Why Latin America’s decline in VC investment isn’t necessarily bad news

That global venture capital slowed down in Q1 2022 might no longer be news to you. But global numbers can hide diverging realities around the world, and a closer look at regional data shows us that it is indeed the case.

According to CB Insights’ latest State of Venture report, the amount of funding flowing into U.S.-based and Asian startups did decline, in line with the global trend. However, their European, Canadian, and African counterparts attracted more dollars in Q1 2022 than they did in the previous quarter. Finding out why will keep us busy over the week – but today, our focus will be Latin America.

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Latin America is an interesting place to dive into what might be coming for startups. Why? Because VC investment in the region didn’t start slowing down in the last few weeks: Dollar funding has now fallen for three consecutive quarters in the region. In other words, this mood swing precedes the war in Ukraine, the technology stock selloff, and signs of a global slowdown by several months.

Some of the questions raised by Latin America’s VC deceleration are the same as elsewhere: How can private investment into startups sustain an accelerated pace when interest rates are rising and public valuations are tanking? Other interrogations, however, are more specific to the region: Did valuations get too high, too fast compared to other regions? Did FOMO peak earlier in Latin America? Does long-term bullishness still make sense?

To appreciate what’s happening south of the U.S. border, we crunched some numbers, because this wouldn’t be The Exchange otherwise. We also pinged two investors with interesting perspectives on the region: Amy Cheetham, a partner at Costanoa, and Mexico-based Belgian VC Jonathan Lewy, co-founder and managing partner at Investo.

If you care how the sausage is made, you might be interested in knowing that our initial interpretation was met with some pushback from our experts – which always makes things spicier. Onto our numbers and analysis!

Beyond data

The Latin American section of CB Insights’ report starts with an overview of regional trends, followed by country-by-country breakdowns. This caught our attention, perhaps disproportionately. See the dollar volume evolution for yourself, comparing Q1 2022 with Q4 2021:

VC investment in Q1 2022, in dollar terms:

• Latin America overall: $3 billion, down 25% from Q4 2021
• Mexico: $258 million, down 59% from Q4 2021
• Brazil: $1.5 billion, down 32% from Q4 2021
• Colombia: $457 million, up 56% from Q4 2021
• Argentina: $47 million, down 46% from Q4 2021
• Chile: $182 million, down 17% from Q4 2021

Our first instinct was to dive deeper into the discrepancies between, say, Mexico and Colombia, but Lewy questioned this approach.