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STUDIES & Macro Notes

Venture Capital and growth equity ecosystem in latin america 2022


Managing Partner – Glisco Partners

As we all know, the Covid-19 pandemic left us with considerable negative economic consequences in recent years, from which the following stand out: an initial paralysis of the global economy, a period of rapid increases in inflation and interest rates, as well as a considerable initial disruption and the later readjustments of global supply chains. Nevertheless, it also left us some positive aspects: it relevantly accelerated the general digitization of companies in basically all sectors and regions,1 changing the way firms do business and interact with their consumers. As described last year in the previous version of this report, this digitization phenomenon, and the formation of new companies with a technology-based business peaked in 2021 with a record year for Venture Capital and Growth Equity investment in Latin America: ~ US $15.3 billion through 582 investments. The current report updates and expands the results found in its predecessor, detailing the characteristics of the investments carried-out and the main trends identified in the ecosystem in 2022. Beginning with the update, for 2022, even when several global phenomena relevantly affected the World economy (the Russian invasion of Ukraine, the increase in inflation and interest rates, among other), the number of investments in the region increased to 784 (a new record), while the amount invested was ~US $8.1 billion, the second best year in history (and 84.1% higher than the third best).2

This invested capital in the region represented 0.19% of its GDP, percentage that, when compared to that of the U.S. (0.97%) and Israel (1.93%), makes evident that the investment opportunity in Latin America still represents a potential growth of between 5 and 10 times.3 Regarding the characteristics of the investments carried-out, a generalized perception of a more expensive and scarce capital reigned among entrepreneurs in 2022, while investors changed to an approach that privileges the profitability and unit economics of companies over an accelerated growth of their revenues. This translated into an average and median investment ~55% and ~40% lower than in 2021, respectively, a result of three main factors: (i) a lower number of “mega rounds” (of at least US $50 million), with 33 in 2022 and 71 in 2021, (ii) a total invested amount in Late-Stage that was 88% lower, with the number of investments being 76% inferior, and a median investment 57% lower, and (iii) a higher number of Early-Stage investments, with a 49% increase from 2021 to 2022 (representing 92% of the total number of investments in the year), and a 9% increase in the total amount invested. It is relevant to highlight that, within Early-Stage, total investment linked to Seed rounds increased 62% during the year, while the number of investments doubled.4

In respect of the main trends in the ecosystem during 2022, a solid raise in Venture Debt and credit lines stands out, which reached a historical high in Latin America with US $3.0 billion, a 94% growth relative to 2021.5 As another highlight, the number of M&A transactions linked to Latin American startups reached its historical high with 55, figure that compares positively with 2021’s 42 transactions and is evidence of the evolution and relative maturity of the Venture Capital and Growth Equity ecosystem in the region. Finally, less than 1% funded companies in 2022 were founded by one or more women, a lower percentage than 2021. Mixed-gender teams represented 20% of funded companies, compared to 29% in 2021.

As a final point to highlight, the unfavorable economic situation in 2022 generated a strong downward adjustment in the valuations observed in recent years, creating considerable loses for numerous funds in Latin America. Consequently, several international funds have reduced their operations in the region to focus on their core markets, reducing the available capital to be invested in our Latin American ecosystem in the medium term. Moreover, according to an analysis published by the Amexcap, by 2022 only 37% of active funds were on their investment stage and thus had the ability to place capital.6 Without a doubt, this situation presents a considerable challenge for the ecosystem in the years to come, as well as a great opportunity for those funds in the region that have the resources to invest in the short and medium terms. These well-capitalized funds will have the chance to carry out investments at valuations that are more in line with historical levels, and in companies that have already been capable of showing that their value proposition and business model are highly resilient, even during times as complex as the ones we are living in.

It has been a pleasure to work once again with Endeavor carrying out this analysis; we hope the reader finds it at least as useful, if not more, than the previous version. We are still convinced that the entrepreneurs that experience times as complex as the current ones and manage to keep their companies afloat, will rise stronger and better prepared to take advantage of the medium- and long-term growth and development prospects ahead of us in the Latin American ecosystem.

1 Source: McKinsey, analysis based on interviews to 899 executives and senior managers. According to the analysis, only during the first year, digitization of supply chains and internal operations accelerated an equivalent of 3 to 4 years, while the portion of digital products offered by companies evolved the equivalent of 7 years.
2 Source: Endeavor Intelligence, 2023.
3 Source: Endeavor Intelligence, 2023.
4 Source: Endeavor Intelligence, 2023.
5 Source: Endeavor Intelligence, 2023.
6 Source: Amexcap, “VC Overview 2022”.

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