With around 650 million people and USD 5.25 trillion of GDP, LatAm countries are currently sharing 7.49% of the entire world GDP, marking the most significant region economically after the EU. However, the region is politically, geographically and financially divided and volatile, making it hard for investors to navigate in the region’s ever-changing secondary market environment.
On top of that, most of the countries in LatAm are particularly sensitive to the monetary and political policy changes in the US, and this vulnerability makes investor especially distant to the nations around the region. Considering China’s growing economic and technical influence in the region; the matrix further complicates for any overseas investor to solve. On the other side of the medallion, LatAm’s stable population growths, increasing urbanization rates, recovering GINI indices and improving HDI values stand as positive indicators for many entrepreneurs and investors to consider.
LatAm’s economy is led by very typical upper-middle income developing economies, including, among others, Mexico and Brazil. For LatAm, Retail stands as the major new entrepreneurial activity, due to the low technical barriers to entry. Similar trends can be found in other emerging regions, such as Africa. The retail industry is followed by health & education, in a move to fill the gaps that have not been loaded properly by the policy-makers.
Yet, very few of them survive and scale their business in the long term, that are the ones that have technical sophistication. Compared to North America, Europe and China, the region’s secondary markets are yet to be matured.
66 companies that have over USD 500 million total fundings pulled investment in the first half of 2019 in Latin America. IT-driven professional service providers, Financial service providers and mobility&transportation companies have pulled around USD 1.5 billion.
Dissecting LatAm’s heterogeneous investment environment
Concerning social structure and economy, LatAm is varied and diverse. Argentina, as one of the biggest countries in LatAm and historically a rich country, has been struggling with high inflation and currency depreciation. The country’s chronicle financial straits reflected on its capital markets as well. The country has failed to attract significant investment in the secondary market during the first half of 2019. The country is one of the most volatile and vulnerable economies globally. Brazil, LatAm’s biggest economy, has been struggling with monetary policy crisis of high-interest rates and with inflation rates well above its central bank's target. However, its massive and growing population owns the most substantial human capital in LatAm, making the country a significant one in the IT industry. Chile, the region’s most stable economy, presents long-term opportunities. For Colombia, “there are plenty of reasons for optimism,” quotes CFA Institute research foundation. “The private sector, institutional framework, investor community, and regulatory authorities have worked together to achieve impressive progress.” the report adds. Indeed, the country hit the biggest financing event in LatAm’s secondary markets during H1, 2019; raising over USD 1 billion, that is Rappi’s massive financing from SoftBank. Mexico, yet another heavyweight of the region which has been shaking with political, economic traumas starting with the Tequila Crisis in 1994. Although hard to navigate the country’s fluctuated macro-environment, its dynamic market demand is always solid for entrepreneurs to provide solutions for the market.
Led by Fintech and transportation companies, Colombian startups have raised more than USD 1.04 billion during the first half of 2019. Not surprisingly, Brazil and Mexico followed Colombia with USD 178 million and USD 170 million fundings respectively. Colombia stands outstandingly in the region.
Fin-tech and financial services are furiously growing, as the region's structural problems in banking escalate
Latin America’s structural problems in finance bring the region’s unique opportunities in Fintech. According to the World Bank, almost half of the population in Latin America has yet to be banked and only 18% of them own credit cards. Considering fluctuating interest rates, the banking system is not work in high efficiency in LatAm. The environment brings the opportunity for entrepreneurs.
According to EY, Fin-tech adaptation rate of Brazil and Mexico are 0.4 and 0.36, raking fourth and seventh globally in the index, and not surprisingly China hits the top of the index with 0.69. On top of that, expected rate of return (ROI) on fintech projects in Latin America is found 25% in 2019, whereas 25% in Asia and 14% in Europe, according to a survey conducted by PwC.
Brazil, Mexico and Colombia led LatAm’s fintech fields by 377, 334 and 124 startups as of 2018. Due to the environmental differences, there is no convergence or catching up seen for the rest of the countries in the region.
SoftBank led the two biggest transactions in LatAm’s fintech field during the first half of 2019, inventing into Creditas and Clip respectively. The investment boosted the value of Creditas to USD 700 million. Clip’s valuation solely, after the transaction rose to between $350 million and $400 million, Reuters claimed.
Founded in 2012 in Sao Paulo, Creditas is targeting consumers who need a handy and secure loan in a move to provide an alternative solution to the inefficient and turtle-slow credit executing services in Brazil’s banking sector. The company uses big-data to decide consumer’s credit scores, and from this respect, its business model resembles some of Ant Financial’s products, such as Sesame Credit.
Transportation, Logistics and Delivery fields have soaked with investment in H1/2019
For the companies that have accumulated over USD 500,000 total fundings, 10 companies have raised new financing during the H1/2019. Colombia’s Rappi, Brazilian Loggi and Mexican Grow Mobility have raised over USD 1.3 billion.
SoftBank has led the volume and set the scale for the industry imitating the two largest investment of the period into Rappi and Loggi.
Founded in 2015, Rappi, Meituan-Dianping of LatAm, is a delivery company that devotes to deliver everything from groceries to medicine. The company raised around USD 1 billion from SoftBank on 30 May 2019, and now it's one of the most valuable companies of LatAm. The company is based in Bogota, and it is currently operating in more than seven countries in Latin America. Loggi, yet another late-stage delivery company of LatAm, was invested USD 150 million by SoftBank on June 5, 2019. The company is devoted to delivering anything in Brazil on the next day of the order. The company may be facing with natural barriers in its business expansion due to the limited sophistication of the transportation infrastructure in South America. Grow Mobility is an early-stage last-mile transportation company from Mexico and it has raised a massive USD 150 million in January 2019. Although it started off big, the company will presumably face being the infrastructure needed to maintain its operations.
Professional and Enterprise Services in LatAm
Enterprise and professional services attracted a significant deal of investment during the H1/2019, as well. Although funding volumes were relatively small, the number of investments for the professional services were abundant during the period.
OmniExperience, an enterprise cloud services provider, pulled USD 20 million from a San Fransisco based investment firm titled Riverwood Capital. Contobilizei is the second biggest company that could attract investment and is supporting the SMEs accounting management systems in the region. In Loco, a big-data driven advertisement company has pulled USD 20 million, in a move to provide a more efficient technique to monetize 230 million people of Brazil.
Definitions
Startups
Startups are defined as companies that have been founded in less than 10 years dated the time being evaluated and that are not publicly traded.
Investment
Only regular funding series such us angel, seed, and Series A through pre-IPO are taken into consideration. No initial public offering, debt financing, crowdfunding or other types of financing activity be analyzed.
Data
Data only contains disclosed financing series and hence, the actual financing volume may be greater. The deviation from the real investment will not affect the conclusion made above.