So far this year has meant a drought of funds for technology companies and start-ups in Latin America, but a couple of recent news has the sector excited. First, in April, the Kaszek venture finance fund, known as venture capital, managed to raise almost 1,000 million dollars. Later, a former SoftBank executive announced the opening of his own fund called Bicycle Capital, which is expected to invest $500 million.
Both are with the purpose of financing Latin American technology companies, in search of the next multi-million dollar stock market business, which would crown them as a “unicorn”. The region that saw the birth of Rappi, Kavak and The Not Company, among other well-known unicorns, is confident that the drought has come to an end.
“This fund by Marcelo Claure and company, all former Softbank, is a missing link in the chain of capital for entrepreneurs in Latin America,” says Diego Noriega, a veteran of the sector. Noriega has founded 23 companies, some directly related to technology, others financing, such as Newtopia, a fund of which he is a managing partner. Claure, for his part, is founder and CEO of the Claure Group, a multi-billion dollar global investment firm spanning sectors from telecommunications and media to real estate and sports. Bolivian, Claure tells the story on his social networks of being a tireless worker who started selling mobile phones from the trunk of his car in the United States, until he built a telecommunications company so profitable that he sold it to SoftBank. Later, he became his CEO.
The financing of companies considered risky is divided into stages that go in this order: pre-seed, seed, series A, B and C, according to how advanced the idea, business model or company is. Bicycle is a growth fund, that is, they would finance from series B, when historically Latin America has had more than anything concentration between seed and series A, says Noriega. Investors from the United States and other parts of the world are interested in financing Latin American ideas and are much more likely to do so when they have a local partner, Noriega adds. “It is known that those of Bicycle or we in Newtopia understand the region, the progress that there is in the countries where they see opportunities,” says the businessman, in a video call.
What they have experienced start-ups Latin American companies in the last two years has been, first, a trip to the top and then a resounding fall. In 2021, when the US Federal Reserve injected an unprecedented amount of resources into financial markets, many of those resources ended up financing technology start-ups in Latin America. Twelve Latin American companies became ‘unicorns’ that year, setting a record for this region.
Their luck changed when inflation began to rise rapidly, forcing the Fed to reverse course. In addition, the bankruptcy of a mid-size US bank, which specialized in financing Silicon Valley, delivered another blow to investor confidence. Some $7.4 billion was invested in the region in the second quarter of 2021, a record quarter, according to research firm CBInsights. The most current figure, for the first quarter of this year, is only 600 million. according to a 2019 report of the Inter-American Development Bank (IDB), Latin America and the Caribbean invest seven dollars per capita in start-ups by year. “That is a shadow of what other countries invest in business innovation,” the report says. Israel invests 117 times more per capita than Latin America, Estonia 42 times more, Ireland 17 times more and China seven times more.
This does not reflect the potential. Only the sector known as fintechwhich refers to digital finance companies, can boost the Gross Domestic Product (GDP) of emerging countries by 3.7 billion dollars by 2025, according to McKinsey consultancy. This equates to a 6% increase, adding $2.1 billion of new credit, creating 95 million new jobs, and attracting 1.6 billion people to the financial system.
“I am very optimistic,” says Sergio Fogel, a Uruguayan and co-founder of payment technology company dLocal, which specializes in emerging markets. The current financial climate with high interest rates is not the most conducive to raising capital, but there are many examples of start-ups that they have achieved it. Among them is the Uruguayan e-commerce platform Nocnoc, which raised 14 million dollars to finance its expansion to Mexico and other countries in the region a couple of weeks ago. “At the end of the day, entrepreneurs are the ones who find inefficiencies and fix them, and Latin America is full of inefficiencies,” Fogel says over the phone.
Noriega is also enthusiastic. He says that, according to his estimates, the investment in venture capital for Latin America it has grown 100 times in the last 12 years. “When an entrepreneur comes today and tells me that everything is wrong, that there are no investments and so on, I feel a mixture of anger and pity,” says Noriega, “because if there is no capital now, you have no idea what it was before . That is the reason to see the trend and see growth beyond the 2020-2021 bubble. The evolution is very positive”.
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