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Take advantage of the declining Latin American market

Latin America Project Capital and growth investments through 2018 averaged less than $2 billion annually. With high-quality growth companies running low on capital, the few active investors in the area were making big profits. For example, having invested in its Latin American franchise during various cycles, General Atlantic has an internal rate of return in excess of 50% for those types.

As a banker covering technology, I thought there was an opportunity to invest in the area and decided to quit my job at JP Morgan and give it a go. When I called my former boss Nicholas Aguzin to thank him for his support, he said he would introduce me to Marcelo Claure at SoftBank. By March 2019, we had 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, Gympass, Quinto Andar, and many others were just getting their start at the time, but the market turmoil didn’t last long. Latin America has become the fastest growing venture capital region globally, and the market has expanded to $16 billion in 2021. In 2020, I established a new growth fund to fill the financing gap in the region, giving me the opportunity to see how startups started from Recent models succeeded in the boom scenario.

Fast forward to today, late financing in Latin America has been hit hard – volumes were down 93% in Q3 2022 from a year earlier. We assume that in the future the region will suffer more than other markets due to its lack of available local growth capital.

The graph below shows that of the 290 investors who focused on late-stage rounds in 2021, only three were active in the third quarter of 2022. Moreover, only 24% of these investors in 2021 were local, and most of them were part-time. Capital growth and involved a large number of individuals, hedge funds and family offices.

Source: LAVCA. Note: It is considered late stage for Series C, D and beyond. Image credits: Volpe Capital

By solving local problems, startups will build pricing power, which will allow them to thrive.

Early-stage funding has remained relatively brisk so far this year, and several good companies are raising early rounds, anticipating a market hit in 2023. But more than 200 late-stage Latin American companies are holding back as much as they can before attempting to raise capital. extra money. Foreign capital will cover only part of these financing needs.

I started my private equity career in 2002, but my first job at JP Morgan was simple: writing portfolio reviews and helping to break up a slew of Internet companies that had had their share of glory, but were mostly failures by then. What I learned from those days about how some companies thrive while most fail is part of what we share with our portfolio companies today.

Here are some tips:

Milk every dollar, save every penny

Here are some examples of how companies do everything they can to stay afloat and ultimately thrive:

In 2001, MercadoLibre 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 of course boosted the growth of the GMV. By 2003, that was over and the company quickly introduced cartoons into their markets.

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