INTEGRA FIVE - LATAM DISPATCH
Which Latin American Cities are the Strongest Seedbeds for Startups?
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July 1, 2022
July 1, 2022
In 2021 venture capital investment in startups in Latin American for around $15.7 billion. This record figure surpassed the amount invested in the previous decade, however this year startups are facing more adverse conditions. There is greater difficulty in accessing capital amidst higher interest rates and global economic uncertainty due to the post pandemic economic recovery, supply chain shortages, climate change and war in Ukraine.
Latin America has been swept by layoffs, but Habi a Colombian proptech has become the the country’s second unicorn after Rappi. The Ecuadorian fintech Kushki has become the country’s first billion-dollar-valuation status. Brazil has been listed as number 28 by the Global Startup Ecosystem Report 2022. About São Paulo, the report states “its size and density offer founders a large market and the opportunity to connect with other innovators”, adding that the value of the city’s startup sphere is equivalent to $108 billion.
The second most robust startup city in Latin America is Mexico City, with a startup seedbed valued $22 billion where average seed rounds are $500,000 and Series A rounds average around $9.5 million.
Foreign Affairs published an article on how governments will transform energy markets in the wake of Russia’s invasion of Ukraine and climate change. Written by Jason Bordoff (Columbia University) and Meghan O’Sullivan (Harvard Kennedy School) the authors go into great depth on factors that have led to this moment, and the difference between our current energy crises and those from before.
Europe has shown its vulnerability to the disruption of Russian energy imports, with the war being defined as Europe’s 9/11. They suggest that a more expansive role for government is likely to become a defining feature of the new global energy order. If government intrusion into energy markets had a profound economic, political, and geopolitical ramification in the 1970s, such activity will be transformational today, but positively if achieved correctly.
The dual imperatives of energy security and climate action whilst not allowing one to compromise the other will require harnessing the power of markets and an expansive governmental role in leveraging, shaping and steering those markets. They suggest that without government intervention, tailored and restrained but nonetheless increased, the world will suffer a breakdown in energy security or the worst effects of climate change—or both.
JPMorgan analysts believe that the current phase of deleveraging in cryptocurrencies is at an advanced state and may not last much longer. Multiple crypto company failures ought not to come as a surprise given the massive price declines amongst tokens and entities that used higher leverage in the past are most vulnerable. Three Arrows Capital hedge fund said that the liquidity crunch “is a manifestation of this deleveraging process.”
The crypto space has endured a number of high-profile blowups and hiccups. According to CoinGecko, total market cap was down to around $930 billion on Thursday, after surpassing $3 trillion in November.
Crypto exchange FTX has been granting lines of credit to select firm and is apparently also looking at acquisitions. Fund raising efforts from venture capital have continued as is evident from data firm Kaiko’s $53 million haul this week. JPMorgan suggests that a good portion of the troubles are now behind crypto. Indicators like the firm’s net leverage metric “suggest that deleveraging is already well advanced,” the strategists said.
July 1, 2022
June 17, 2022
The World Economic Forum recently suggested key actions that Latin American and Caribbean (LAC) countries ought to take to boost their economic recovery. LAC countries have been experiencing widening inequalities due to climate change, the pandemic and other shocks.
Boosting digital transformation in transport is key as it provides citizens with essential, basic, and medical supplies. A digital advancement could lead to progress through markets, hobs, healthcare, and education. The Digital transformation would include the adoption of the Internet of Things, artificial intelligence, 5G, automation and electrification, putting the transport sector in a position to make huge gains.
Greater visibility and streamlined and multi-stakeholder processes could lead to an unprecedented efficiency. In turn, there will be an improvement of the overall quality of services with better predictability, reliability and focus on users’ needs. These changes will reduce harmful emissions through the gains in operational efficiency and energy transformation.
The current main barriers to digital transformation are resistance to change, lack of senior management prioritization, cost of technology and lack of financial resources and human talent. To move forward, making digital transformation a priority in sector planning, creating balance with risk mitigation, the use of a variety of instruments and fostering public sector digital transformation in transport.
Bloomberg reports that Alphabet’s Google has committed to invest $1.2 billion in Latin America over the next five years to support economic development and digital transformation in the region. Google has had an active presence since 2005.
