are devoting less time to seek new investments and more time to support companies within their portfolios to maintain a healthy operation. Other than that, there is also a consensus among investors that the harsher effects on the VC market will begin to be felt from the second quarter. LABS has already talked about it on another story.

“Only when the tide goes out that you learn who’s been swimming naked.” Warren Buffet’s famous phrase explains a little the logic of how crises have the power to “reveal” who was operating with low runway. “The pandemic is going to be a catalyst for the digital transformation. The crisis left wide open how some companies and governments were not prepared as they should for this moment,” points out Flávio. “This brings out very clearly that innovation/digitalization has to be at another level.” 

Flávio Dias, partner at 500 Startups
Flávio Dias, partner at 500 Startups. Photo: 500 Startups

If before, companies would take a few years to innovate on issues such as speeding up an e-commerce solution for physical stores or accepting mobile payments, now this gains another pace. For Flávio, who has once been in top-tier positions at retails giants like Walmart, Magazine Luiza, and Via Varejo, innovation adoption, now in the midst of the pandemic, will affect the consumer behavior later.

“Walmart, in the United States, targets a more popular audience, and had resistance from the upper-classes. When there were crises [in 2008, and the economic turmoil of 9/11], these were periods when Walmart gained the most market share. The Americans traded down: I’m not going to Wholefoods anymore, I’m going to Walmart, which is cheaper. When the crises passed, part of these consumers remained there,” recalls Flávio. “This logic will happen with e-commerce, with the use of super apps like Rappi and iFood in the post-pandemic. With the acceleration of these channels and a better shopping experience, why would I go back to what I had before?” he ponders. 

Mexico is bringing interesting solutions, it was not for nothing that we set up our operation there

Flávio dias, partner at 500 startups

Mexico on the radar

While some Latin American players are adapting their operations due to the moment of social isolation, others are under the spotlight precisely because they offer solutions that the moment lacks. This is the case of Prescrypto, a Mexican healthtech of 500 startups’ portfolio that works as software for doctors and clinics to generate electronic prescriptions. Free of charge, the app emerged in 2016 from the idea of Everardo Barojas and Bernardo Meza to integrate blockchain technology, in order to create processes to verify medical prescriptions, avoiding forgeries, and promoting the digitization of the health sector in Mexico.

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With a project called “RexChain”, a blockchain network where doctors can import or export clinical data for prescriptions confidentially, the healthtech has been accelerated by UNICEF Innovation Fund in recent months. Through the program, which ended in April, the startup had 2,500 doctors registered on the platform, 12,000 new medical prescriptions enrolled per month, and 160,000 patients that benefited from the solution. In addition, it closed a deal with a large pharmaceutical laboratory to develop a personalized medical prescription tool, which will be implemented in July, according to information from UNICEF. Prescrypto raised a seed round from 500 startups in 2018.

“Mexico is bringing interesting solutions, it was not for nothing that we set up our operation there,” says Flávio. 500 startups has offices in more than ten locations around the world. In Latin America, Mexico City was the chosen one.

In one of the latest batches of 500 startups in Latin America, an orientation program for Spanish-speaking early-stage companies based in the region, eleven startups were accelerated. Of these, six were Mexican – Come Bien was one of them. With a B2B operation, the startup offers a catering platform for employees to order healthy meals in companies, guaranteeing a varied menu every day, including vegetarian options, low carb and gluten-free, in addition to last-mile delivery. 

Come Bien has in its portfolio clients such as Airbnb, Uber, and Amazon, but with so many companies in the home office regime in times of social isolation – the startup, which was at risk of not surviving, knew how to adapt quickly. “As the companies closed, and with sales almost zero, they created a variation of the product with a great logistical adaptation,” says Flávio. “It is one thing to deliver several meals to the same office – quite another to deliver several meals to several different houses.” Foodtech received a seed contribution from 500 startups in November 2019.

Less investment flow, yes – greater effort of startups to adapt their operations, too. But Flávio believes that, although the context is not favorable, the region has good ideas and opportunities. “Areas of ODL and health will gain strength, companies that work with online productivity as well,” he comments. “Fintechs, especially those that work with credit, will gain momentum. There will be an increase in the demand for credit, so companies that improve the efficiency of these financial programs will go further.”