Andre Maciel is the founder of Volpe Capital. He previously worked at JP Morgan and was a managing investment partner at SoftBank.
Jennifer Queen contributor
Jennifer Queen is the founder of Pina, a PR firm focused on startups and venture capital firms.
Latin American venture capital and growth investments through 2018 had averaged less than $2 billion per year. With quality growth companies starving for capital, the few investors active in the region were having a blast. For example, after investing in its Latin American franchise across cycles, General Atlantic has an IRR (internal return) of over 50% on those vintages.
As a technology banker, I thought there was an opportunity to invest in the region and decided to quit my job at JP Morgan and give it a go. When I called my former boss, Nicolas Aguzin, to thank him for his support, he said he would introduce me to SoftBank’s Marcelo Claure. By March 2019, we had launched SoftBank in Latin America with an initial commitment of $2 billion, which was worth more than the entire industry at the time.
Big companies like Nubank, Inter, Gympass, Quinto Andar and a few others were still in their infancy at the time, but the market dislocations didn’t last long. Latin America became the world’s fastest growing VC region and the market grew to $16 billion in 2021. In 2020 I created a new growth fund to bridge the funding gap in the region and give me the opportunity to see how startups from recent years are faring in a bonanza scenario.
Fast-forward to date, late-stage financing in Latin America has been hard hit, with volumes down 93% year-on-year in the third quarter of 2022. Going forward, we expect the region to suffer more than other markets from a lack of available local growth capital.
The chart below shows that of the 290 investors focused on late-stage rounds in 2021, only three were active in Q3 2022. Additionally, only 24% of these investors in 2021 were local, most of whom were not engaged in growth capital and included a large number of individuals, hedge funds, and family offices.
By solving local problems, startups will build pricing power that should allow them to thrive.
Early-stage funding has remained relatively active so far this year, and many good companies are bringing in early rounds of funding and expect to hit the market in 2023. But more than 200 late-stage Latin American companies are holding back as much as possible before attempting to raise additional capital. Foreign capital will only cover part of these financing needs.
I started my private equity career in 2002, but my first job at JP Morgan was simple: I wrote portfolio reviews and helped liquidate a large portfolio of internet companies that had had their share of fame but had largely failed by then . What I learned from those days about how some companies thrived while most failed is part of what we share with our portfolio companies today.
Here are a few takeaways:
Milk every dollar, save every cent
Below are a few examples of how companies have done whatever it takes to stay afloat and eventually succeed:
In 2001, MercadoLibre employed a freemium strategy to gain market share in the highly competitive Latin American online auction market. Users could sell their products for free on the platform, which naturally boosted GMV growth. By 2003 that was over and the company quickly introduced fees into its markets.