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Latin America Venture Investment Sees a Q1 Decline, but Earlier Stage Investment Remains Strong

Last year, we saw an incredible amount of investment in Latin American startups, with an estimated $19.5 billion flowing into the region (per Crunchbase data).  This made Latin America the fastest growing region for venture funding. 

As we look back on Q1 investment in 2022, Crunchbase data is showing a drop from Q4 of last year.  Latin American startups saw $3.4 billion in funding rounds the first quarter of this year according to the latest Sling Hub Report.  That is a 30 percent drop from Q4 2021.

Round counts also declined, particularly in later-stages, with only 15 reported later-stage rounds, as opposed to 35 in Q4.

In fact, the LatAm ecosystem was close to completing a one billion anniversary. Since March 2021 startups from Latin America have surpassed the 1 billion dollar-investment mark raised monthly, but March 2022 fell short of this mark. 62 Latin American startups raised $934 million in March 2022. The number reflects a 15 percent decrease compared to last year.

While this might seem like a major decline between Q4 2021 and Q1 2022, investment in Latin American startups is still strong despite the shifting in markets sentiment with high interest rates across major economies, the plunge in equity prices and the weak IPO environment since the beginning of the year and, of course, the war in Ukraine. 

But Crunchbase reports that Q1 investment in the region is still 28 percent higher than Q1 2021.

Fintechs were the most funded sector, raising 34 percent of March’s 2022 investment volume. Mexican Jeeves and Brazil’s Contabilizei raised together $240 million. LatAm HrTech also had a strong quarter with corporate benefits startup Flash from Brazil raising $100 million Series-C led by two US-based global funds, Battery Ventures and Whale Rock.

Investors seem to be writing smaller checks as they look closer to early-stage companies despites two big rounds in Q1 of Brazilian Digital bank Neon $300 million Series D and Brazil’s Creditas $260 million Series F.

So, what accounts for this drop between Q4 2021 and Q1 2022? 

Certainly, the heightened pressure on lofty private valuations and tightening economic policies in the U.S. and in Latin America are weighing in on the slowdown this year. Another factor is the appreciation of local currencies against the U.S. dollar, making local assets more expensive than last year. The Brazilian Real, for instance, rose almost 20% in relation to the U.S. dollar since the beginning of the year due mostly to tighter monetary policy implemented by the Brazilian Central Bank to cope with double-digit inflation.

Additionally, there was a great deal of late-stage investment in 2021 with very high valuations in the region.  Brazil and Mexico alone accounted for 25 unicorns in 2021.  This makes a correction in late-stage investment not surprising, especially since it has been declining on a global scale.

We have noted, however, that even though there has been a drop in later-stage funding, very early-stage investments in the region remain strong. Crunchbase and Sling Hub data shows seed and angel investment held steady at around $300 million in Q1. While Series A and B funding is down in Q1 compared to the prior three quarters, there was still $1.3 billion invested in last quarter, which amounts to 160 percent above Q1 2021.

Investors are still bullish on, and cash is still pouring into, Latin American startups, although we are seeing a shift towards investment in much earlier stage companies.  As investors focus more on these very early-stage companies, however, ultra-high valuation startups in the region might face a tougher fundraising road this year.

© 2023 Foley & Lardner LLPNational Law Review, Volume XII, Number 112
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About this Author

André Thiollier Merger & Acquisitions Attorney Foley Lardner Law Firm
Partner

André Thiollier is a partner with Foley & Lardner LLP, based in the firm’s Silicon Valley office, where he is a member of the firm’s Transactions Practice.

André’s practice focuses on mergers and acquisitions, private equity, emerging growth and venture financings, and general corporate and business counseling. He represents a variety of clients ranging from late-stage private companies and strategic buyers to venture capital and private equity funds across various industries, including life sciences, technology, financial services, healthcare and outsourcing.

André’s...

650.251.1137
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