Taking advantage of the Latin American market downturn • TechCrunch

Latin American venture In the year Capital and growth investments averaged just under $2 billion in 2018. Few investors operating in the region were making a killing due to the hunger for capital of quality growth companies. For example, if it invests in Latin American franchises over several cycles, General Atlantic has IRRs (internal rates of return) over 50% of those vintages.

As a banker covering technology, I thought there was an opportunity to invest in the region and decided to quit my job at JP Morgan and take the plunge. When I called my former boss Nicolas Aguzzi to thank him for his support, he told me he was introducing me to Marcelo Claure at Softbank. In the year In March 2019, we launched SoftBank in Latin America with an initial commitment of $2 billion, which was worth more than the entire industry at the time.

Big companies like Nubank, Inter, Gympas, Quinto Andar and others were there at the beginning of the period but the market displacement did not last long. Latin America has become the fastest-growing VC region globally, and the market is expected to grow to $16 billion by 2021. In 2020, I set up a new growth fund to fill the funding gap in the region, which gave me the opportunity to see how the latest vintages are doing. He went into bonanza mode.

Fast forward, Latin America’s deferred financing has been hit hard—in the third quarter of 2022, the amount dropped by 93 percent from a year earlier. Our view is that, going forward, the region will suffer more than other markets due to the loss of local growth capital.

The chart below shows that of the 290 investors who focused on the late stage in 2021, only three were active in the third quarter of 2022. It includes growth capital and a large number of individuals, hedge funds and family offices.

Early stage funding has been relatively active so far this year, and many promising companies are raising early rounds in anticipation of coming to market in 2023. But more than 200 Latin American companies are pushing back as hard as they can before trying. Raise more capital. Foreign capital covers only a portion of these financial needs.

I started my career in private equity in 2002, but my first job at JP Morgan was simple: writing portfolio reviews and helping to unbundle a large portfolio of well-respected but then mostly failed Internet companies. What I learned from those days is part of what we share with our portfolio companies today, how some companies prospered while many others failed.

Here are a few takeaways:

For every dollar of milk, save every penny

Below are a few examples of companies that did their best to stay afloat and ultimately prospered.

In the year In 2001, Mercado Libre used a freemium strategy to gain market share in the highly competitive Latin American online auction market. Users could sell their products on the platform at no cost, which certainly boosted GMV growth. In the year In 2003, that disappeared and the company quickly introduced payments on its markets.