Fernando Rivera
With close to $16 billion invested, venture capital in Latin America enjoyed a record year in 2021, more than tripling the previous record set in 2019. However, venture capital investment in Latin America remains heavily concentrated despite record growth.
Brazil accounts for almost half of the total invested capital and stands in a league of its own. Five countries account for nearly 95 percent of all investments, with 30 percent of the region's GDP receiving less than 5 percent of invested capital.
This concentration of investment creates an opportunity for investors willing to invest in non-traditional markets and non-elite founders.
According to data compiled by the Association for Latin American Private Capital Investment in Latin America (LAVCA), 2021 shattered all records in Venture Capital with $15.7 million invested in over 856 deals. This number will only continue to grow as the number of VC funds grew 65 percent from the previous year to 49 and the amount raised by funds grew by 41 percent to $2.4 billion.
There are many reasons for this growth. As Atlantico's 2021 Latin American Digital Transformation Report highlights: Latin America is home to 8 percent of the world's population and represents 5 percent of global GDP. Latin Americans are the world's heaviest users of the internet, and COVID accelerated the pace of digital transformation, bringing millions of users online.
The number of unicorns has doubled every year since 2018. However, there is still room for growth, considering that the market cap of tech companies in the region still only represents 3.4 percent of GDP, compared to 14.2 percent in India and 30.x percent in China.
Despite the accelerating growth in VC, some structural issues create a highly concentrated market for venture capital.
Although they only represent 50 percent of the regions' GDP, Brazil and Mexico accounted for over 70 percent of investments in 2021. Other countries with a sizable share of the pie are Colombia, Chile, and Argentina. This distribution of venture capital makes sense because these are the largest markets in Latin America and allow for venture-scale growth.
“Despite the accelerating growth in VC, some structural issues create a highly concentrated market for venture capital”
However, scaling a software-based company throughout Latin America is more accessible than in other regions. Brazil aside, the region's countries share a common language, culture, and legal structures. Fast scaling companies can be born anywhere on the continent. A tiny country like Uruguay, with a population of 4 million, has produced two unicorns (dLocal, PedidosYa) and could. Ecuador could soon have its first unicorn (Kushki) and potentially a second (Inspectorio).
I'm not saying that scaling a tech company in Latin America is trivial. Founders face significant friction, including high costs of doing business, bureaucracy, and even government corruption. However, it is becoming increasingly easy to expand.
Latin American founders can find and attract talent throughout the region. Covid made building remote teams a necessity, and companies like Torre, Deel, and Ontop make it incredibly easy to build and scale remote teams.
Latitude just announced an $11 million seed round led by Andreesen and NFX to create the platform startups need to lower the costs of building a venture-backed business.
Venture capital is a relatively new industry globally. Over the past decade or so, it has grown tremendously from its Silicon Valley origins to span the whole world. Perhaps it is only time before it reaches all geographies.
Arbitrarily deciding to only source deals in Mexico City or Sao Paulo is a lazy approach. For those more enterprising investors interested in Latin America, it would pay to look outside of the traditional hubs for amazing founders building amazing companies.
