The Latin American startup market, once among the hottest in the world, is cooling. But its slowdown is far from uniform; some countries are surviving the downturn far better than others, data reveals.
A few weeks back, this column took an early look at venture capital data concerning LatAm startups and their financial backers, noting that the region was seeing successive quarterly declines that had become more than simply material. As the global pandemic turbocharged growth in the e-commerce market, so too did the COVID-19 period lead to huge venture gains in the region; and as the pandemic somewhat waned, so too has e-commerce growth, and, perhaps unsurprisingly, venture activity in Latin America as well.
But the picture isn’t singular. To really understand what’s going on, we have to go deeper than the regional perspective can afford us.
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Previously, we leaned on data from SlingHub, a source that we remain only modestly familiar with. Today we’re adding Crunchbase News data, CB Insights data and reporting from TTR — another financial data service — to augment our perspective and better get to grips with the per-country nuances of the Latin American venture slowdown.
Which country is performing the best? And the worst? Let’s find out.
A regional overview
Recalling our first look at the Latin American venture market in the second quarter, we reported the following based on the dataset that we had in hand:
How much of a slowdown does the above data sum to? Venture capitalists put $3.38 billion to work in the first quarter of this year, Sling Hub reports, and $2.81 billion in Q2, while deal volume actually ticked higher.
What do other sources say? Crunchbase News writes that venture investment in the region “totaled just $2.3 billion in the second quarter of 2022,” a decline of more than two-thirds from the year-ago quarter. CB Insights records $2.3 billion as well from 224 deals in the second quarter, down from $7.4 billion among 213 deals in the year-ago period.
That the dollar value of deals in Latin America is in decline is uniformly agreed upon by data sources that we track, including a report from TTR that shows an aggregate year-on-year decline of 34% for the value of venture investments in the region this year through Q2 — and slightly stronger deal volume.
A huge second quarter in 2021 in dollar terms is exacerbating the year-over-year comps for venture investment in LatAm this year, but the value of deals in the region is declining regardless of how you slice the data; the only bright light is that the number of venture deals occurring is holding up better than their aggregate value.
So, a region largely in decline. That’s bad news for all countries, right? Not quite.
Digging into the country perspective
Brazil and Mexico have traditionally attracted the bulk of venture capital flowing into Latin America. Per CB Insights, they did so once again in Q2, with $900 million and $508 million, respectively, in VC funding. Out of a total of $2.3 billion, that’s 39% and 22%. But while they maintain leadership, the two countries are currently on diverging paths.
On one side of the spectrum, Mexican startups attracted more funding last quarter than in Q1 2022. From a longer-term perspective, CB Insights reports that there have only been four quarters since 2018 that saw more venture capital dollars invested in Mexico than Q2 2022: The third quarter of 2019, and the second, third and fourth quarters of 2021. And yes, that’s why it’s always interesting to look at country-level data.
Because Mexico’s tallies are still relatively small, they are easily skewed by mega-rounds. For instance, two deals each represented nearly 30% of Q2’s total funding: the $152 million Series B round of grocery startup Jüsto and the $150 million Series C raised by Nowports, which confirmed that Latin America’s freight forwarding sector is still attracting capital.
The Jüsto and Nowports rounds shouldn’t be dismissed for their oversized impact on totals: They are also a sign that late-stage deal-making is still happening in Mexico. And if you need even more recent proof, Mexican fintech Stori became a unicorn this July with a $50 million equity raise.
On the other side of the spectrum, venture funding into Brazilian startups continued declining in Q2 2022. According to CB Insights, it is lower than in any quarter since Q1 2020, and even some before that. In other words, Brazil hasn’t just fallen back to pre-pandemic levels of activity — it’s lost even more ground.
Looking beyond these two heavyweights, Colombia appears to be somewhere in between. Funding in Q2 2022 was slightly lower than in the previous quarter — $389 million compared to $470 million. But it was a lot higher than in many previous quarters, making Q3 2021’s and Q2 2019’s records look like outliers, rather than the norm.
In Chile, too, startups attracted less venture capital in Q2 2022 ($173 million) than in Q1 2022 ($189 million). The most recent figure was also less than what the country saw in post-Q2 2021 quarters. However, it was a lot more by far than in any quarter of 2018, 2019 or 2020. Unlike Brazil, which fell beyond pre-pandemic levels, Chile’s new normal is superior to pre-COVID deal-making, and Xepelin’s $111 million Series B round this May is another data point in that direction.
On the other side of the Andes, Argentina attracted less capital than Chile last quarter. But similarly to Mexico, it saw venture funding increase in the second quarter of 2022 ($92 million) compared to the first three months of the year ($50 million). That’s still below Q3 2021’s high of $480 million, but a lot more than in any quarter of 2020, for instance. And unlike Mexico, this wasn’t driven by mega-rounds: The largest deal was only worth $30 million, with early-stage rounds counting for most of the deal-making.
What’s next?
Data from the past quarter is revealing, but it only goes so far: A lot has happened since then in many Latin American countries. Among noteworthy events, Argentina’s economy minister suddenly resigned, sending the peso-dollar exchange rates to record levels. Meanwhile, Colombia elected a new president, former guerrilla leader Gustavo Petro, who will have concerns to assuage when taking office next August.
What hasn’t happened also matters: Brazil’s next general election is still upcoming. We had heard that uncertainty about its outcome had created a “wait and see” atmosphere that could last until October. But the recent killing of a supporter of former Brazilian President Luiz Inácio Lula da Silva by a supporter of incumbent President Jair Bolsonaro revived fears of violence before and after the election, and we wouldn’t be surprised if this had a further impact on foreign investment during the remainder of the year.
Do these macro factors justify long-term worries? Maybe not.
“Startups operate on a longer timeline than the political cycles, so unless you think there’s some catastrophic event in the near term we don’t worry all that much about the politics,” Clocktower Technology Ventures partner Ben Savage told TechCrunch.
Why Clocktower Technology Ventures is still bullish on Latin American fintechs
Let’s hope that Savage’s caveat is unwarranted. But even in the lack of a catastrophic event, we will be curious to know whether Latin America’s 2022 tallies end up looking more like 2020 — or completely different.
