Our expectations for VC in Latam in 2020

a Mexican VC
6 min readJan 1, 2020

Co-written with Eduardo Clavé

Photo by Muhd Asyraaf on Unsplash

I have never written, or spoken publicly, about what I believe the future will look like for our industry (or anything else for that matter). I guess it’s because I will most certainly not come close to predicting what will occur and look like a fool. I would have never guessed nor dreamed what happened in 2019, for example, which was a massive breakthrough year for the VC arena in Latin America (“Latam”).

However, I am writing this post for three reasons: first, many people have asked me to do so. Second, I am a venture capitalist by profession, and I’m supposed to be aware of upcoming trends. And third, I am an economist by studies and as such, it’s customary to predict what’s coming and then explain why it didn’t happen! However, given my insecurities, if I fail, I would like to fail accompanied by Eduardo Clavé, my partner at DILA Capital, which I have invited to co-write this post with me. So, here are our thoughts. . .

Three things occurred in 2019 that, in our humble opinion, should shape the VC industry in Spanish speaking Latam in 2020:

  1. The entrance of US and Asian investors into the region.
  2. The participation of Large Corporations in the venture capital industry.
  3. The involvement of Private Equity firms in the VC space.

Let’s dig deeper into these three trends and analyze their potential effect in the VC industry this coming year.

  1. Prior to 2019, startups in Latam had limited access to later stage capital and had to break-even at the expense of high and exponential growth. However, in 2019 we saw amazing changes. Softbank announced a US$5 billion Latin America fund and started investing in companies like Rappi, Konfio and Kavak. We saw Andreesen Horowitz investing in Addi and Cuenca, Sequioia investing in Rever, among many others. Not only did these, and others, international investors invest directly in companies, but they also started investing in funds as LPs. With this, we believe we are going to see significantly larger local funds in the market: the importance of local venture capital is key for the industry and for international investors. Local knowledge, local know-how and local know-who is something that companies and co-investors value tremendously, so as more international capital comes into the market, more local capital is going to be needed to accompany those international investors, particularly in the early stages. The base of LPs is not only going to come from large international investors, but we are going to start seeing local institutional investors, funds of funds, government entities, as well as international development institutions and sovereign banks investing heavily in the region’s top managers. These funds, along with sophisticated international co-investors, will invest in Series B and beyond, something that we have not seen in abundance historically. We believe this year we will see several mega rounds. In 2020, not a single company that has the merits will hamper its growth because of lack of capital.
  2. 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.
  3. 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.

These three trends will most likely, and hopefully, have great effects on our industry:

  • Strong entrepreneurial spirit will be the norm. We will continue to see the best and most prepared take on the entrepreneurial route instead of navigating the more traditional consulting, investment banking, or corporate professional path.
  • 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.

While we are obviously optimistic about the year ahead, we are also aware of the uncertain social and political situation our region is going through. This situation will most certainly have negative effects on the economy and will spillover to our industry. When we think locally, certain LPs like family offices and other local players are cautious. When we think regionally, they are more optimistic but still taking the time to thoroughly analyze investment opportunities. However, in times of uncertainty, we always look to entrepreneurship, technology and innovation as a differentiator. We truly believe that startup founders will create the solutions to our problems and will therefore flourish in tough macro-economic times, if they were to come.

As we mentioned before, we will probably be wrong about a lot of what we believe will happen this year, but we are not paid to predict the future, we are paid to invest in it. We look forward for another amazing year and we are sure another big breakthrough will come in this still nascent industry (or is it adolescent now?). As always, we thank every single participant of this great industry, from LPs (for their confidence and patience) to advisors, but most importantly to the entrepreneurs that make all this possible.

Eduardo Clavé and Alejandro Diez Barroso Co-Managing Partners @ DILA Capital



a Mexican VC

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