Latin America appears set to chalk up another quarter of falling venture capital activity, adding to a string of successive periods when the value of investments in the region fell.
Leaning on PitchBook data and looking at venture-backed companies in Central and South America, a analysis indicates that investment volume in deal and dollar terms is set to decline in Q2 2022. With a few weeks of data left to collect as June continues, the picture may shift, but it would require a simply incredible run of closed deals to halt the now-regular decline in venture capital investment in Latin America.
This does not mean that deals are not still happening; they are. And falling venture capital interest does not mean that Latin America’s promise as a startup hub failed to materialize; huge companies have been scaled there and taken public. And we are not working today to imply that any particular region won’t prove a hotbed of startup activity and technological innovation more generally, in time. Instead, we’re just looking at the latest ticks in the tape to see where investment is flowing — and slowing — today.
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Signs of softening in the Latin American startup market abound. Not merely in aggregate datasets, something we’ll get to in a minute. Even the region’s more impressive recent rounds have a touch of sponginess to them. For example, Ecuadorian fintech Kushki recently raised what it called an extension to its Series B. Naturally, it’s a little bit hard to call a $100 million round an early-stage extension, but in prior climes, we suspect that the funding event would have been a natural Series C with new participants, instead of a Series C from repeat investors with a “Series B extension” label slapped on top.
After posting quarters of falling venture capital investment, Latin America has turned the corner and is now trending toward quarter-on-quarter and year-on-year declines in Q2 2022 VC activity. The correction has arrived in the region.
For reference, recall that globally, through the first quarter, global venture capital activity was up on a year-over-year basis. We have yet to parse total market data for the part of the second quarter we’ve already consumed, but if Latin America is a leading indicator, the signs are not positive.
Let’s dig into the early data and then discuss the halo effect — or lack thereof — of Latin American giants like Nubank, as well as some regional matters that could complicate the region’s startups’ access to venture capital.
The Latin American venture capital correction
Let’s start with caveats. We are working with an early dataset, which means we’re not looking at a full picture. Instead, we’re hunting for directional trends to better understand Latin America, while not getting too hung up on particular data points. The data will change.