California-based Silicon Valley Bank launched a $30 million venture debt fund for startups in Latin America and the Caribbean, as announced this week by the financial group.
Along with Partners for Growth (PFG) and IDB Invest, the investment arm of the Inter-American Development Bank (IDB), the new Latin America Growth Lending Fund will provide $30 million to support emerging growth companies across the region scale operations.
“After 8 years working with technology companies and venture capital funds in Latin America, we are now able to offer structured debt to the region’s technology and life science companies,” says Julia Figueiredo, director for Latin America at SVB. “Leveraging SVB and PFG’s expertise lending in the US and IDB’s regional experience, we aim to increase the probability of success of talented founders that are changing the landscape in the region.”
Aiming at later stage companies (from Series A or B onward), the new fund will address sectors such as software, technology, life sciences, healthcare, and fintech, with investments from $3 million to $ 8 million, but smaller or bigger amounts are not excluded. Startups that have never raised funding will also be able to apply.
According to LAVCA, the Association for Private Capital Investment in Latin America, venture funding in the region more than doubled in 2019 to a record of $4.6 billion compared to nearly $2 billion in 2018. Leading sectors by dollars invested include fintech, logistics, and distribution, as well as proptech and marketplaces.
In the US, venture debt appeared in the early 80s and generated more than $25 billion invested through around 3,000 deals in 2019 alone, according to Brasil Venture Debt, the first fund dedicated to venture debt in the country, created in 2019. In Brazil, on the other hand, this method of financing has been gaining ground quite recently. In times of crisis, this could be a smart solution for companies in the country, as well as in other Latin American markets.
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“The fund’s impact will be very relevant for the region at a time when innovative tech-companies are looking to be more efficient to deliver products and services, particularly for SMEs and vulnerable populations, and when financing of productivity-enhancing investments is needed as the crisis could otherwise delay it,” explains Gema Sacristan, CIO at IDB Invest. “In this sense, this partnership is also key to IDB Invest’s current strategy to alleviate the economic and social impacts of the pandemic, and to reignite growth.”
In an interview by e-mail with LABS, Julia Figueiredo answered a couple of questions on what are Silicon Valley Bank’s expectations with the new venture debt fund for Latin America. Check them out:
LABS – Why did SVB choose the current moment for launching a venture-debt fund in Latam? What is your bet in terms of which countries and sectors will seek the most for the new fund?
Julia Figueiredo: Silicon Valley Bank started operations in Latin America in 2012 when our CEO Greg Becker and Andy Tsao, Managing Director and head of Global Gateway (area of the bank that works with startups and funds based in countries where we don’t have a physical presence yet), took a trip to São Paulo to get to know the innovation ecosystem. Ever since then, during these 8 years of experience in Latin America, we have expanded to several other countries such as Mexico, Argentina, Colombia, and Chile. Nowadays, we have more than 800 customers in the region among startups and funds. We had been working on the fund idea for some time and it was important to bring IDB Invest and Partners for Growth as partners to put the idea into practice.
With the impact of Covid-19, we understand that market uncertainties increase a lot, but historically we have seen fantastic companies being born from these periods, such as Nubank and different capital alternatives becoming essential at these times, so we believe that now it is the right time to launch the Latin America Growth Fund. We firmly believe that adversity drives innovation.
I am seeing more companies from Brazil and Mexico, I believe that due to the volume and maturity of companies in these regions, but we also received questions from companies in Argentina, Peru, and even Panama.
From the startups’ point of view, can venture debt be a more interesting bet than selling a stake in times of crisis and valuation drops?
The best time to seek venture debt is after the company has raised permanent capital through equity, the modality is a debt and the company will have to pay that debt, unlike equity. The debt complements equity as entrepreneurs can raise more money without diluting capital and extending the runway until the next financing. It is very important that companies look for venture debt before they are tight on cash. Venture debt is not a bridge loan. We want to provide venture debt to companies that are already expanding to drive this growth. The money can either be used to increase sales, buy other companies, expand into new markets, etc.
To access resources, companies don’t need to be based or have representation in the US. The money can be transferred to local accounts in the region, and the first contact to access the new fund should be made with Figueiredo.