Our expectations for VC in Latam in 2020

Co-written with Eduardo Clavé

Photo by Muhd Asyraaf on Unsplash
  1. The participation of Large Corporations in the venture capital industry.
  2. The involvement of Private Equity firms in the VC space.
  1. Not too long ago, large Latam corporations would question our business model: “why would I acquire a small/medium company, when I can innovate and create something internally? We don’t need you!”. But things changed in 2019: large corporations started participating in the ecosystem as direct investors, LPs, corporate venture capitalist, or acquirers of startups. We are experiencing a rise of Corporate Venture Capital firms, amongst which Arca, WalMart, Cemex, Crédito Real, Falabella, Femsa, GBM and Mercado Libre stand out. In 2019, at DILA we had the privilege of co-investing with some of these institutions in and we believe they can be of tremendous value. At DILA we are receiving constant calls from the largest conglomerates in the region asking questions and looking for information on our portfolio companies. We have even received acquisition proposals for several of our portfolio companies. Is it the right moment to sell? We believe not, but maybe 2020? We see 2020 as a year of exits for some of the early investments that manager made back when we were getting started.
  2. There is a lot of dry powder in private equity firms. Only in Mexico, there is still billions of dollars to be put to work. We are beginning to see large Private Equity firms, both local and international, starting to look at startups as a source of deal flow for new investments or for synergies for their portfolio companies. International Private Equity firms like General Atlantic are starting to invest in companies like Clip. Goldman Sachs is starting to provide financing to several startups and we are starting to see firms like Riverwood, QED, Nexxus and Glisco entering into growth equity rounds.
  • Early stage GPs will have their first exits from their initial funds (those early 2010s vintages). LPs in these funds have been patient and understand the long-term game, however as they start seeing return on their investments they will be motivated and should continue to support the industry and encourage others to follow them. The industry desperately needs full fund cycles.
  • Increased competition is going to bring out the best in local GPs. While we are true believers that VC is a local sport and that home field advantage plays in our favor, the entrance of international capital and corporate venture capital will have a clear effect on local VCs: we are going to have to step up in our game and start to compete with these very experienced and sophisticated investors. Increased competition is always good as it makes us better investors. The better managers are going to start working more together, those will survive, but there will be some funds that could fail to survive in light of these new competitors.
  • We will begin to see write-offs throughout the ecosystem. While we have predicted at length the large rounds of capital, exits and high returns, with great successes come write-offs, an essential part of our business. Many will not see them in the news and people will not brag about them, but they will be part of the 2020 story.Those entrepreneurs that risked everything, learned, suffered and grew stronger because of their failures will return reloaded and we are sure they will help transform the region in the near future. We should be as proud of them as we are about other more successful stories.

Alejandro Diez Barroso. General Partner @ DILA Capital, a venture capital firm focused on Latin American and Hispanic startups.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store