After another year living with the COVID-19 pandemic and new records set by startups in Latin America in 2021, what can we expect from the region’s ecosystem in 2022?
For Gustavo Araujo, CEO and co-founder of the Brazilian innovation platform Distrito, the transformation that will be experienced throughout this decade “will be one of the biggest value transfers from the traditional world to what is called the new economy.”
The executive believes that companies that have been digitally transformed or are already natively digital will eventually become leaders in their markets. “The growth we had in 2021 will continue in 2022, led mainly by fintechs, already consolidated as a large segment in Brazil, as well as retail and proptech startups and platforms,” says Araujo. When it comes to retail, the sector will follow a continuous process of digitization and expand its verticals to other markets, such as financial services, health, and education – a trend already observed in 2021.
“Both Brazil and Latin America as a whole are developing more mature companies, which makes clearer [the region’s] potential. Today there is no place in the world with greater opportunity than Latin America. Many companies have woken up to innovation, and this is a process that has no end, the transformation does not end.”
Thinking about 2022, Valor Capital Group partner Michael Nicklas said that although the new strains of COVID-19 always bring some concern, he believes that 2022 will be more like 2021 than 2020.
“In 2020, there was a lot of uncertainty, a lot of challenges for companies. All the companies in the portfolio were migrating to remote work. We were super impressed how they managed to do this with resourcefulness,” said Nicklas.
Once this transition had been overcome, he recalls that there was an acceleration of digital business, with a large part of Valor Capital Group’s portfolio benefiting. “Many of our companies have grown during the pandemic and I think that trend is likely to continue [into 2022].”
Even though 2022 is an election year in Brazil, Nicklas says that venture capital lives a longer cycle (than other industries) and, therefore, suffers less from political instability. A VC fund effectively invests in startups one to three years after it is raised, but it takes, on average, another seven years to experience liquidity events. “[The industry] ends up extrapolating and crossing various [government] administrations,” he said.
Some instability is expected only in the middle of the hottest period of the elections. “But we argue that, if you look at the history of our funds, we already raised funds in 2017, which was a very difficult time for the Brazilian economy. So we can demonstrate that it’s not that venture capital is necessarily countercyclical, but it is much less linked to macroeconomic indicators because we are disrupting, using technology to create efficiencies,” he said.
The expectation, therefore, is that the huge flow of venture capital injected into Latin America, which accelerated the digitization and growth of startups (many newcomers to the market) in 2021, will continue in 2022.
One of the most present funds in investment rounds in Latin American companies, the Japanese conglomerate will maintain its strategy of supporting entrepreneurs throughout the entire life cycle of companies in the region, Eduardo Vieira, SoftBank‘s communication director in Latin America, told LABS in an interview.
“We already have a lot of growth equity investments and we are now announcing the first early-stage investments,” he said. In addition to the three checks revealed in recent weeks (for Worc, Abstra, and BotCity), SoftBank expects to have four more announcements of smaller check contributions in January. “It is a demonstration that our thesis in the region is correct,” said Vieira.