Latin American VC investments triple record to pass $15bn in 2021

Venture capital investment into Latin America has tripled from its previous record to top $15bn last year, as investors piled into start-ups in areas including financial technology, online shopping and property.

Like many emerging markets the region is experiencing a boom in fast-growing tech businesses, from Brazilian digital lender Nubank to Mexican used-car platform Kavak.

There was a total $15.3bn worth of VC investments across more than 650 deals throughout 2021, according to preliminary data from the Association for Private Capital Investment in Latin America, or Lavca.

The overall sum was greater than that of the preceding seven years combined and far outstripped the previous record of $4.9bn set in 2019.

“After more than 12 years investing in technology companies in Latin America, it is amazing for us to see what happened during the past few years,” said Francisco Alvarez-Demalde, co-founder and managing partner at US-based Riverwood Capital.

Many of the start-ups enjoying success aim to cut through the inefficient bureaucracy that is common in Latin American countries. Others are challenging industries that have traditionally had little competition or left consumers underserved.

Fintech remained investors top pick in 2021, representing 39 per cent of all venture capital flowing into the region, followed by ecommerce (25 per cent) and property technology, or proptech (9 per cent). 

“We’re also seeing fintech getting integrated into other sectors, with proptechs launching financing arms and agtechs [agricultural technology companies] launching credit facilities for agricultural producers,” said Carlos Ramos de la Vega, director of venture capital for Lavca.

Sixteen new “unicorns” — a privately held start-up company with a valuation above $1bn — were minted in Latin America in 2021, according to Lavca, including cryptocurrency exchange Bitso and Chilean plant-based food producer NotCo.

“It is possible that investment dollars committed to tech in the region might take a step back in 2022, but we might also see more activity in the way of consolidation [and] M&A.

Last year’s single biggest VC funding in the region was an extended $1.15bn round by Nubank, which included half a billion dollars worth of investment from Warren Buffett’s Berkshire Hathaway.

The fintech went on to float on the New York Stock Exchange in December with a market capitalisation above $40bn, at the time making it Latin America’s most valuable financial institution.

Professionals in the field say that a flourishing network of start-ups, talent and funding is creating a virtuous cycle.

“What we are seeing right now is that global VC funds are increasingly looking at the region, establishing offices, hiring analysts and investors,” said Marcos Toledo, founder and managing partner of early-stage investor Canary, based in São Paulo.

He highlighted insurance, health, education and business-to-business as sectors with “plenty of good ideas”.

The region’s attractiveness as a destination for international capital was underlined in September when SoftBank, the Japanese tech conglomerate, launched a second investment fund of $3bn dedicated to the region, taking its total commitment there to $8bn. 

But with interest rate rises expected in the US, there are concerns that new money flows to developing economies could decelerate.

“It is possible that investment dollars committed to tech in the region might take a step back in 2022, but we might also see more activity in the way of consolidation [and] M&A,” said Alvarez-Demalde.