State of Venture Capital in Latin America: Opportunities and Challenges 2024

Venture Capital in Latin America

Latin America's Venture Capital (VC) ecosystem has experienced remarkable growth over the last decade. According to the Tecnolatinas 2021 report, in 2017, 123 startups were valued at over $25 million, increasing this number to 314 startups by 2021. Similarly, in 2017, there were 9 startups valued at over $1 billion, compared to 28 startups in 2021.

The same report highlights that, as of 2021, the predominant sectors were fintech and e-commerce, which captured 50% of the capital raised and accounted for 72% of the ecosystem’s total value in the region. This trend has continued, and by 2023, the fintech sector had raised 46% of the total capital invested, a figure that exceeds the combined total of the next nine verticals, according to the LAVCA 2024 report.

The VC Boom in Latin America

In 2023, all operations represented $4 billion invested in Latin America, a lower amount than during the pandemic, but one that signals a return to the industry's trajectory up to 2020.

Latin America transformed from a region with less than $1 billion in investment in 2016 to a peak of $16 billion in 2021. Following the pandemic, the numbers have stabilized, and the region has gone back to its pre-pandemic growth, matching the $4 billion investment level of 2020 by 2024.

However, the biggest difference lies in the number of investments made. While 538 deals were recorded in 2020, this figure rose to approximately 770 startup investments in 2023, showcasing the growing strength of the tech-based business ecosystem in Latin America.

In a deep analysis, where are these startups located? Up to now, Brazil, Mexico, Colombia, and Chile hold the top three positions for capital invested, with Colombia and Chile sharing third place. Argentina comes in fourth place, with 20 deals.

This reality also provides insight into the ecosystems leading the way in the creation and investment of tech-based ventures.

When we isolated the bubble of 2021 and 2022, it became evident that the ecosystems of Colombia, Chile, and Argentina experienced significant growth, with the number of startups receiving investments doubling or even tripling the amount raised.

The Role of First-Time and Established VC Managers

Capital raising for investment also highlights growth and resilience. Regional funds have gained the trust of investors to manage these assets. By 2023, 49 funds secured $2.1 billion, a full billion above the amount raised in 2020.

The Trends in Tech report by LAVCA (2024) divides this capital into two categories: first-time managers and established managers.

First-time managers are those managing their first, second, or third fund. They secured $931 million in commitments, including: Bicycle Capital ($440M); NXTP ($98M); Indicator Capital ($61M); ALIVE Ventures ($43M); Manutara Ventures ($28M).

Established managers, managing their fourth fund or beyond, raised $1.2 billion, led by KASZEK, which secured $975 million across two funds.

Regional Highlights: Where is the Investment Flowing?

The BID Lab's report for Fundraising for Venture Capital Funds in Latin America and the Caribbean highlights the increase in funds based in Peru, which grew from 1% in 2022 to 6% in 2024. However, it also underscores a sharp decline in applications from funds targeting emerging ecosystems in Central America and the Caribbean.

Despite this, 7% of the funds that applied to BID Lab aim to invest in the Dominican Republic and Belize, and 2% in Jamaica. It’s important to note that BID Lab data only includes funds applying to the institution, with fund sizes above $20 million. This leaves room for smaller funds that may be targeting Central America and the Caribbean as part of their strategy.

Dominant Sectors Driving VC Investment

The opportunities for development in the region are reflected in venture capital investments, reaffirming the potential of the industry as a catalyst for innovation and problem-solving.

Why Fintech Leads Venture Capital in Latin America

This sector continues to attract the most investment in the region. In 2024 alone, fintech represented 46.3% of all investments, highlighting a strong focus on addressing the need for financial inclusion and access to financial products for both consumers and small businesses. According to Mastercard's report on financial inclusion, after COVID-19, the percentage of people relying solely on cash decreased from 45% to 21%. However, inclusion also involves access to other products like credit and investments, areas where startups are creating innovative solutions.

The Rise of Proptech and Logtech

These two sectors have shown sustained growth, with Logtech gaining significant traction post-pandemic. Proptech is supporting the real estate sector by introducing technology, while Logtech addresses the need for efficiency in the logistics industry, which was heavily impacted by the pandemic.

Climatech and Cleantech: Emerging Investment Trends

These are emerging trends in investment for Latin America. According to the LAVCA 2024 report, 2.1% of investments were directed toward these sectors. Additionally, BID Lab data indicates that 57% of sector-specific funds applying for investment are focused on Climatech and Cleantech.

Venture Capital Resilience in 2024

The venture capital landscape in Latin America remains resilient in 2024. BID Lab reports that 46% of the applications received were from first-time funds, while 85% represented those raising their first, second, or third fund (first-time managers). This demonstrates the dynamism of ecosystems seeing an increase in startups and entrepreneurs requiring investment. Notably, the funds that applied project a return on investment between 23% and 30%, reaffirming the potential seen in the region.

This topic will be a key discussion during Boostcamp 2024, held as part of Global Entrepreneurship Week in the Dominican Republic. Stay updated through our social media channels!

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