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Latam unicorns are flying high as venture capital surges

Back in 2007, the list of Latin American tech companies valued at least $1 billion had only one member: Argentine e-commerce firm Mercado Libre. Online travel agency Despegar joined eight years later and nine more companies, including Brazilian neo-lender Nubank—which recently went public—and Colombian delivery platform Rappi, followed suit in 2018. Last year 18 additional Latin American tech firms reached or surpassed the $1 billion mark as the region has consolidated its status as an attractive target for venture capital investment, setting up a promising outlook for 2022.

Overall, Latin American tech companies have never attracted so much venture capital and private equity investment as they did last year, crossing the $15.3 billion mark, more than three times previous record of $4.8 billion set in 2019, according to preliminary figures released in January by the Association for Private Capital Investment in Latin America (LAVCA), and even reaching $19.5 billion per Crunchbase.

Global investments in the region’s innovation ecosystem have been steadily increasing since 2019, according to LAVCA. The number of transactions that included at least one global investor rose from 21% in 2019 to 23% in 2020 and 31% in 2021. “Now, we are interested in seeing how collaboration dynamics between global and local investors develop during 2022,” the industry group said recently.

João Ventura, CEO of Sling Hub, a Brazilian startup data platform, makes a distinction between foreign and local investors. While local VC’s contribute smaller volumes in a large number of deals, mostly early-stage startups, foreign investors usually lead bigger funding rounds.

Japan’s Softbank tops the list of foreign investors after funding 13 unicorns, followed by eight US funds, a group that includes Tiger Global, Endeavor and General Atlantic. Brazil’s Kaszek, and Monashees are the largest regional investors, helping fund 10 and 6 unicorns, respectively. There are other investors from Singapore, South Africa, and Hong Kong.

So, what’s behind the surge of money chasing Latin American startups? Shu Nyatta, a managing partner at SoftBank who now co-leads its Latin American Fund, points to the acceleration of the whole Latin America innovation system, the quality of entrepreneurs, a rising middle class, and the high penetration of the internet and smart mobile devices, as reported by PitchBook. Furthermore, the Covid-19 pandemic forced many people to go online for activities ranging from shopping to banking.

Paola García Barreneche, executive director of Colombia´s private equity association Colcapital, told Bloomberg that venture capital investment can have another banner year in 2022. According to recent data, Latin America is second only to China with the highest number of funding transactions, surpassing India, even though Latin America only has close to 60 percent of India´s population, she added.  

Four of the Latin American startups that have attracted the most funds are Brazilian: Nubank ($2.4 billion), C6 Bank, a digital bank in which JP Morgan holds a 40 percent stake ($2.2 billion), Stone ($1.5 billion), and Neon ($1 billion), which is no surprise since Brazil is Latin America’s biggest economy, has the largest population, and remains a potentially huge consumer market.

Three Latin American unicorns are Argentina-based: Mercado Libre ($2 billion), Tiendanube ($3.1 billion) and Ualá ($2. 45 billion).  Colombia’s Rappi, ($2.2 billion), Mexico’s Bitso (2. 2 billion) and Chile’s Betterfly ($1 billion) round up the list.

Finance and insurance are the sectors attracting the most investment, followed by transportation and logistics, travel, real estate and e-commerce, internet and telecommunications.  Hernán Haro, the Argentine founding partner and CEO of the recent seed fund Mr. Pink, told Bloomberg Linea that he would not be surprised if 2022 finishes with around 10 new unicorns in Latin America. Could the list grow to 50 new unicorns in the near-term?