$300 million will be split into $50 million in cash contribution and $250 million in advertising credits. Pro Mujer will receive a good part of the resources to help women-led businesses in Guatemala, El Salvador and Honduras gain access to training and microcredit.
The contribution is divided into four pillars: digital infrastructure, digital skills training, entrepreneurship, and inclusive and sustainable communities.
Google has committed to creating an undersea cable next year to connect North and South America across the Atlantic Ocean, ensuring better internet for Google to offer its services in the region. It will be the longest in the world and will run from the United States to Argentina, stopping in Brazil and Uruguay.
TechCrunch analyses the upward trend of investments in Latin American fintechs. 2021 was the year of a global funding boom, and Latin America received a lot of money in investments. As many people in the region are underbanked or unbanked, digital penetration has started taking off, with fintech startups being amongst the largest recipients of capital.
LAVCA, the Association for Private Capital Investment in Latin America found that startups in the region overall raised $2.8 billion across 190 transactions during a 3-month period in Q1 2022 (ending March 31.) Fintechs are by far the largest recipients of venture funding in 2022 Q1, with 43% of dollars raised, or $1.2 billion having flowed into the category.
Carlos Ramos de la Vega, the director of venture capital of LAVCA said “We have continued to see the cross-pollination of business models within the sector: Payment platforms are increasingly incorporating BNPL alternatives, lending platforms have become full-service digital banks, challenger banks have expanded their product suite to include embedded credit products and working capital facilities.”
Moreno, the former IDB chief discusses the effect of venture capital and the technological boom and how it can positively offset political uncertainty. Discussing his latest book on the AQ podcast, he talks about the history and political development of Colombia.
Populism is on the rise internationally, and this he contributes to social media bringing out the worst and not allowing people to converge. Coupled with what he describes as the Colombia way of being fantastic at complaining, but inadequate at creating solutions makes for a difficult economy.
However, his experience of inequality as a child has made him very alive to these issues and he sees it as a pivotal driver for change. The current investment in LatAm bodes well for the nation and region as a whole, calming the current political uncertainty.
Economists at Bloomberg analyse Brazil’s central bank as it is expected to slow the pace of its current aggressive monetary tightening campaign, as policy makers bet the highest interest rates in five years, which will soon start to cool inflation.
All but two of 41 economists in a Bloomberg survey see the bank’s board lifting the benchmark Selic by a half percentage point to 13.25% on Wednesday, extending a cycle that has already added 10.75 percentage points to rates since March 2021.
Brazil’s central bank, led by Roberto Campos Neto is battling persistent energy and food shocks which have kept rising in price by more than 10% a year since September. Core measures are high and price pressures are spreading to the services sector.
Investors will be looking to see whether Brazil offers a new increase in August, given inflation expectations remain above target. Persistent price pressures have already forced other Latin America central bankers to extend their tightening cycles, with Mexico even mulling a record rate increase next week.
June 17, 2022
June 10, 2022
The World Economic Forum reports on how female entrepreneurs are helping feed farmers in Brazil. As the cost-of-living crisis is being felt globally, the state of the post pandemic economy recovery, coupled with climate change impacts and supply chain blockages caused by the war in Ukraine are leading strong reverberations around the world. These entrepreneurs are not only helping feed Latin America but are providing organic farmers with better livelihoods.
Priscilla Veras created Muda Meu Mundo, a Brazilian startup that connects small scale family farmers to big supermarket chains by handling logistics, transportation, and offering credit and technical assistance to help growers boost output. This cuts out the middleman and sends more profits to the farmers, whilst also using less resources whilst increasing crop production.
Papayas, another Brazilian female run startup allows customers at the two largest agro-ecological fairs in the southern state of Rio Grande do Sul state to buy produce from organic and small family farms directly, using an app. Farmers now pay less in banking charges and receive payment in a week, but most often same day. This is a massive improvement on the normal wait time of a month. Additionally, the company has built a customer base by partnering with local firms who provide their own staff with in-app food vouchers.
