Latin American startup investment shrank sharply in the second quarter

Last year, Latin America was the fastest growing region in the world for venture capital investment. This year may be on track to be the fastest shrinking yet.

Venture capital in Latin American startups totaled just $2.3 billion in the second quarter of 2022, according to data from Crunchbase. This represents a drop of more than two-thirds from the year-ago quarter and ranks as the lowest quarterly amount since 2020.

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Far fewer deals are also being made. Crunchbase counted 203 Round 1s open in the second quarter, down 38% from the first quarter and 39% from the year-ago quarter. For perspective, we list round counts and investment totals for the past 10 quarters below:

Looking at 10 quarters, rather than just a year-over-year comparison, recent results look slightly better. Total investment for the quarter just ended was high by historical standards. They are also higher than every quarter in 2020. So if we think of 2021 as a period of unusually easy money, then it is possible that the last few months reflect somewhat of a return to normalcy.

Below, we take a closer look at funding dynamics across the stages, focusing on areas of the most pronounced slowdown as well as areas of growth.

The late stage fell the farthest

Late-stage investment saw the steepest decline.

In the second quarter of this year, investors pumped roughly $1 billion into Latin American late-stage and tech growth investments, down 80% from the year-ago quarter. For context, we set out the total investments and number of deals for the last five quarters below:

Deals are made

Several major deals were struck. Among the recipients of the biggest deals was Bogota-based Habi, a platform for buying and selling real estate, which raised $200 million in Series C funding in May.

Other notable deals include $100 million Series C and D, respectively, for Sao Paulo-based Solfácil, a consumer solar energy investment platform, and unico, an identification technology provider.

However, new unicorns are no longer being cut at the same rate as a few quarters ago. Existing unicorns and hot early-stage startups, meanwhile, are in many cases shrinking amid a tighter funding environment.

In the crypto space, two unicorns operating cryptocurrency exchange platforms have reportedly laid off staff in recent months: Mexico City-based Bitso and Sao Paulo-based Mercado Bitcoin.

Meanwhile, Argentina-based early-stage crypto startup Buenbit has reportedly cut nearly half of its workforce.

The real estate space was also widely affected. Loft, the Brazilian proptech unicorn, also unveiled two rounds of layoffs this year, reportedly cutting more than 500 jobs. Brazilian home rental startup QuintoAndar, which has raised more than $700 million to date, has reportedly cut 8% of its staff.

The early stage is better maintained

Investments in early-stage Latin American startups are also down from last year’s highs, but far less than of late.

In the second quarter, investors pumped $1.1 billion into early-stage (Series A and B) deals. That’s down about 15% from Q1 and 35% from the previous quarter. For context, below are the total number of investments and transactions for the last five quarters:

Funding numbers in Latin America illustrate the same trends we’ve seen in our global reports. Falling public valuations of technology and a mostly closed IPO market seem to be having a bigger impact on late-stage investments. At an early stage, where an exit is likely years away, backers have less reason to worry about immediate market conditions.

Several of the rounds in the early stage were on the big side. Chile-based Xepelin, a financial services provider for small and medium-sized businesses, made a big deal, securing $111 million in Series B funding in May. And Kushki, a Quito, Ecuador-based payments platform, raised $100 million in Series B in June.

Active investors

The list of the most active startup investors in Latin America for this year contains many familiar names.

The most active lead investor by number of deals was Platanus Ventures, followed by Kaszek, DOMO Invest, Tiger Global Management and Y Combinator.

Meanwhile, the most active lead investors by total deal size were SoftBank Latin America Ventures, followed by Propel Venture Partners, Cargill, Kaszek and Advent International.

In general, we do not see established active investors leaving the region. While they may be doing less large late-stage rounds, they still seem to be engaged in the Latin American startup ecosystem.

The big picture

So what to make of the numbers for the last quarter and half year? Well, simply put, we fell. Happens. After many quarters of up, up, up, it’s not exactly shocking.

For now, the relative strength of early-stage vs. late-stage dealmaking offers some upside. It appears that while investors are not thrilled with the valuations and public market valuations of the current market, the long-term outlook still leaves plenty of room for optimism.

Illustration: Dom Guzman

Keep up with the latest funding rounds, acquisitions and more with Crunchbase Daily.

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