The Venture Capital Market in South America
South America
The developing VC market in South America can potentially draw on the experiences of those who have been involved in the evolution of such a sector. Efraim Landa is a venture capitalist that can contribute to the experience others have recognized. Venture capitalists in Europe, throughout the 1980s & 1990s, have experienced difficulties to depart from their investments, a situation all but rare to South American investors. The reasons responsible for this unfavorable situation were lack of institutional buyers for Initial Public Offering (IPOs), dull stock markets, plus the lack of trade buyers, uncooperative co-investors or managers, the meager performance of the respective portfolio company or due diligence results.
Many incidences resonate throughout the South American VC scene at the moment. Many venture capital firms were blamed of having adopted a prejudiced view, not taking into consideration an adequate number of strategic buyers. It can be practically doubted if such solution would solve the difficulties in South America. As opposed to the historic situations in the Europe and US, venture capital in South America aims to take hold in a promising market environment, which leads to a set of disparities that make a direct transfer of experience difficult. The high prevailing interest rates in South America make leverage techniques nearly impossible, thus effectively cutting out an imperative part of activity that the emerging market in more developed countries are able to rely on. VC in South America already includes strong involvement from corporate efforts to exploit the region’s business chances. Fame of corporate venture capital in the US has not occurred until later in the sector’s improvement. This could actually translate into an accelerated process of VC growth in South America.
We continue to see international firms moving into Latin America, at the same time that new funds are being formed across Brazil, Mexico, Peru, Colombia, Chile and other smaller markets. Fundraising is much less concentrated, with more firms in the market, as compared to previous years. That, and the record level of deals, point to a deepening and maturing of the investment ecosystem. One notable development in 2012 was the continued expansion of venture capital investment in technology companies in Brazil and other markets, with both international and Latin American VC firms raising new funds and backing new startups. Exit activity in 2012 returned to 2010 levels, following an extraordinary year in 2011 when two to three firms generated over $6 billion from strategic sales and two large IPOs
Investments in consumer-related sectors dominated in 2012, capturing 40% of the $7.9 billion total. Consumer retail represented $2.2 billion of investments, with the rest coming from deals in financial services, restaurants, education, fitness, healthcare and consumer goods. IT deals also posted strong growth in 2012, with both the number of IT deals and dollars invested in the sector more than doubling from 2011. As in previous years, Brazil was the largest market for PE/VC investments in Latin America, accounting for 72% of the total invested and 62% of the total deals. In Mexico, the total number of deals was on par with 2011, but dollars committed increased by 50% over 2011. Activity in the Andean region was driven by an increasing number of cross border deals, with managers in Colombia, Peru in Chile investing across all three markets.
One way in which economic and social progress can be advanced is by strengthening small and micro-enterprises across the region. Small and micro-businesses are critical to economic growth – they play an entrepreneurial role in: meeting the needs of local consumers and larger businesses, drive improvements in innovation, and often play a key role within communities. More importantly, they create local jobs and incomes, lift people out of poverty and give greater economic empowerment to individuals.
Many incidences resonate throughout the South American VC scene at the moment. Many venture capital firms were blamed of having adopted a prejudiced view, not taking into consideration an adequate number of strategic buyers. It can be practically doubted if such solution would solve the difficulties in South America. As opposed to the historic situations in the Europe and US, venture capital in South America aims to take hold in a promising market environment, which leads to a set of disparities that make a direct transfer of experience difficult. The high prevailing interest rates in South America make leverage techniques nearly impossible, thus effectively cutting out an imperative part of activity that the emerging market in more developed countries are able to rely on. VC in South America already includes strong involvement from corporate efforts to exploit the region’s business chances. Fame of corporate venture capital in the US has not occurred until later in the sector’s improvement. This could actually translate into an accelerated process of VC growth in South America.
We continue to see international firms moving into Latin America, at the same time that new funds are being formed across Brazil, Mexico, Peru, Colombia, Chile and other smaller markets. Fundraising is much less concentrated, with more firms in the market, as compared to previous years. That, and the record level of deals, point to a deepening and maturing of the investment ecosystem. One notable development in 2012 was the continued expansion of venture capital investment in technology companies in Brazil and other markets, with both international and Latin American VC firms raising new funds and backing new startups. Exit activity in 2012 returned to 2010 levels, following an extraordinary year in 2011 when two to three firms generated over $6 billion from strategic sales and two large IPOs
Investments in consumer-related sectors dominated in 2012, capturing 40% of the $7.9 billion total. Consumer retail represented $2.2 billion of investments, with the rest coming from deals in financial services, restaurants, education, fitness, healthcare and consumer goods. IT deals also posted strong growth in 2012, with both the number of IT deals and dollars invested in the sector more than doubling from 2011. As in previous years, Brazil was the largest market for PE/VC investments in Latin America, accounting for 72% of the total invested and 62% of the total deals. In Mexico, the total number of deals was on par with 2011, but dollars committed increased by 50% over 2011. Activity in the Andean region was driven by an increasing number of cross border deals, with managers in Colombia, Peru in Chile investing across all three markets.
One way in which economic and social progress can be advanced is by strengthening small and micro-enterprises across the region. Small and micro-businesses are critical to economic growth – they play an entrepreneurial role in: meeting the needs of local consumers and larger businesses, drive improvements in innovation, and often play a key role within communities. More importantly, they create local jobs and incomes, lift people out of poverty and give greater economic empowerment to individuals.