VCs slow Latin American investments after blowout 2021

The once-hot region is seeing its fundraising fortunes flip

The global venture capital slowdown is upon us. It’s just not as bad — yet — as many anticipated, putting the world’s startup market into an odd position, forced to navigate waters that are somewhere between calm and stormy. An uncertain global macroeconomic future and rising interest rates are not helping to explicate the situation.

On a regional basis, however, a clearer picture emerges. In Latin America, for example, the venture slowdown started earlier than in other regions — and has continued, per recent data from Sling Hub and Crunchbase, two startup-focused data companies. Latin America, then, is not proving to be like Europe in Q1 or the United States in Q2 — regions where the general trend of declining venture capital deal value either bucked course or managed a slower-than-anticipated decline.


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Despite some recovery in May, a report from the Latin America-focused Sling Hub platform indicates a record-low June for the value of venture capital fundraising. What does that mean for the region moving forward?

Subscribe to TechCrunch+To understand where the region stands today, we’ve pulled Crunchbase data to double-check Sling Hub’s numbers, as the source is somewhat new to this publication and is therefore still in the earning-trust stage. Let’s parse the data, check in on how Brazil is performing, talk about the future of the region and discuss how external factors including politics may be playing a more prominent role in venture investment than you might expect.

Inside Latin America’s Q2

In June 2021, Sling Hub counted $3.10 billion worth of venture capital activity from 117 deals. In June 2022, those figures fell to $730 million and 103 rounds. The data is somewhat uneven, with dollar value falling far more sharply than round-based activity. However, when we consider that each preceding month of 2022 had fewer than 90 LatAm venture rounds — and as few as 64 in March — the one-month deal volume bump appears to be just that.

May brought an outsized $1.26 billion in venture capital activity to Latin America, up sharply from $820 million in April, again per Sling Hub data. But we don’t expect billion-dollar months to return in the third quarter.

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. (Crunchbase data puts the Q2 2022 Latin American venture haul at $2.15 billion, off from $3.2 billion in Q1.)

The one-quarter decline from Q1 2022 results isn’t too extreme, looking at it in the abstract. But after $4.55 billion raised by Latin American startups in Q4 2021, and $5.2 billion in Q3 of last year (Sling Hub data), it’s a bit more obvious how regular declines in the value of venture deal-making in the region have added up to a materially slower pace of capital disbursement.

No downturn lands evenly. As hinted at above, in the first quarter we saw the European and African continents buck the general downtrend and post strong results. Latin America is leading in the other direction. After watching the LatAm region go from raising $4.4 billion in 2020 to $14.8 billion in 2021, per PitchBook data, we can’t help but wonder whether the new results are really as bad as they seem — or was last year insane, and now the collection of countries is instead better finding a long-term footing?

After all, $4.4 billion in all of 2020 is just $1.1 billion per quarter. May alone bested that pace this year. So things are down, but are they really that bad?

Macro pains

Looking at global Q2 trends yesterday, The Exchange wondered whether we are perhaps in a valuation correction, not a startup downturn. However, Latin America’s startups seem to be enduring a bit of both. Last year’s ballooning valuations and mega-rounds aplenty are now a fading memory. But so are IPOs, due to the same macro factors as elsewhere, but also because of a political and economic context in Brazil that is proving harsh.

On the surface, Brazil might seem to be faring better than other Latin American countries. It still answered for the lion’s share of the region’s deal-making in June 2022, both in dollar volume (56%) and in deal volume (67%). But according to Sling Hub, dollar volume fell more sharply year on year in Brazil (-80%) than in Latin America overall (-76%).

It is worth mentioning that Brazil will have a general election in October, and while former President Luiz Inácio Lula da Silva leads in polls, the campaign will be long and heavily polarized. Doubts on whether current President Jair Bolsonaro and his supporters would handle defeat gracefully also add to the uncertainty. As a result, sources told TechCrunch, a wait-and-see attitude has become somewhat prevalent in Brazil’s venture capital scene.

Data from layoffs tracking platform Layoffs.fyi is not exhaustive but seems to indicate that many Latin American startups that let people go in the last few months were Brazilian unicorns and scaleups. For instance, São Paulo-based proptech company Loft cut 380 jobs this week, following earlier reports that it had let 159 employees go in April.

Whether Brazil’s troubles will mean more attention for other Latin American countries remains to be seen. Yes, Ecuador landed its first unicorn when fintech Kushki reached a $1.5 million valuation. But the Ecuadorian market is so small that Sling Hub doesn’t even track it. And other countries are also dealing with their own share of trouble, such as Argentina, where the economy minister abruptly resigned.

Macro troubles are often a mixed bag for entrepreneurs, as they can also create opportunities for innovation. At the moment, it is too soon to tell which way the pendulum will swing and what could catalyze a comeback.

On one hand, sky-high interest rates (13.25% in Brazil!) and a rewarding commodities market are rarely good news for startups seeking venture funding. On the other, the war in Ukraine is already creating tailwinds for agtech startups, of which Latin America has quite a few. According to Sling Hub, Latin America’s agtechs “raised 86% more money in the first semester of 2022 than in the same period of 2021,” and this is definitely a trend that we will be exploring in the next few weeks.