“I haven’t seen a round of growth from a single Latin American company in months,” said Eric Reiner, founder and managing director of Vine Ventures, which opened a $140 million fund this year for investments in Latin America, Israel and USA. “When capital dries up, investors become more sophisticated and selective. Many of these companies will have to prove that they are real businesses.”
The slowdown follows a global decline in venture capital investment, which is on track to record the biggest drop in more than two decades. In the case of Latin America, it comes just as the startup sector was taking off: Earlier this year, investors rushed to write checks, spawning waves of fast-growing companies in everything from fintech to real estate.
In general, risk financing to the region decreased in the last quarter by more than three quarters compared to the previous year, to 1.150 million dollars, according to LAVCA data.
High inflation and rising interest rates have led funds to steer clear of riskier sectors. Instead of making investments based on growth projections, venture capitalists say they want companies to show a clear path to profit.
“I still think it’s reasonable to be optimistic about the region. But we have seen corrections. It is logical and natural, and it reflects that investors demand that companies show profitability,” said Karin Tenenboim, investment manager at Newtopia VC, an Argentina-based firm that focuses on the region. “It’s a different mindset.”
Companies from Mexico to Argentina have suspended expansion plans and cut staff to preserve cash and improve margins. In recent weeks:
Loft, a Brazilian real estate technology company valued at $2.9 billion last year, reported cutting staff 12% this month, the third time it has cut staff this year. A spokesman said the company’s valuation has not been affected.