Why have some of Silicon Valleys top investors started investing in Latin America?
Latin America just might be the most overlooked emerging market on the planet.
The venture dollars in Latin America cant hold a candle to India or China (compare Chinas $11.8 billion in new VC funds for the first half of 2016, down 14 percent according the WSJ, to Latin Americas $218 million), and the regions 600 million inhabitants get overlooked by investors who think that you need to reach a billion users to be a real startup.
But with debut investments from Andreessen Horowitz (Colombia), Founders Fund and Sequoia Capital (Brazil) and QED (Mexico and Brazil), that appears to be changing.
I spent the last couple of years writing about Latin American investments for TechCrunch, covering rounds in startups like VivaReal,PSafe, ComparaOnline and Descomplica, and interviewing some of the leading local investorsin the region, like KaszeK Ventures, founded by the wildly successful MercadoLibre team, and Redpoint e.Ventures, a joint venture between Redpoint and e.Ventures, obviously.
Let me lay out the opportunity as local investors see it:
The internet population is set to double from 300 million to 600 million.
Half the population isnt part of the banking system (and only 15 percent of Mexicans even have a credit card).
And pretty much everyone is coming online via inexpensive Androids.
Also worth noting is that Brazil, with only half of its 200 million inhabitants online, is already the No. 2 or No. 3 audience on every major social platform globally. And depending on whose data youre looking at, Brazilians spend more time online than any other population. (Bizarre to think it all started with Orkut.)
How about the venture data? VC investments have been steadily climbing over the past five years, and 2015 was a banner year, with$594 milliondeployed over 182 deals, despite back-to-back economic and political crises in Brazil, the regions leading venture market in terms of both fundraising and investment dollars.
And VC transactions in Latin America are up 46 percent year over year, according to mid-year data from the Latin American Private Equity and Venture Capital Association (LAVCA), a nonprofit supported by Omidyar Network (where Im working).
So for those of you who think there isnt much going on south of the border, here are a few investment trends Im tuning into:
Top Silicon Valley firms are making their first investments in the region
Just in 2016, weve seen Andreessen Horowitz make their first LatAm investment in Rappi, a Colombian grocery delivery service.
Founders Fund also made their LatAm debut with investments in Jusbrasil, a legal platform, and fintech startup Nubank. Nubank has raised $80 millionover the past year from Founders Fund, Sequoia Capital (in their first Brazilian investment), Tiger Global, KaszeK Ventures and QED Investors, followed by a $52 milliondebt investment by Goldman Sachs earlier this year.
Goldman also led a $10 millioninvestment in Brazilian logistics startup CargoX this year, with participation from Valor Capital and Uber co-founder Oscar Salazar.
In Mexico, Accel Partners and QED Investors have made their debut investments: Accel participated in a $6.7 millionSeries A in Mexican grocery shopping service Cornershop, led by ALLVP, one of the regions most active VCs, and QED joined KaszeK, Quona Capital, Accion Frontier Inclusion Fund and Mexican firm Jaguar Ventures in an $8 millionSeries A in lending platform Konfio.
Mexico out-fundraised Brazil for the first time in 2015
Mexico also led the region in terms of deal count for the first time in 1H2016, with 47 transactions (up 4.2X from 1H2015), largely stimulated by capital made available by government agencies Fondo de Fondos and the National Institute of the Entrepreneur (INADEM) over the last few years.
(Brazils VC ecosystem had a similar jump-start with government funding from BNDES and FINEP; also worth noting is that Susana Garcia-Robles at FOMIN, the Multilateral Investment Fund, has personally led anchor investments in more than 70 funds in the region.)
For now, fintech dominates as the leading sector of venture investment in Latin America
Fintech represents29 percentof IT investments (in terms of total dollars invested) in 2015, and 40 percentof IT investments in 1H2016. In Mexico, in addition to Konfio, lending platform Kueski raised $10 millionfrom CrunchFund, Rise Capital, Variv Capital and others (plus another $25 millionin debt). In Brazil, the IFC led a $15 millionSeries C in GuiaBolso with KaszeK Ventures, Ribbit Capital and QED Investors. Interesting to note is that since half the regions population is unbanked, pretty much every fintech startup is having a direct or inadvertent impact on financial inclusion.
Agtech is starting to heat up, with big investments from Monsanto, Qualcomm and BASF
Brazil is the No. 2 agribusiness market globally behind the U.S., but agtech is a massively underserved sector in LatAm, accounting for less than 1 percentof venture investment in Latin America since 2011. That appears to be changing: Monsanto is investing up to $92 millionin BR Startups, a Brazilian agtech fund managed by Microsoft in collaboration with Qualcomm Ventures.
Brazilian mobile conglomerate Movile is on an acquisition tear
There isnt much in the way of publicly available data on digital M&A transactions in LatAm (were working on it), but Movile appears to be the most active acquirer in the region right now.
And Rappido, Moviles on-demand delivery and distribution service, is gaining traction in Mexico on the heels of a merger with 99Motos, their Brazilian competitor.
All eyes are on Argentina
With newly elected President Mauricio Macri in office, Argentina is organizing a series of structural changes to facilitate new company creation.
Macri and National Secretary of Entrepreneurship Mariano Mayer just announced a package of laws to foster entrepreneurship and new company creation: Ley del Emprendedor would allow entrepreneurs to register and open a company online within 24 hours; Ley de Sociedades de Beneficio de Inters Colectivo would be the regions first legislation to define and recognize businesses with sustainable environmental or social impacts.
There are also plans for the creation of 10 new funds to provide entrepreneurs access to capital (three will receive US$30 million each by years end), and legislation to allow crowdfunding. Similar legislative projects to encourage new company creation are also underway in Mexico City and Brazil.
Read up on Latin Americas venture fundraising and investment data, most active local and international investors and biggest deals, in LAVCAs Five Year Trends report. To follow VC deals as they happen, subscribe to LAVCAs bi-weekly LatAm Venture Bulletin.