Silicon Valley Venture Capital Turns To Latin America Capitalizing On Overlooked Opportunities

When people talk about emerging markets, they usually think about China, India, Russia, Indonesia, Turkey or Saudi Arabia. And, while most also include Brazil in this list, they seldom mention other booming Latin American countries.

This trend is clearly seen in the allocation of venture capital, which poured almost $12 billion into China venture capital funds in the first half of the year, compared to less than $220 million for Latin America, a recent TechCruch article commented.

However, this trend has started to slowly revert, as firms like Andreessen Horowitz, Founders Fund, Sequoia Capital and QED have been investing in the region – mostly in Brazil, but also in Mexico and Colombia. Moreover, TechCrunch contributor Julie Ruvolo explained, this is a market that’s set to boom, with its internet population bound to double, from 300 million to 600 million users; only half of the people included in the banking system; and an avalanche of new people coming online as smartphones become more affordable.

Related Link: Evaluating A High-Flying Emerging Markets ETF

Also worth pointing out, the author continued, is the fact that Brazilians spend more time online than any other country.

All of this explains why venture capital investments have been surging consistently over the past few years, with 2015 setting a new record of $594 million. Furthermore, in the first half of 2016, venture capital transactions in the region rose 46 percent year-over-year, the Latin American Private Equity and Venture Capital Association said.

So, let’s take a closer look into some major Silicon Valley firms landing in Latin America.

Silicon Valley Goes Latino

• Earlier this year, Andreessen Horowitz decided to back Rappi, a grocery delivery service in Colombia.
• Founders Fund invested in Brazilian startups Jusbrasil and Nubank. The latter has already secured more than $80 million in funding from Founders Fund, Sequoia Capital, Tiger Global, Kaszek Ventures and QED Investors.
• Goldman Sachs also made a $52 million debt investment in Nubank, as well as a $10 million outlay in another Brazilian startup, CargoX.
• Accel Partners also put some money down in Mexican grocery shopping startup Cornershop.
• QED Investors, along with Kaszek, Quona Capital, Accion Frontier Inclusion Fund and Jaguar Ventures, participated in an $8 million Series A in Konfio, a lending platform.

Fintech Is King

Given the high percentage of unbanked population, fintech initiatives are having a big impact on financial inclusion, Ruvolo explicated. This is why 29 percent of the money invested in IT went to fintech startups in 2015; this figure rose to 40 percent in the first half of 2016.

Another sector that is gaining traction is agtech – agricultural technology, Ruvolo continued. Monsanto Company MON recently announced an investment of up to $92 million in BR Startups, a Brazilian agtech fund run by Microsoft Microsoft Corporation MSFT and QUALCOMM, Inc. QCOM’s Qualcomm Ventures. The latter also invested in a program to get drones to Brazil’s 2+ million farms.

Finally, BASF SE (ADR) BASFY launched Agrostart, a agtech accelerator.

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Disclosure: Javier Hasse holds no interest in any of the securities or entities mentioned above.