Latin American VC Poised for More Growth

Latin America’s venture capital sector is poised for another banner year as investors rush to profit from a booming tech industry and a growing number of innovative startups in the financial and health care industries.

VC funds south of the U.S. border are expected to garner at least 50% more funds in 2012 compared to last year, industry investors and analysts predict.

“It’s going to be at least 30% without Brazil but with it could easily exceed over 50%,” says Diego Serebrisky, who runs Advent International’s $1.6 billion LAPEF V fund. “There are many fundraising projects right now as funds that started seeking money two years ago are finally closing.”

Serebrisky won’t disclose names of the funds he’s referring to, but he says the bulk of them are in Latin America’s burgeoning tech, financial, health care and education industries.

Several notable funds, in fact, already were raised in 2012, including Redpoint’ $130 million Brazil-focused vehicle, Spanish telecom giant Telefonica’s $378 million Amerigo and the $70 million Alta Ventures Mexico fund.

In Central America, Coreco Holdings and the IFC also raised a $53.5 million fund to bankroll small enterprises.

Surging First Half

In the first half of 2012, Latin American VC funds raised $1.4 billion, up 82% from the same period in 2011, according to the Latin American Venture Capital Association (LAVCA). The numbers took a look at seed/incubator, early-stage, expansion and growth financings.

Serebrisky expects 2013 will be even better as several funds are expected to launch in Mexico, Argentina, Chile, Colombia and Central America. However, he says that activity in Brazil could cool down after the country attracted the bulk of last year’s funds.

“There are big expectations for new funds in Colombia and Chile,” says Serebrisky, who adds that Chile is working hard to develop its venture industry.

In Chile, the government has launched a program called Start-Up Chile to help raise money for small companies and has so far attracted a lot enthusiasm and money.

Regional governments are also supporting startups by enacting legislation to bolster investment, Serebrisky says. It’s no wonder then that LAVCA’s mid-year data revealed VCs showed a strong interest in the IT space, with almost 40 new media, Internet and ecommerce deals closed in the first half of 2012.

IT Explosion

It took some years, but Latin America’s IT and Internet industries are finally catching up to the United States and Europe. In fact, some predict the number of Internet users in Latin America will double in five years from about 140 million now.

In three years, smartphone penetration, led by Brazil, is expected to mirror that of the U.S. market (which is between 50% and 60% of the population).

And underscoring the booming social networking industry, Facebook’s Latin America Vice President Alexandre Hohagen said recently that the online social network has its largest consumer base in Latin America and that the market is growing 13% a year, compared to 7.6% worldwide.

VCs know that the bulk of social media users are in Brazil. That’s partly why Jeff Brody, a partner and co-founder of Redpoint Ventures, is very bullish on Brazilian tech.

“If you think of the new Wild West, that is Brazil,” he says. “It’s the most interesting non-U.S. market right now in terms of opportunity. It’s like China 10 years ago.”

“There are a lot of companies that have been incubated and started up, but not a lot of money to take them to the next step.”

Jeff Brody


Redpoint Ventures

Brody says that Brazil’s broadband opportunity is phenomenal.

“The rise of the middle class and disposable incomes is presenting huge consumer Internet opportunities,” he says. “Brazilians are highly engaged in the online and social networking space.”

The ecommerce market is also developing along with the IT and payment logistics required to make it all work. And as Brazilian companies grow, so will their value and M&A will improve, Brody predicts.

Arturo Saval, managing director of Nexxus Capital in Mexico City, says Mexican startups are worth 6x to 7x their EBITDA, while enterprise valuations are soaring in Colombia and matching Mexico’s.

Daniel Nader, a junior analyst at Alta Partners, says Latin America’s IT bonanza extends well beyond Brazil.

“There is an awakening of great IT entrepreneurs across the region looking to build companies that can bridge the gap with the U.S. and Europe.” says Nader, who adds that many firms are working to bring the Internet, social networks, ecommerce and other Web-related and software technologies to the masses.

Apart from Brazil, Nader notes that there is a growing crop of cash-hungry tech startups in Mexico, Chile, Argentina and Colombia.

While he acknowledges 2013 will see big gains in VC fundraisings, Brody says that he has concern about a dearth of mid-stage capital fundraising, not just in Brazil, but also across the Latin American region.

“There are a lot of companies that have been incubated and started up, but not a lot of money to take them to the next step,” he says. “If I’m a Brazilian entrepreneur, there are several early-stage incubator investors willing to lend money, but the list is much shorter for a Series B financing.”

This is partly because there haven’t been that many developed early-stage investments to attract mid-stage financiers.

“That part of the market needs to be built and will hopefully soon,” Brody says. “There are a growing number of breakaway companies ready for mid-stage capital.”

Ivan Castano is a Mexico City-based contributor. He can be reached at