Venture capital (VC) investment in Latin America is seemingly bouncing back. The current scenario follows a roller-coaster ride that saw a sharp decline in 2022 after pandemic boon. VC funding into startups in the region hit a record $19.5 billion in 2021, a figure that sharply dropped to $8.28 billion the next year, according to data from business intelligence firm Crunchbase. It continued to fall in 2023, clocking in at $2.9 billion.
Last year, however, the region peeked its head back up above water, scraping up $4.2 billion in VC dollars. Now, LatAm's startup ecosystem hopes its post-pandemic funding dearth is behind it.
There is an encouraging data point for the region: in aggregate, Latin America is performing better than several U.S. tech hubs, according to a recent report by digital staffing agency Revelo.
Data suggests that Latin American VC deals are out-performing emerging U.S. hubs like Miami, Chicago, and Philadelphia. And while Washington D.C. received nearly $2 billion more in total VC investment ($5.7 billion total), Latin America's figures still surpassed those of Austin and Seattle.
With a recovery potentially on the horizon, startup founders are leveraging regional strengths, innovation and resilience to help gain renewed confidence from investors.
Current VC Landscape in Latin America
According to the Association for Private Capital Investment in Latin America (LAVCA), the VC market is stabilizing after a period of adjustment. With 2021 as an outlier for startup investment globally, deal volume appears to be rebounding to normal levels in LatAm and elsewhere.
Seventy percent of VC dollars invested into Latin American startups in 2024 went to Brazil and Mexico, although Colombia, Argentina, Chile and Peru also emerged as key players. Fintech companies remained the most attractive to investors, followed by e-commerce and IT Services, although cleantech and healthtech also shone as emerging industries.
Artificial intelligence (AI)-powered startups saw much more support from VCs compared to 2023, securing 267 deals worth $1.4 billion. This coincides with the boom of AI investment across the globe in recent years following the launch of OpenAI's ChatGPT.
"It is very clear to me that there is a lot of capital. Latin American companies have to tackle the Latin American market per se, and there are very good opportunities for that, especially if we are embracing this Gen AI trend," Roberto Peñacastro Ortega, CEO and co-founder of Leadsales, a venture-backed startup from Mexico, told The Latin Times.
"Startups which are doing something very traditional, but do not bring this component of innovation, are experiencing the greatest hardships because they don't have this innovative edge. In the end, VCs are investing at risk, but where they see it reduced is when there's this innovation component," he added.
Approximately 400 fund managers invested in Latin American VC in 2024, but several stand out. Tokyo-headquartered SoftBank Group, the Sao Paulo-founded KASZEK, and the New York-based FJ Labs are some highlighted by LAVCA as the most active in Latin America last year.
The ecosystem, however, is subject to macroeconomic and political influences. As explained by Emanuel Hernández, LAVCA's research director, investment conditions have shifted due to significant corrections in technology valuations, rising interest rates, and the withdrawal of some global investors.
Additionally, Cuantico VC, a research firm in Latin America, highlights the hardship that liquidity will pose for both investors and entrepreneurs, who will have to find more flexible acquisition strategies and market consolidation.
In countries like Colombia funding has been severely hindered by challenges in the fiscal environment and low household savings. In other regional innovation hubs, such as Argentina, Brazil and Mexico, the fiscal tightening by central banks could lead capital flow towards safer investments. Ultimately, this could translate to fewer big bets on Latin American entrepreneurship and innovation, due to the high risks involved.
But the region's entrepreneurial spirit remains undeterred.
"The circumstances in our countries forces us to start from the bottom. Because of this, I think that Latin Americans are perhaps the most resilient of all, defined by their ability to leverage their potential in spite of external conditions," Peñacastro Ortega said.
When and How Startups Prepare for a New Funding Round
As VC rebounds regionally, Latin America startups must keep a mindset that will help them succeed in raising funding. According to Peñacastro Ortega, one of the main "barriers" for startup founders in Latin America is failing to "shift into the mindset that investors are looking for" which he says is double-digit monthly growth.
Sometimes, the CEO said, it can be the founder's fault for not believing they can actually achieve high growth levels, or not effectively communicating the big dreams they have for a company to potential investors.
"This craziness and ambition is what investors are truly looking for," Peñazastro Ortega said.
Once they have clear signs of momentum -- including product market fit as well as early recurring revenue -- founders that need capital injections should actively seek them.
But Latin American founders shouldn't expect investors to rush in; they need to establish a network first to help guide them in the process.
"You have to be relentless, knocking on doors," Peñazastro Ortega advised. "You're going to get many rejections, which is why it's important to knock on as many doors as possible, and understand that it's part of the process." The CEO said that his company contacted over 200 investors and received 190 rejections.
What also helped to push Leadsales over the line, said Peñazastro Ortega, was building strategic alliances with larger companies, including NVIDIA and AWS. Partnerships with these corporations were instrumental in helping the WhatsApp commerce startup grow.
For founders that don't have immediate connections at big companies, a great place to start is at in-person events and meet ups.
"Getting to meet the right people is key to securing those partnerships, because otherwise, it is just an infinite sea of noise for industry leaders," he said.
Leveraging Latin America's Strengths for Startup Growth
Latin America is becoming more attractive for VC investment due to its capacity for rapid expansion, resulting from the region's less fragmented cultural and linguistic diversity. As signaled by Spain's GoHub Ventures, this doesn't necessarily happen in other contexts, such as in Europe where subregions are separated with their own markets, unicorns and specialized funds.
LatAm's special cross-border cooperation facilitates the expansion of businesses across countries, and efforts to enhance education and upskill the workforce have fostered clear entrepreneurial spirits.
"In Europe we may have the EU, but at the end of the day countries have their languages, cultures, regulations... The speed of expansion is much faster in LatAm thanks to a common tongue," said Rafael Martín Soriano, an investor with GoHub Ventures. "You may find interesting companies in smaller hubs and they could 'easily' jump into new countries, open markets and become regional leaders quite fast."
In contrast with more developed markets like the U.S., Latin America's historic inequalities -- especially in access to finance -- actually offer an opportunity for inclusive technology that drives growth.
Unicorns like Nubank, founded in Brazil to offer digital financial services to unbanked individuals, Mercado Libre, founded in Argentina and currently one of the largest e-commerce platforms in the region, and Rappi, founded in Colombia as a delivery startup, have exemplified the power in unlocking Latin America's particularities.
One such particularity is the region's wide use of messaging app WhatsApp. Fueled by the pandemic, Latin America's most popular messaging app became a crucial platform for e-commerce in the region, and companies like Yalo and Leadsales have flourished from humble beginnings.
"We built Leadsales as a tool for a mobile bar and cocktail business my brother and I founded," said Peñacastro Ortega. The company soon began developing tools to help small businesses in different verticals to sell via WhatsApp and raised $3.7 million in a seed round.
For LatAm startups eager to see success, Peñacastro Ortega cautions founders to be patient and persistent.
"When people buy a car, they automatically think of a Ferrari. But they don't realize that the process starts almost with building the wheel, then a scooter, then a bike, and it grows like that until you eventually get to a Ferrari," he said about the growth stages of startups.
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