What’s behind Mexican logtechs’, Colombian proptechs’ fundraising success?

Fintechs continue to be a vortex for most tech venture capital investments in Latin America. 

But some segments in certain countries have become the apple of investors’ eyes: Mexico and Colombia, for example, are seeing substantial VC investments pouring into logtechs and proptechs, respectively.

“Mexico has really big traditional infrastructure for deliveries, both from last-mile deliveries all the way to freight-forward, which helps to explain this,” Carlos de la Vega, president of the Latin America Venture Capital and Private Equity Association (Lavca), told BNamericas.

“We have companies such as Nuvocargo, CargoX, that are trying to expand into there, capitalize into the opportunities and capture a big part of that market through fundraising,” 

Mexican logtechs raised some US$234mn in VC in H1, putting these companies specialized in logistics and supply chain solutions third only to fintechs (US$268mn) and e-commerce (US$259mn) in fundraising in the period, according to Lavca’s figures.

Meanwhile, Colombian proptechs – tech-based firms focused on solutions for the real estate business – raised in the same period nearly US$330mn, more than any other startup category and comfortably ahead of e-commerce (US$275mn) and fintechs (US$216mn).

“Whenever we have these differences in sectors within countries, they usually are leading indicators of the fragmentation that you see by industry and of the traditional established players. The opportunities that need to be funded by innovative capital are the opportunities that have been left out by the incumbents, essentially,” said de la Vega.

In other words, money could be pouring into proptechs in Colombia and logtechs in Mexico in part because the real estate and the logistics segments in the countries are not only underfinanced but also grappling with bottlenecks and loopholes that call for innovative answers.

PERFORMANCE

LatAm-wide, fintechs took in US$2.09bn in VC funding year-to-June, nearly a third of what all other types of startups in the region raised. Fintechs also accounted for most deals, 158, according to Lavca’s tracking.

Enterprise software, with 20% of the total capital invested in startups in the period, e-commerce (16%), and, largely due to Colombia and Mexico, proptechs (7%) and logtechs (6%), complete the top five.

“Fintech has become the typical story, and it always has been. But even within fintechs and e-commerce we have seen further diversification. Fintech before was just in terms of loans, financial inclusion, which still play an important role, but now fintechs are also about crypto, payments, contactless payments,” said de la Vega.

In terms of countries, there are few surprises. Brazil leads in both number of tech VC deals (46% of the total) and in deal value (38% of all invested capital), followed by Mexico, with 18% and 22%, respectively. 

Colombia, however, now appears in third spot for startup investments, according to Lavca, ahead of Chile and Argentina. In H1, Colombian startups accounted for 10% of all LatAm tech VC deals and 19% of all tech VC resources.

In Mexico, Transactional Track Record (TTR) recorded a total of 242 transactions in the first seven months of 2022 – including mergers and acquisitions, private equity, venture capital and asset acquisitions – with deal values amounting to US$9.32bn disclosed for 118 of them.

The internet, software and IT services sector and the banking and finance sector saw the most Mexican transactions in the first seven months, generating 29 and 25 deals, respectively, according to TTR.

Lavca’s de la Vega points to an increase in cross-border expansion within LatAm startups, as was the case of Colombian proptech Habi expanding into Mexico with the acquisition of two startups. 

Also, more Brazilian startups are launching in Mexico, Argentina and other Spanish-speaking Latin American markets, and more Mexican and Colombian startups are betting on Brazil for their LatAm expansions.

“Five to 10 years ago you would have seen Spanish-speaking Latin America and Brazil as pretty much separate markets. That doesn’t seem to be the case anymore,” de la Vega said.

SEED AND EARLY STAGE

In line with the change in macro trends, with high inflation, interest rates and war raging, Lavca’s tracking also shows a shift in the point at which tech VC resources are invested in Latin America.

Amidst the more risk-adverse scenario, investors are preferring seed and early-stage rounds, financing nascent startups that have a proven solution and clear growth prospects, rather than in late-stage rounds or venture debt.

In the first half of 2021, 67% of all tech VC capital invested was concentrated on late-stage rounds, 26% on early stage and 4% on seed. One year later, the trend inverted: 47% of all VC money went to early stage, 29% to late stage and 11% to seed.

The first rounds of investments in startups are usually of lower value compared to later stage rounds.

In full 2021, 877 deals and US$15.8bn in capital were recorded in Latin America, a record high.

This year is on track to become the second largest for VC investment in Latin America, with 541 deals in the first half and US$5.4bn in capital, according to Lavca.