The global venture capital market has witnessed a significant impact from various factors, including geopolitical uncertainties, the war in Ukraine, concerns about the global banking system, and high interest rates. As a result, the Americas, Europe and Asia have experienced a pullback in investments. Latin America, in particular, has seen a sharp drop in VC exits, but also shows signs of recovery and resilience in specific sectors.
Venture capital funds in Latin America have experienced a decline in exit operations (including both strategic sales and IPOs), with a notable reduction of 57% compared to the previous year. Data from the Pitchbook platform reveals that from January to June, there were 23 exits by venture capital funds, as opposed to 54 operations during the same period last year.
However, the region has witnessed a recovery in fundraising after a period of decline. In the first half of this year, companies in Latin America raised approximately US$ 1.3 billion, nearing the total amount raised in the entirety of the previous year, which amounted to US$ 1.4 billion. In 2021, the funding volume for the entire year reached US$ 2.2 billion.
Despite the challenges, Latin America has seen significant investment activity in the startup ecosystem. In the first half of 2023, there were 415 investments made in Latin American startups. The market is undergoing a rationalization process, with companies focusing on key projects and reducing capital burn to focus on their sustainability.
Opportunities have emerged in specific sectors, such as green energy, which attracted notable investments during the first half of 2023. Additionally, the healthcare sector has demonstrated resilience, while the interest in artificial intelligence has significantly grown. However, investments in consumer and retail companies are expected to remain low in the coming months.
Brazil continues to possess the fundamentals that initially attracted investor enthusiasm, including high technology adoption rates, a large market size, and a growing entrepreneurial talent pool. In fact, it ranks as the seventh most popular destination for foreign investors seeking opportunities in emerging countries, according to the Confidence Index for Foreign Direct Investment published by the international consultancy Kearney in April 2023. Among Latin American countries, Brazil stands out in the ranking.
Moreover, Brazil stands in contrast to the global recession process, as it has likely reached the end of its high interest rates cycle. The approval of the fiscal framework and tax reform are expected to create favorable conditions for the country's stronger economic growth. Given the challenges faced by the rest of the world, Brazil has become an increasingly attractive destination for investment.
Gabriela Medina*
Investor Relations VC | Impact Investing, ABVCAP