Latin America – An emerging tech region.

2022 was a year of many changes for the Latin American technology ecosystem. Fundraising volume slowed as the quarters progressed, and check sizes materially compressed. Many foreign investors paused or reduced investing in the region, while domestic players became more selective in their investment decisions. Founders and operators had to pivot their business strategies to align with what investors were seeking – profitability versus growth – while also having to balance the ever-changing geopolitics.

Has the music stopped, or has it just slowed? Based on our analysis, we believe the answer is neither. The predominant investment thesis has evolved from growth / pre-IPO investing in fintech and consumer-facing operating models to early-stage software and B2B operating models. 

We remain bullish on Latin America and identify the following key takeaways to define the state of the technology landscape:

• One region, two ecosystems: The state of tech is understood as two different ecosystems within one region. Brazil, which is seen as the largest and most mature with its own dynamics, and “the rest of LatAm”. Brazil saw c.40% of the $8bn invested in Latin America in 2022. However, Mexico is quickly catching up, and Colombia could be considered the next contender.
• Capital sophistication: The rise of emerging fund managers and alternative capital instruments investing in tech signal increased capital sophistication and maturity. There is still a blue ocean of funding opportunities given the gap between early-stage funding, led by regional funds, and late-stage growth, led by international capital.
• LatAm tech factories: There are network effects inspiring the next generation of entrepreneurs trained and mentored by the successful, recurring players of the tech ecosystem. Globant, Rappi and Mercado Libre lead, together having created 450+ tech companies that have raised $3.4bn in equity and employed over 22,000 people.
• Focus on B2B: With the intensifying need for digital solutions, the focus has shifted from consumer-internet to increasing specialisation in enterprise software and SME digital solutions. The amount of B2B companies founded each year has grown from 30% in 2010 to 61% in 2022 and B2C has shifted from 70% in 2010 to 39% in 2022.
• Software driving the fifth wave: The start of a new era, the foundation is set for the fifth wave driven by the development of software solutions unlocking efficiencies across all verticals. While Fintech had the most dollar inflow in 2022, Software was second at 34% and also led in deal volume at 37.9%.
• Shareholder value ready to be returned: There is a robust tech exit pipeline for continued positive shareholder returns. In the past 10 years, 14 companies have gone public in the US and 19 in local markets. Of the 280+ investments led by selected growth funds, only c.15% have completed the full cycle and achieved exit.

The report features expert views from leading founders and CEOs in Latin America, including Albo, FCamara, Suma, Sofía and Tul, and investors including Endeavor Catalyst, General Atlantic, and Riverwood Capital.

Claudio Alvarez, Partner at GP Bullhound, said: “We are delighted to formally initiate coverage of the technology sector in Latin America; a region where we have advised clients in the past and see many opportunities for investors in the years to come. In the last decade, the region has benefited from secular shifts in digital transformation and consumer behaviour, which has benefited verticals like fintech and digital services. As the tech ecosystem continues to evolve and software becomes more ubiquitous, we see many exciting B2B software opportunities and trends, which we highlight in the report.”

Miguel Kindelán, Executive Director at GP Bullhound, commented: “The Latin American tech ecosystem has reached a pivotal moment in its evolution. Having undergone one of the most rapid accelerations globally in recent years, it has now reached a state of stability, emerging as a region with exceptional talent and opportunities.”

Enquiries
For enquiries, please contact:
Claudio Alvarez, Partner, at claudio.alvarez@gpbullhound.com
Miguel Kindelán, Executive Director, at miguel.kindelan@gpbullhound.com
 
About GP Bullhound
GP Bullhound is a leading technology advisory and investment firm, providing transaction advice and capital to the world’s best entrepreneurs and founders. Founded in 1999 in London and Menlo Park, the firm today has 13 offices spanning Europe and the US. For more information, please visit www.gpbullhound.com.