The VC Market in South America
South America
The concept of venture
capital investing in the United States as well as in Europe began in
the postwar 1950s but did not really gain serious traction until the 1980s,
when the idea of venture capital investment began to flourish. Efraim Landa
is a venture capitalist that understands the difficulties and obstacles
start-ups face and can offer solutions to help with the challenges along the
way. After the initial growth of venture capital in the 1980s the market has
grown to now include 900 or so venture capital firms that invest billions each
year collectively. Much of the activity in these private equity markets comes
from Management Buyouts (MBOs) and Leveraged Buyouts (LBOs).
The developing venture capital market in South America often looks to more developed markets such as are found in North America and Europe and then tries to mirror the growths and successes. There have been many difficulties that face investors in the South American venture capital markets. Many investors have had trouble exiting from their investments for a variety of reasons such as a lack of institutional buyers for Initial Public Offerings (IPO’s), dull stock markets, a lack of trade buyers, uncooperative co-investors and managers, as well as poor portfolio performance. These problems that have plagued the growth of the South American venture capital market are not unique to South America and have been experienced in the North American and European markets as well.
Like all markets, the South American venture capital market is a dynamic environment with many things happening at once, both positive and negative. Some people in the markets have accused venture capital firms of stunting market growth by being too limited and prejudicial toward buyers. These individuals feel that the market would be best served if these firms took on an adequate number of buyers, though there is some doubt and disagreement as to whether or not this is really the case.
Differences
While there is much that the venture capital market has learned from the experiences leading to the booming markets in North America and Europe, there are many aspects of the South American market that are too different, making the transfer of direct experience impractical. Due to these disparities between the different markets, the South American venture capital market will have to find its own solutions and develop in a way that is unique to South America. One challenge that separates the South American venture capital market is that the high prevailing interest rates in South America make leverage techniques essentially useless. This cuts out a huge section of activity that developed markets benefit from.
On the plus side
One positive difference for the South American venture capital market is that investors have seen how successful the more developed markets have been and are hungry to try in South America. There is already strong corporate involvement seeking to exploit business opportunities in the region. This took a while to develop in the US markets. The South American markets may benefit from this interest and may develop faster because of it.
There continues to be a lot of activity throughout Latin America with many international firms moving into the region. New funds are also being formed throughout Brazil, Mexico, Peru, Colombia, Chile, and other smaller nations. There are many more firms in the markets now, making fundraising much less concentrated than in previous years. There have also been a record number of deals recently, which would indicate a deepening and maturing of the investment ecosystem. Many companies are looking to invest in Brazil’s technology companies and funds are coming in both domestically and internationally for these tech startups. The past few years have seen a rollercoaster of exit activity. 2011 saw several companies generating huge profits, but subsequent years have been slightly quieter on this front.
In addition to these tech-based investments, many companies are looking toward the consumer-related opportunities. In 2012 these investments made of 40% of the total $7.9 billion that investors put into the markets. Many of these investments were in retail, restaurants, education, fitness, and healthcare. IT sectors have also continued to be strong in South America. Investments in IT have doubled both in numbers of investments and number of dollars since 2011.
The developing venture capital market in South America often looks to more developed markets such as are found in North America and Europe and then tries to mirror the growths and successes. There have been many difficulties that face investors in the South American venture capital markets. Many investors have had trouble exiting from their investments for a variety of reasons such as a lack of institutional buyers for Initial Public Offerings (IPO’s), dull stock markets, a lack of trade buyers, uncooperative co-investors and managers, as well as poor portfolio performance. These problems that have plagued the growth of the South American venture capital market are not unique to South America and have been experienced in the North American and European markets as well.
Like all markets, the South American venture capital market is a dynamic environment with many things happening at once, both positive and negative. Some people in the markets have accused venture capital firms of stunting market growth by being too limited and prejudicial toward buyers. These individuals feel that the market would be best served if these firms took on an adequate number of buyers, though there is some doubt and disagreement as to whether or not this is really the case.
Differences
While there is much that the venture capital market has learned from the experiences leading to the booming markets in North America and Europe, there are many aspects of the South American market that are too different, making the transfer of direct experience impractical. Due to these disparities between the different markets, the South American venture capital market will have to find its own solutions and develop in a way that is unique to South America. One challenge that separates the South American venture capital market is that the high prevailing interest rates in South America make leverage techniques essentially useless. This cuts out a huge section of activity that developed markets benefit from.
On the plus side
One positive difference for the South American venture capital market is that investors have seen how successful the more developed markets have been and are hungry to try in South America. There is already strong corporate involvement seeking to exploit business opportunities in the region. This took a while to develop in the US markets. The South American markets may benefit from this interest and may develop faster because of it.
There continues to be a lot of activity throughout Latin America with many international firms moving into the region. New funds are also being formed throughout Brazil, Mexico, Peru, Colombia, Chile, and other smaller nations. There are many more firms in the markets now, making fundraising much less concentrated than in previous years. There have also been a record number of deals recently, which would indicate a deepening and maturing of the investment ecosystem. Many companies are looking to invest in Brazil’s technology companies and funds are coming in both domestically and internationally for these tech startups. The past few years have seen a rollercoaster of exit activity. 2011 saw several companies generating huge profits, but subsequent years have been slightly quieter on this front.
In addition to these tech-based investments, many companies are looking toward the consumer-related opportunities. In 2012 these investments made of 40% of the total $7.9 billion that investors put into the markets. Many of these investments were in retail, restaurants, education, fitness, and healthcare. IT sectors have also continued to be strong in South America. Investments in IT have doubled both in numbers of investments and number of dollars since 2011.