- Despite the pandemic, 2020 was a record year for investors, with more than $11 billion divested across 106 exits, largely driven by public markets activity on SAO.SA;
- Overall, 2020 set a record for investments in Latin America, with more than $16 billion invested across 653 deals that closed last year;
- Private credit emerged as the largest private capital asset class driven by two landmark LatAm airlines transactions last year with a combined value of $3.45 billion;
- Venture capital investment in 2020 was the second-best year on record, following a blockbuster 2019, led by the acceleration of digitization trends due to the pandemic.
Investing in Latin America is not for amateurs, as the saying goes. When you invest in a region such as Latin America, you learn to navigate the ups and downs, according to Ivonne Cuello, CEO of LAVCA (The Association for Private Capital Investment in Latin America) that closely tracks investment trends in the region.
Today, LAVCA released its annual Industry Data & Analysis report that finds that the crisis-prone region has fared quite well for investors during an unprecedented global upheaval and the accelerated digitization caused by the COVID-19 pandemic. 2020 was a record year for exits with more than $11 billion divested across 106 exits. And, the flow of VC money going into promising startups hardly let up with more than $4.1 billion invested across 488 deals – making it the second-best year on record, following a blockbuster year in 2019.
“We see the private-capital industry maturing, especially for venture capitalists,” said Cuello. The latest data “shows us that it’s a sustained momentum. It’s not that all of a sudden we saw opportunistic windows and investments like we did back in 2015 and 2016. We continue to see a sustained momentum in the flow of investment even in the pandemic. That’s a reflection of a maturing ecosystem in different asset classes.”
Such sustained momentum was responsible for setting the right background for digital transformation to boom in the pandemic last year, according to Anderson Thees, managing partner at the São Paulo-based VC firm Redpoint eventures. “The venture capital industry is like a flying wheel; the tough part is taking the first few turns,” Thees said. “This wheel began to spin [in Brazil] during 2018 and 2019. If the pandemic had come earlier, the wheel would have stopped. Five years earlier, it would be devastating.”
For the exec, the tech innovation ecosystem in Brazil, Latin America’s biggest economy and the most prominent when it comes to venture capital, were able to benefit from a “wheel in motion” during 2020, as companies were ready to meet an unprecedented and quite sudden need for digitization.
According to Thees, after the first wave of major exits in the country, driven by the acquisition of ride-hailing app 99 by China-based DiDi back in 2018, a “war chest went up and allowed the industry to navigate the pandemic and then, to benefit from it. From now on, we and our VC peers are all delivering returns on our funds in line with the best Silicon Valley funds. And this is very cool for Brazil as a VC industry. In 2012 (when Redpoint eventures was first founded) it was only a dream.”
Of those different asset classes, private credit – which LAVCA began tracking for the first time last year – is on the rise in Latin America. During 2020, private credit led the pack with two landmark transactions for regional airlines: Oaktree Capital’s $2.45 billion for LATAM Airlines and Apollo’s $1 billion for Aeromexico.
Private equity deals during the pandemic were mainly concentrated on software, business/professional services, and payments. As tech companies are increasingly catching the eyes of private equity investors, VCs and PE players are getting closer to each other, according to Thees. With the most valuable companies in the world being tech-based and IPOs emerging each time later, PE investors are concerned, on the one side, with surfing this next tech wave to get more profits, and on the other, with making sure that its current investment portfolio is not at risk, said Thees.
As for venture capitalists, these investors made most of their bets on fintechs, e-commerce players and proptechs, which emerged as a top investment sector for the region during 2020.
Just last week, Brazilian proptech Loft hit a $2.2 billion valuation with a $425 million round with the goals of becoming the fastest-growing firm outside of China and the United States. “With this round, we reached a major milestone: the largest venture capital round raised by a Brazilian tech company. This puts us on the map as a company, an ecosystem and as a country,” celebrated Loft’s founder and co-CEO Florian Hagenbuch. Other Latin American startups focused on changing real estate as we know it include Argentina’s Mudafy, Brazil’s Ksaz, and Mexico-based Aptclick.
Brazil led the region for most overall investments. Other countries that topped the list included Argentina, Chile, Colombia, Peru and Mexico. Markets like these, according to Thees, are similar in some ways to Israel and South Africa. “They are countries that historically had small domestic markets and created very cool companies, but they were born thinking about a global platform,” he points out.
“That won’t stop happening, but the niches are getting big. So, soon we will have a Colombian company, which will operate only in Colombia, and it will be a unicorn. Same thing with Peru and Chile. Some industries, such as insurtech, are a highly regulated, ripe-for-disruption market. Today, there is no reason that an insurtech in Peru, for example, could not be the largest insurance company in the country. It is already a big enough business,” Thees said. “This will start to happen more and more.”
Uruguay, South America’s second smallest country, saw its Montevideo-based fintech dLocal become the country’s first unicorn last September after a $200 million private equity round led by General Atlantic.
Also last year, Kavak, a pre-owned vehicle buying, and selling platform, became the first Mexican startup to become a unicorn – achieving a valuation of more than $1.1 billion with its last round of capital investment that closed last September.
“Mexico is similar to Brazil, as it has a very large domestic market and has gone through a great acceleration in recent years,” said Thees. “Mexico, from 2016 on is like Brazil from 2012 on, but I don’t think the gap will remain. In a little while, they will be at the same stage.”
LAVCA’s Cuello chalks up the surprisingly good performance data for 2020 to the entrepreneurial culture, creativity and resilience of Latin American startup founders and investors who have experience going through different cycles in emerging-market economies. She also notes that low-interest rates helped boost more private capital and credit last year.
“I would also add that the opportunities that opened up in the midst of the pandemic – especially in terms of technology – were heightened due to under-penetration across many fields in the region,” said Cuello. “The fact that everything switched to virtual and many needed to reinvent their business models opened up new opportunities for new companies, new channels and new ways of growing for a lot of companies in the region.”
To download the full LAVCA report, visit: https://lavca.org/industry-data/2021-lavca-industry-data-analysis/
With LABS US bureau collaboration