Funding to Latin American startups saw a 70% decline in the first quarter, down to the lowest volume of investments since 2020 as risk-aversion took hold of venture capital investors.
There were nearly 190 funding rounds in the first three months of the year, amounting to $1.3 billion in investments, according to data compiled by Itau BBA in collaboration with Sling Hub. This compares to $4.1 billion in the year-ago period in over 300 funding rounds, one of the highest in the record for LatAm before the u-turn in market conditions led to a collapse in funding.
Fintech continues to be the leading category, despite the drop, with $0.6 billion received by financial technology startups in the three months.
Venture capital LatAm: winter arrives early
“As we close out the Latin summer, it appears that winter has indeed arrived for startups in the region,” the report said. Itau BBA is the investment banking unit of Itaú, the largest traditional bank in Latin America.
Interestingly, the study found that big rounds took the most significant hit. While smaller-sized rounds dropped 30% yearly, rounds surpassing the $10 million threshold saw a 70% decline.
Indeed, seed rounds are becoming the norm in Latin America, standing out as the most common form of financing in March. The average financing round dropped below $5 million, down from $10 million in the year-ago month.
M&A, on the contrary, remained somewhat busy with a milder 20% drop as more prominent companies took advantage of opportunities to conduct strategic acquisitions.
The study underscored, however, that a stronger sentiment by the end of March could offer a brighter outlook for the rest of the year.
The report stated a “significant increase in foreign investors’ interest in the region” as inflation started showing signs of stabilization in the US.
Top fintech rounds in March
Fintech investments during March were more substantial in Mexico, the second largest ecosystem in the region after Brazil.
Mexico’s Clara led the top funding round in Latin America. The fintech unicorn secured a $90 million financing line in March to fund an expansion through Latin America expansion. Skandia Colombia and Accial Capital provided the debt facility. The fintech had attained a similar credit line before, from Goldman Sachs, for a value of $150 million.
The second largest investment deal was Colombian Avista’s 22 million debt facility. The fintech – one of the few exclusively focused on the “silver economy” – also took a credit line from Accial Capital.
Founded in 2019, Avista caters to pensioners in rural areas and smaller-sized cities in Colombia. They claim they market loans to citizens without formal banking records and Colombians with outstanding debt at banking institutions.
Seed rounds become the norm
Other than those, most deals in the fintech sector were seed-like and below the $10 million threshold. Smaller-sized rounds include Toku‘s $7.2 million investment round in Chile, which will apply to its expansion strategy in Mexico. The investment round was led by US venture capital firm F-Prime Capital and was accompanied by Wollef, Honey Island by 4UM, and existing investors FundersClub and Clocktower.
More recently, seed rounds have extended into April. Payment fintech Pacto, for instance, raised $4 million to accelerate its growth in Mexico. In Brazil, the teenage-focused digital bank Z1 took $10 million to expand its target audience.