After a high record year for VC investment worldwide in 2021, capital investment slumped in 2022. The international conflict between Russia and Ukraine, high-interest rates, economic slowdown, and VCs aiming to take care of unit economics instead of magnanimous growth were some causes.
Endeavor and Glisco Partners found that in 2022 entrepreneurs perceived capital as more expensive and scarce, while investors focused on profitability over sales growth. This resulted in a significant decrease in average and median investments, mainly due to a reduction in "mega-rounds" and late-stage assets and an increase in early-stage investments.
Venture debt and credit lines reached a historic high, with a record number of M&A transactions. Only 1 % of companies that received capital were founded by women, and valuations underwent significant adjustments resulting in considerable losses for many funds. Despite this, investment levels in Latin America exceeded previous years, with Brazil and Mexico leading in investment activity. Chile and Colombia experienced the smallest YoY (Year over year) reduction.
There was a perception of expensive and scarce capital. Investors shifted their focus to prioritize profitability and unit economics over accelerated sales growth, resulting in an average and median investment of 55% and 40 % lower than in 2021. There was a solid increase in venture debt and credit lines, which reached a historic high of US $3.0 billion, and an increase in the number of M&A transactions linked to Latin American startups.
According to the above, let’s see five critical learnings from the VC Ecosystem and Growth Equity study in Latam 2022, by Endeavor and Glisco Partners titled “Ecosistema de Venture Capital & Growth en Latinoamerica”.
1. There is still a massive gap between Latin America and developed markets
The investment rate in Venture Capital indicates the innovation and entrepreneurship landscape in Latin America to the markets of the United States and Israel, Latin America represents 5x and 10x less access to capital, respectively. Additionally, Latin America slightly surpassed Southeast Asia for the second consecutive year compared to regions with similar characteristics. However, there was a general decrease in investment rates worldwide compared to 2021.
2. 2022 was still a significant year for investment in Latam
The Latin American entrepreneurship community maintained its record-breaking year of investment activity in 2022 (US$8.1 billion), despite the global trend of decreased investment activity. However, there was a decrease of -47% (YoY) in investment activity in LATAM, which was greater than the global contraction of -42% (YoY).
3. There was an increase in investment in Latam in the Q4 of 2022 compared to the Q3 of 2022
Investment activity in Latin America increased in 2022, with a record number of 784 investments and a total investment of approximately $8.1 billion. However, the average and median investment amounts were lower than in 2021, with fewer "mega-rounds" of at least $50 million. The focus of investors shifted towards profitability and unit economics rather than rapid sales growth. In the last quarter of the year, there were 184 investments, representing US$1.6 billion.
4. There were more rounds during 2022 compared to 2021, but less investment
In 2022, despite the challenges faced by the global economy and the possibility of a recession in 2023, Latin America saw an increase in the frequency of investment rounds, with a total of 784 rounds, a new record. Deals surpassed historical rates of 2021 in Q1 (245), Q2 (203), and 184 (Q4), which represents an increase of 35 % (YoY). Worldwide, this rate fell by -2 %.
5. Brazil and Mexico lead the highest investment activity
Despite the decrease in investment in Latam, a similar distribution of deployed capital is maintained versus 2021. Brazil and Mexico lead the way with the highest investment activity (75%). At the same time, Colombia and Chile were the countries that experienced the lowest YoY reduction, -21% and -19%, respectively.
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“Ecosistema de Venture Capital & Growth en Latinoamérica” by Endeavor and Glisco Partners.