Venture Capital Investment in Latin America Falls in Q1, but Early-Stage Investment Remains Strong | Blogs | Foley ignite

Last year, we saw an incredible amount of investment in Latin American startups, with around $19.5 billion in the region (according to Crunchbase data). This has made Latin America the fastest growing region for venture capital funding.

As we look back on Q1 2022 investments, Crunchbase data shows a decline from the fourth quarter of last year. According to the latest Sling Hub report, Latin American startups received $3.4 billion in funding in the first quarter of this year. That’s down 30% from the fourth quarter of 2021.

The number of rounds also decreased, especially in the later stages, with only 15 rounds reported in a later stage, compared to 35 in the fourth quarter.

In fact, the LatAm ecosystem was about to celebrate its billion anniversary. Since March 2021, startups in Latin America have passed the $1 billion mark in investment raised monthly, but March 2022 fell short of that mark. 62 Latin American startups raised $934 million in March 2022. This figure reflects a 15% drop from last year.

While this may seem like a significant drop from the fourth quarter of 2021 to the first quarter of 2022, investment in Latin American startups is still strong despite changing market sentiment with high interest rates in the major economies, falling stock prices and a weak IPO environment all along. of the year and, of course, the war in Ukraine.

But Crunchbase reports that Q1 investment in the region is still 28% higher than Q1 2021.

Fintechs were the most funded sector, raising 34% of March 2022 investment volume. Mexican Jeeves and Brazilian Contabilizei together raised $240 million. LatAm HrTech also had a strong quarter with Brazil-based benefits startup Flash raising $100m Series C led by two US-based global funds, Battery Ventures and Whale Rock.

Investors appear to be writing smaller checks as they close in on start-ups despite two big Q1 rounds from Brazilian digital bank Neon’s $300 million Series D and Brazil’s Creditas $260 million Series F.

So what explains this drop between Q4 2021 and Q1 2022?

To be sure, increased pressure on lofty private valuations and tighter economic policies in the US and Latin America are weighing on the slowdown this year. Another factor is the appreciation of local currencies against the US dollar, making local assets more expensive than last year. The Brazilian real, for example, has risen by almost 20% against the US dollar since the start of the year, mainly due to the tightening of the monetary policy implemented by the Central Bank of Brazil in response to a double-digit inflation.

Additionally, there have been a lot of late-stage investments in 2021 with very high valuations in the region. Brazil and Mexico alone had 25 unicorns in 2021. This makes a correction in late-stage investments unsurprising, especially since they are down globally.

We noted, however, that while there has been a decline in later-stage funding, very early-stage investments in the region remain strong. Data from Crunchbase and Sling Hub show that seed and angel investments remained flat at around $300 million in the first quarter. While Series A and B funding is down in the first quarter compared to the previous three quarters, there was still $1.3 billion invested in the last quarter, which is 160% more than the first quarter of 2021.

Investors are still optimistic and money continues to flow into Latin American startups, even though we are seeing a shift towards investing in much earlier-stage companies. However, as investors focus more on these early-stage companies, the region’s ultra-high valuation startups may face a tougher fundraising road this year.