Following a blockbuster year for venture capital funding in 2021, Latin American startups faced last year a challenging fundraising climate that is likely to drag into 2023, according to industry sources, analysts, and entrepreneurs. 

The pullback is part of a global phenomenon triggered by recession fears, inflation woes, the rising cost of capital and elevated levels of uncertainty driven by geopolitical conflicts. 

Late-stage investment has been the most impacted so far, as investors worry more about immediate market conditions when they see an exit approaching. 

Many startups in countries like Mexico, Brazil, and Chile have delayed their fundraising plans as they fear being valued at less than their previous rounds. 

While tech-companies are being forced to show a more efficient sales model and strong revenue retention, corporate venture capital (CVC) – the investment of corporate funds directly in external startups – could become an alternative to finance their growth, said Gabriel Porteny, Managing Partner at Corporate VC by Lip Ventures. 

According to the expert, major Latin American corporations are starting to follow the example of their peers in the US, where seven out of 10 Fortune 500 companies already have a CVC. 

Mexico

In May, technology startup accelerator Y Combinator sent a letter to its Mexican funded startups, noting that they had been approached with questions regarding the prospective of an economic slowdown, according to local media reports.  

The accelerator acknowledged a potential decline in VC investments, leading to lower valuations, smaller round sizes, and fewer completed transactions, and advised them to save money and to postpone their fundraising plans for the upcoming six to 12 months, as reported. 

Fernando Gonzalez, CEO of Mexico City-based identity software company Trully, told this news service that some of his colleagues have struggled to raise capital. The startup itself has decided to hold off on raising a Series A round due to market uncertainty, but it does not rule out raising fresh capital this year if market conditions improve. 

Other Mexican companies that have chosen to delay their fundraising plans include Flexio Pagos, Perfekto, Ibushak and Tu Identidad, as reported. 

Flexio Pagos, a Mexico City-based B2B payments platform, delayed its USD 20m Series A funding round to 2H23, CEO Nathan Schorr told Mergermarket in October. Formerly known as Finwrx Mexico, the company now plans to raise the capital after its expansion to Colombia in 1H23.  

In June, Perfekto, the Mexico City-based fruit and vegetable box delivery service provider, told this news service that it was postponing its seed funding round due to unfavorable market conditions, including surging inflation, rising interest rates and a pullback in VC investments, according to CEO Jan Heinvirta. 

In the same line, Mexican e-commerce solution provider Ibushak decided to put possible deal structures on hold as the global economy — still reeling from the pandemic and Russia’s invasion of Ukraine — is facing an uncertain outlook, CEO Mauricio Bouzali told this news service.  

“At the beginning of the year we thought we had to make a big move, as other companies in our sector were raising USD 20 or USD 30m, but the global landscape changed,” Bouzali noted.  

The Mexican identity verification and authentication company Tu Identidad has also decided to wait to raise its Series A funding round until 1Q23 due to market volatility, this news service reported. It downsized the round to between USD 2.5m and USD 4m from the original USD 6m. 

Chile  

Chilean startups have been less affected than some of their Latin American peers by the global decline of VC funding, as in 1H22 the VC investments in the country totalled USD 550m, versus USD 411m in 2021, according to the Chilean Association of Venture Capital (ACVC). 

However, Chile has seen an adjustment in business valuations, causing investors to be much stricter in their choices, being much more demanding with the financial performance of startups and leading to smaller investment rounds, an M&A lawyer said.   

Today, startups and businesses that seek to raise capital need to have the capacity to grow and to be profitable, proving that they can reach the break-even point as soon as possible, the lawyer noted. “Having a good idea is not enough [to attract investors], businesses need to show enough traction, growth and sustainability,” the lawyer pointed. 

Global66, a Chilean online payment company, has opted to fortify its regional presence and reach a few milestones before pursuing a USD 70m Series B round. “Fundraising is now quite different than it was six months ago. It’s not a good time for a startup to raise [outside] capital now,” CEO Tomas Bercovich told Mergermarket. 

This news service reported in June 2021 that Chile-based robotic process automation (RPA) software company Rocketbot wanted to raise about USD 7m to accelerate its foreign growth. Half a year later, however, the startup decided to postpone its fundraising plans and focus instead on reducing expenses, CEO Juan Jorge Herrera said. 

A few months later, in June 2022, Rocketbot announced its decision to resume its fundraising efforts by launching a USD 10m Series A round split into two tranches: USD 5m by September 2022 and USD 5m by the end of 1Q23.  

Brazil

Even with a decline in investments in Brazilian tech companies, the volume invested in early-stage Brazilian startups grew in 1H22, according to the Inside Venture Capital Report published by innovation platform Distrito. 

Nevertheless, Brazilian startups are expected to adjust their strategies to reduce cash burn amid the global drop in VC investments, according to a survey by local VC fund Atlantico. Common actions that might be seen among companies include hiring freezes, lay-offs and the reduction of marketing expenses. 

Sao Paulo-based online real estate firm Loft Holdings laid off 312 employees in December as part of its strategy behind the integration of CredPago and Credihome, business portal Infomoney reported.  

In July, Loft Holdings announced that Nomah – a company that it owns – was in talks to merge with Casai, a Mexico City-based hospitality company that offers premium accommodations. Casai was going through a financial crisis after it was unable to close an extension of its Series A round. 

According to Mergermarket data, a few Brazilian startups have joined their Latin American peers in their decision to delay their fundraising plans.  

One of them is Cellva Ingredients, a Sao Paulo-based foodtech that postponed to February 2023 the inking of a capital raise deal that it planned to close by late December. Brazil’s runoff presidential election was one of the factors behind the delay, CEO Sergio Ricardo Pinto told this news service.  

RadarFit, a game-oriented fitness app that planned to launch a Series A round last year, opted to focus instead on increasing its revenues and expanding its market share due to the challenge to access capital. The Belo Horizonte-based company expects to resume its Series A efforts later this year, CEO Jade Utsch pointed.