Our expectations for VC in Latam in 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.

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.

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.

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

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