The Founder Institute (FI), the world’s largest startup accelerator launched in Caracas a year ago, receiving a massive number of applications for its accelerator program. 168 people applied, and nine graduate and eight formalised the launch of their technology company in a hostile and hungry market. E-commerce, marketplaces, edtech and fintech were the most common applications to FI.
Marco Villegas, the director of Arca Análisis Económico and co-director of FI Caracas, talks about the talent found and his gratitude to FI’s presence. Regarding the integration of facilitators in the accelerator programs, he said. “I feel like I’m helping Venezuela a little bit. With all the knowledge they may have and are willing to contribute to the process, and it has been one of the best experiences we have been able to experience. Venezuelans in Google, Meta, Amazon, or in startups that are already here, are supporting the ecosystem.”
FI is currently moving into its third round of courses in in the country and is focused on the strengths of those making proposals as this will allow for greater flexibility to mutate and support the ‘Venezuela Laboratory’, which has the aim of offering solutions.
Venezuela’s oil production remains steady as exports to Europe resume following the easing of some US restrictions. OPEC placed Caracas’ output in May at 717,000 barrels per day (bpd), as measured by secondary sources, 2,000 bpd less than April. The numbers reported directly by Venezuelan state oil company PDVSA stood higher at 735,000 bpd but slightly below the 775,000 bpd from the previous month.
Historically oil sales are Venezuela’s main source of foreign income, but these were blocked by Washington’s sanctions, which were created to cripple the economy and oust Nicolas Maduro. Foreign companies were forced to gradually abandon operations as well as oil agreements with Venezuela following the 2017 financial sanctions against PDVSA, the 2019 oil embargo, subsequent secondary sanctions, and a raft of other measures throughout 2020.
Despite these embargos, Venezuela has improved crude production with assistance from Iran. In September 2021 Tehran and Caracas struck an oil for condensate agreement to dilute PDVSA extra-heavy crude into exportable grades, therefore boosting the industry’s output and exports.
June 10, 2022
June 10, 2022
The president of Brazil’s Central Bank, Roberto Campos Neto, said that the challenge in formulating a digital currency is to ensure that the credit capacity of banks is not impaired. To make monetization possible by banks with a new format, institutions will be able to issue stablecoins which are digital currencies linked to tangible assets.
The Central Bank will issue the digital real with provision for use in retail payments, and is expected to be launched by the end of 2022, however it may be postponed due to the strike of the municipality’s servers. Neto has been paying close attention to cryptocurrency in Brazil for the last two years, and he sees it as an instrument for a means of payment growing below inflation, but that its use an investment tool is growing.
Latin America is suffering a wave of startup layoffs, but within this hardship employers are taking advantage of the situation to hire highly skilled digital talent. Platzi’s founder, Freddy Vega highlighted the importance of companies adapting to change as it is not the strongest who will survive, but those who move quickest and are willing to make the necessary changes. Vega said that workers in the technology industry in Latin America will not be laid off for long given the deficit of professionals throughout the sector in the region.
Truora founder, Daniel Bilbao has launched Pivot, a platform for laid-off Latin American professionals to connect with companies interested in hiring them. The platform’s registration creates exposure or allows the reporting of their layoff, whilst companies can use the platform to hunt for talent. Profiles include professionals in customer services, design, sales, engineering, data analytics, business development, operations, purchasing and finance.
Integra Groupe’s managing partner, Alfredo Vargas was invited to attend the Summit of the Americas this week. The summit is held by the US Department of the State, and it is a gathering between government, civil society, private sector, and international organisations. Integra is aligned with the Summit’s values and are excited to help build s sustainable, resilient, and equitable future
The Summit takes place in Los Angeles which has the largest Hispanic/Latino population in the US. One factor discussed by Biden was his wish to press the administration’s competitive goals against China with the launch of a new partnership with Latin America, as well as a revitalization of the Inter-American Development Bank and the creation of clean energy jobs.
By presenting Latin American countries with an alternative to China by increasing the economic engagement, there will be more investment and strengthening of existing trade deals. However, his “Americas Partnership for Economic Prosperity,” which still appears to be a work in progress, stops short of offering tariff relief and, according to a senior administration official, will initially focus on “like-minded partners” that already have U.S. trade accords.
June 10, 2022
Potential for venture returns while changing the world.
