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Taking advantage of Latin America’s market downturn • TechCrunch


Latin American joint venture Capital investment and growth through 2018 averaged less than $2 billion per year. With quality growth companies running short of capital, a handful of investors operating in the region have made a fortune. For instance, after investing in its Latin American franchise over various cycles, General Atlantic has an IRR (internal rate of return) in excess of 50% of those vintages.

As a banker in charge of technology, I thought there was an opportunity to invest in this area and decided to quit my job at JP Morgan to try it out. When I called my former boss Nicolas Aguzin to thank him for his support, he said he would introduce me to Marcelo Claure at SoftBank. In March 2019, we launched SoftBank in Latin America with an initial commitment of $2 billion, more than the entire industry at the time.

Major players like Nubank, Inter, Gympass, Quinto Andar and several others were in their early stages at the time, but the market turmoil didn’t last long. Latin America becomes the fastest growing venture capital region globally and the market expands to $16 billion by 2021. In 2020, I have set up a new growth fund to fill the void. funding in the region, giving me the opportunity to see how startups from recent years are afraid in a bonanza scenario.

Fast-forward to today, late-stage funding in Latin America has been hit hard — volume down 93% in Q3 2022 from a year earlier. Our assumption is that going forward, the region will be more affected than other markets due to the lack of locally available growth capital.

The chart below shows that of the 290 investors focused on late-2021 funding rounds, only 3 were active in the third quarter of 2022. Additionally, only 24% of the investors. Those investors in 2021 are locals, the majority of which are non-specialist investors. capital growth and includes a large number of individuals, hedge funds and family offices.

Source: LAVCA. Note: Late Stage considers Series C, D and more. Image credits: Capital Volpe

By solving local problems, startups will build pricing power, which will allow them to thrive.

Early stage funding has remained relatively active so far this year, and many good companies are raising funds from the first rounds, which are expected to hit the market in 2023. However, more Latin America’s 200 late-stage companies are holding back as much as possible before attempting to raise capital in the early stages. raise more capital. Foreign capital will only partially meet this capital demand.

I started my career in private equity in 2002, but my first job at JP Morgan was simple: write portfolio reviews and help unpack a large portfolio of investments. Internet companies once reaped glory, but most failed at the time. What I’ve learned from those days about how some companies thrive while most fail is part of what we share with our portfolio companies today.

Here are a few lessons:

Squeeze every penny, save every penny

Here are a few examples of how companies have done all they can to stay afloat and ultimately thrive:

In 2001, MercadoLibre used a freemium strategy to gain market share in the highly competitive online auction market in Latin America. Users can sell their products on the platform at no cost, which of course has fueled GMV growth. By 2003, that was no longer the case, and the company quickly introduced fees across its markets.

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