Bogotá — After the wave of layoffs among startups in Latin America and shifting priorities in venture capital funds, money is being channeled into fewer new enterprises, with early-stage entrepreneurs feeling the effects the most.
“In turbulent times, venture capital funds (VCs) are choosing to deploy more capital to experienced founders,” according to a report by the Association for Private Capital Investment in Latin America (LAVCA).
According to the report, in the first half of the year alone, founders who had already raised capital in the past raised 43% of the dollars injected by VCs, a new record for the region.
LAVCA points out that there has also been a slower pace in the flow of transactions in the late-stage startups, coinciding with an adverse economic situation due to high interest rates and rising inflation in most Latin American economies.
Still, “venture capital is having its second strongest year on record, with $5.4 billion deployed across 541 deals in the first half of 2022,″ according to the report.
According to the report, capital continues to flow despite the challenges, with seed-stage investments up by 113% and seed by 48% year-to-date, compared to the amount of capital invested in the first half of last year, when the ravages caused by the coronavirus pandemic were still being experienced in full force.
One interesting aspect is that nearly one-third of the dollars coming from VCs went to women-led startups in the first half of this year, which represented a new record since LAVCA began tracking this metric in 2019.
“Among the women-led startups that received VC funding in 1H2022 were Miami-based BNPL platform KEO World, Colombia-based proptech Habi, Brazil-based human resources tech startup Sólides and Ecuador-based fintech unicorn Kushki,” the report notes.
In a recent conversation with Bloomberg Linea, the president of the Colombian Private Equity Association (ColCapital), Paola Garcia Barreneche, said “venture capital funds are being much more rigorous.”
“The other day we had an interview with the president of our board of directors, Patricia Sáenz, from EWA Capital, and she said: ‘I see 600 startups, and I leave with one or two. So the review is much more thorough, reviewing the numbers very carefully,” García Barreneche said.
She explained that this more exhaustive review now involves focusing more on the background of the entrepreneurs who are leading such businesses, and how strong their capacity for adaptability is in the face of the adverse situation.
This involves going in to review, for example, “what is that knowledge they bring to the table that makes their venture unique and scalable in that way”.
“I have heard it from venture capital fund CEOs, and even from entrepreneurs who are highly valued, and who say: ‘Here we have to slow down because this cannot continue at this pace, and these valuations cannot be so inflated, and we cannot continue in this dynamic of burning capital like this’, but rather bring things down to earth a bit,” she said.