Value of VC Investments in Latin America Drops, Number of Deals Rises

Bogotá — Amid the economic downturn that has impacted Latin American startups and led to a slew of layoffs, venture capital investment in the region has declined in terms of the value of capital injected, even though the number of investments has risen between the beginning of the year and May.

Venture capital operations in Latin America totaled around $4.86 billion to May, a 22% drop in value year-on-year, according to Transactional Track Record (TTR) and Datasite.

However, the number of transactions to May totals 423, a 9% increase on the same period of 2021.

But in areas such as Internet, software and IT services, there was a 36% drop in the number of operations, with 103.

Marcela Chacón Sierra, institutional spokesperson for TTR, told Bloomberg Línea that “the current environment of uncertainty has meant that small companies are the target of investors with great financial muscle that can take advantage of this situation to close deals with a lower amount than in previous periods”.

However, she believes “there is still investor appetite, with great momentum and interest from domestic and international financial investors who have liquidity and are still looking for opportunities to expand their operations in Latin America”.

According to figures from the Latin American Association for Private Capital Investment (LAVCA), venture capital accounted for 50% of the capital deployed in the first quarter of 2022.

In 2021, venture capital investment in the region totaled a record $15.7 billion, more than in the previous decade, according to LAVCA.

In a recent interview with Bloomberg Línea, Diego Noriega, managing partner at Newtopia VC, said that “all funds are making decisions about how they adjust their investment thesis to the new reality. So, taking this into account, the funds that have had to adjust the most are those that invest in growth, that is, in more advanced stages, typically in series B or C”.

“In the case of Newtopia VC, by investing in seed or pre-seed stages, we have not had to make any major adjustments or changes in decisions, it simply serves to reinforce the thesis that startups must grow with sustainable models, perhaps being more robust from the point of view of generating profits, and think more about real business, rather than just projections, as was the case before the crisis. This is a market correction, and clearly investment funds and startups are adapting to the new reality,” he said.

A total of 1,317 transactions related to M&As took place in Latin America to May, 597 of which totaled $39.54 billion, a 3% increase over the same period of 2021 in the number of transactions, and a decrease of 45% in the value.

In May alone, the M&A market totaled 193 transactions, including those that were announced or closed, for an aggregate amount of $5.78 million.

In Colombia, transactions totaled $3.21 million to May, a decrease of 2% compared to the same period of the previous year in terms of capital mobilized. Colombia saw 103 transactions in the first five months of 2022, an increase of 16%.

However, Colombia dropped one position in the Latin American ranking in terms of M&As, ranking behind Chile (with a total of $6 million), Mexico ($5.90 million) and Brazil, with $25.96 million.

Colombia registered a total of 47 venture capital operations for a value of $1 billion, driven by the investment round in proptech Habi, which led it to become the second unicorn in the country after Rappi.

Translated from the Spanish by Adam Critchley