Merama taps $60 million round and turns into Brazil's new unicorn — Renato Andrade and Guilherme Nosralla, Merama's co-founders. Advent International and SoftBank led a $225m Series B for Merama in 2021. Photo: Merama/Courtesy

All I want for Christmas is... funding. Some funds gave many gifts to Latin America in 2021

LABS spoke to Kaszek, SoftBank and Valor Capital Group, regulars in the 2021 rounds; LAVCA shows that investment from foreign funds grows each year in the region

Isabela Fleischmann

24.Dec.2021 10:18 BRT
UPDATED 28.Dec.2021 11:52 BRT

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While 2020 was a year marked by the uncertainties of the COVID-19 pandemic and, therefore, of adaptation of the innovation ecosystem to the new scenario, 2021 was a year of acceleration, with new unicorns emerging until the last minute: Facily raised $135 million on 23 December and became the newest startup in the club of Latin American billionaires.

Although it is not yet possible to know who has given more “gifts” to startups in the region, LABS talked to some of the funds and management companies that appeared most in the announcements of investments throughout the year.

Among them is Kaszek, which invested in 23 startups in the region in 2021, up from 14 last year. According to Hernan Kazah, co-founder of the venture capital firm, Kaszek participated in 84 investment rounds in 2021, up from 50 in 2020. The number of follow-on rounds (the subsequent rounds in portfolio companies) also increased, from 36 last year to 61 this year.

In all, Kaszek has invested $500 million in 2021, three times what the company invested in 2020. “43% of all capital raised in Latin America from the first quarter to the third quarter went to our portfolio companies,” Kazah said.

Hernan Kazah, co-founder at KASZEK. Photo: KASZEK/Courtesy

Although it is an habitué in fundraising rounds this year, SoftBank does not reveal the number of rounds it has participated in, but according to Eduardo Vieira, head of communications at the Japanese conglomerate in Latin America, from the beginning of the year until June 30, SoftBank has invested in 48 companies in the region. Today, SoftBank‘s fund for Latin America has 60 companies in its portfolio.

As of June 30, SoftBank Latin American Fund had a gross investment rate of return (IRR) of 103% in local currency. In dollars, the fund’s gross IRR was 90% and net 85%.

According to Vieira, SoftBank‘s stake in companies in the region grew compared to last year. “2021 was a fantastic year for Latin America and proved our thesis that the region is very promising. It has structural problems and challenges in virtually every segment of the economy and this attracts very good ideas and entrepreneurs,” he said.

This year, according to Vieira, was one of consolidating the capital the founders needed. “A demonstration of that movement was our commitment of an additional $3 billion to the $5 billion fund that already existed for Latin America.”

Asked whether Softbank considers itself “the champion” of the 2021 contributions, the director said the conglomerate does not make that kind of consideration and that SoftBank‘s goal is to be the best partner for entrepreneurs. “Proof of this is that we are privileged to have 75 percent of Latin American unicorns in our portfolio. We were pioneers in the region in 2019 and we are reaping the rewards.”

Eduardo Vieira, SoftBank’s new Head of Communications for Latin America. Photo: SoftBank/Courtesy

For Vieira, SoftBank‘s commitment to Latin America is solid and long-term. “Unlike other VC firms, we have offices in the region, with entire dedicated teams. We have made investments in human resources and helped companies grow. We are a vision capital firm for Latin America and we hope to continue to have that transformational power.”

IDB Invest, the private sector arm of the IDB (Inter-American Development Bank), has invested $8.3 billion in Latin America and the Caribbean by 2021. This year, the IDB increased its focus on digitalization and regional integration projects, which accounted for 15% and 25% of financial commitments, respectively. IDB Invest led investments in startups such as ProducePay, Recarga Pay, Kubo, and Merqueo.

Meanwhile, Valor Capital Group made “between 15 and 20 investments” this year, counting primary investments and follow-ons. “We are the most active US fund in Latin America, we have a portfolio of over 95 companies and 75% of those companies are in Latin America,” Valor Capital Group managing partner Michael Nicklas said.

“2020 ended up being a year where a lot of the focus was on helping companies hold on to reposition themselves. This year was interesting, it was a very eventful year not only for us but for the ecosystem as well. We saw big players coming from abroad, players that do not necessarily have offices in Brazil, like DST and D1, besides Tiger Global and SoftBank. We saw a very accelerated ecosystem, from seed stages to follow-ons and Series C, Series D rounds. It was also a year with a lot of liquidity events, with IPOs, SPACs, among others,” Nicklas recalled.

Michael Nicklas, managing partner at Valor Capital Group. Photo: Valor Capital Group/Courtesy

Data from LAVCA (Latin American Private Equity Investment Association) shows that overall participation in Latin American investments has increased since 2019; 21% of transactions in the region included at least one global investor in 2019, jumping to 23% in 2020 and 31% in the first half of 2021.

According to Nicklas, Valor Capital Group’s competition “is a game against ourselves”. The life cycle of a fund is a decade. During this time, the venture capital firm has to show results for its LPs (Limited Partners, who actually commit the invested capital).

Every two and a half years, Valor goes to the market to raise capital for new funds with the LPs. Today, Nicklas says the company is satisfied with the results it has achieved. “We don’t just look at the other funds like Kaszek, Monashees, Redpoint eventures, we compete globally because capital from investors, from institutions, whether multilateral like central bank or fund of funds or sovereign wealth funds, they are looking for absolute returns. So for them, it makes no difference whether the fund is in the United States, Asia, or Brazil. They have to have a thesis that the returns of these funds will be competitive with similar funds at a global level.”

Valor Capital Group has two investment vehicles active at the same time, one for early-stage and another for growth stage (Series B onwards), to provide continuity in early-stage companies that are doing well.

“It’s always a mix, we like to lead rounds, we co-invest as well, we participate. If the return profile is right, we are indifferent to that nomenclature.”

Which sector received gifts in 2021?

LAVCA said that among the growing segments that received the most significant investments during 2021 are e-commerce aggregators, banking services, credit providers, especially Buy Now, Pay Later (BNPL), and cryptocurrencies.

“We have also seen growing investor interest in the potential of hardware-based technologies and IoT (internet of things) solutions with rounds in Brazil, Mexico, and Chile,” the association said.