LatAm 2022: Attracting big investors as tech sector grows

Following a tumultuous year, gripped by the impact of Covid and political instability, Latin America is reaping the rewards of a growing tech ecosystem aimed at addressing the needs of its citizens and businesses.

Diego Grandi / | IDG

Latin America is poised for a boom in venture capital investments, with the region already having secured more than $6.5 billion in VC in the first half of 2021. This has exceeded 2020’s $4.1 billion of venture capital investment into Latin America, which surpassed the more than $3 billion of south-east Asia and represented a sum larger than that of Africa, the Middle East and central and eastern Europe combined, according to the Global Private Capital Association.

The region is challenging established geographies like India, which raked in $8.3 billion in the first half of the year. The top 20 cities for VC investment have been in Asia, North America, and Europe – however, in 2020, FDI Intelligence noted the significant role that São Paulo and Mexico City role played in terms of VC-backed FDI having hosted 16 and 14 projects last year.

Latin America’s 23 unicorns – with more seemingly on the horizon – have made it an attractive region for investment. Start-up exits brought in $11 billion in 2020 and LatAm closed almost 500 deals in the same period, according to a Bloomberg report.

Central America has seen renewed interest with three major LatAm players joining forces to support start-ups in the area. According to the LatAm List, Carïcaco, a Costa Rica-based business accelerator which supports entrepreneurs has teamed up with Argentine VC fund Newtopia VC, and another Costa Rican early-stage VC firm called Carao Ventures, to work collaboratively to “support and promote the growing startup ecosystem erupting in Central America” through mentoring, networking and investment.

One of the biggest success stories of the region is MercadoLibre, which has continued to report growth, building on its 2020 success and seeing revenue increased more than 70% year over year. Its growth strategy has seen it develop Meka, a partnership with VC firm Kaszek, which was founded to invest in leading Latin American technology companies, according to the Motley Fool. Meka will see the two companies jointly investing in smaller companies with an offer built on providing both capital and infrastructure.

E-commerce and fintech futures assured

Many of those benefitting from the robust VC investment have been in the fintech or e-commerce space. In fact Mexico-based VC firm, ALLVP developed a list of what it has termed LatAm “soonicorns”, companies predicted to achieve unicorn status, and almost 40% of them were fintechs.

Provu (formerly called Lendico) recently boasted a $256 million funding round, led by Goldman Sachs. The investment is a non-controlling equity interest through a Credit Rights Investment Fund (FIDC), according to LatAm List. Latin American e-commerce fulfilment platform, Cubbo, secured seed funding of $4 million, led by SV Latam Capital, while Mexico City-based Kavak raised $485 million in 2021.

Fintech is seen as an area of huge future growth for Latin America with government support to improve digital inclusion in this space seeing increasing adoption and heightened focus on banking the unbanked.

Blockchain, cryptocurrency grows, despite concerns

El Salvador became the first country in Latin America to adopt Bitcoin as legal tender, coming into effect on 7 September – and experts decried the wisdom of such a move. In an analysis piece for Foreign Policy, David Gerard, author of the Attack of the 50 Foot Blockchain, called the move a “farce” and stated that the people of El Salvador hate it. Similarly, Jeffrey Frankel wrote in the Guardian that it was “pure folly”, yet El Salvador appears to have doubled down on the decision, announcing in late November that it would build a Bitcoin city, using the cryptocurrency to fund the project.

President Nayib Bukele indicated at a promotional event for the project that it would focus on “everything devoted to Bitcoin”, including commercial and residential areas, entertainment, airports and museums, among other things.

Moves into the region continue, with, one of the world's oldest cryptocurrency platforms, announcing its acquisition of Argentina’s SeSocio. The announcement noted that “With its largest acquisition to date, accelerates its rapidly growing footprint across Latin America, armed with a team committed to crypto adoption across the continent.” The cryptocurrency firm already has a hold in Argentina, Brazil, Chile, Colombia, and Mexico, and with this acquisition will launch physical offices as well as taking on SeSocio's 100 employees into its ranks. The statement added that “together, the teams will focus on making it easier for unbanked, underbanked and crypto-forward customers to gain access to's global influence and reach.”

2TM, the holding company for Mercado Bitcoin, the largest crypto exchange in Brazil by market valuation, is also looking to expand into Argentina, Chile, Colombia and Mexico through an acquisition strategy. In an interview with Bloomberg, 2TM CEO Roberto Dagnoni said they were looking to position themselves as “a provider of blockchain infrastructure for financial markets in Latin America.”

He further indicated that demand in each country was driven by local need, citing the difference between Mexico’s significant demand for remittance services versus Argentina’s need to prioritise U.S. dollar-backed stable coins because of the volatility of the local peso.

Latin America seems secure in its VC gains and building on the growth in investment over the last two years as the region continues to recuperate and address the impact of Covid.