Tag: Softbank

Is Latin America the “NEW CHINA”?

Early this year, SoftBank Innovation Fund was announced as “the largest-ever technology fund focused exclusively on the fast-growing Latin American market”.

This SoftBank decision makes total sense once we realize the economic development of Latin America in the last years. The region is now regarded as “the new China” when it comes to venture investing, business startups, and venture funds because of rapid growth taking place in the economy.

In fact, the Association for Private Capital Investment in Latin America stated that in the first half of 2019, venture funds investments in Latin America summed USD 2.6 Bn. across 160 transactions, which is a big improvement to the USD 2 Bn. raised in 463 transactions for 2018.

Just think about this fact:

Do you know that in 2016, all startups in Latin American just raised USD 500 million combined? 

In other words, venture funding in Latin America in the first 6 months of 2019 summed more than 5 times the amount raised in the whole of 2016.

This clearly proves that:

  • Venture funding is taking over at a fast rate and the stats are there to prove it .
  • Rounds are getting bigger which shows how the market is maturing quickly.
  • More money was raised over fewer transactions which means that larger amounts of cash are being invested.

We’re now seeing a noticeable improvement in activities in the early stage from seed all the way to growth capital.

Big deals haven’t been left out of this as more and more investments have been rewarded like:

  • Colombian on-demand delivery unicorn Rappi raised USD 1 Bn. in April.
  • Gympass raised USD 300 million in June in Brazil.
  • Brazilian Real estate unicorn QuintoAndar raised USD 250 million in a Series D.

In recent years, Brazil has had the largest share of venture funding in Latin America but this has come to change because in the first 6 months of 2019, Colombia has surpassed Brazil in terms of venture dollars raised thanks to the recent Rappi’s investment round.

According to the Association for Private Capital Investment in Latin America, Colombian startups raised over USD 1.06 Bn. in venture funding in 13 transactions. 

Now, compare this figure to the USD 989 million raised by 88 Brazilian startups over 88 deals and you would clearly see that the difference and margin is really large.

Next in the list is Mexico with USD 310 million invested in 34 deals. Collectively, the three markets made up 91.9 percent of the dollars invested and 84.9 percent of the deals during the first half of 2019.

Also, Kaszek Ventures founded in 2011, has recently closed two funds totaling USD 600 million in August as reported by Techcrunch. This made them one of the primary architects of the rapid boom startup financing and growth in Latin America.

In the words of Nicolas Szekasy, the co-founder and managing partner of Kaszek Ventures: “Every year it’s one step ahead. In the last few years, in particular, we have seen the pace accelerating and an increase in quality of the founding teams”.

Venture Capital Ecosystem – Now

The current Venture Capital ecosystem has begun to revive and experienced growth in the last two-quarters. Let’s take a look at the situation of the venture capital ecosystem to evaluate the liquidity and investment position in the market.

 

Overview

In the first and second quarter of 2017, VC sector continued to grow despite the rolling financial market in China, Euro crisis, UK’s exit from the EU, controversial election in the U.S. and obstructed technology IPO market. Although, new uncertainties have surfaced, investors have learned to adapt and adjust. Whereas, the profits made in the first quarter further increased in the second quarter.

 

Funding Activity at a Global Level

The number of deals around the world has also increased. Equity funding rounds in the second quarter of this year increased by 5.7% as compared to the first quarter, adding about 300 rounds. This change took place as a result of angel investment and seed stage investment.

If you compare it with the second quarter of 2016, the overall growth in the funding rounds was about 8.8%, which came about as a result of early stage firms.

 

Dollar Volume

According to a report by CrunchBase, the overall investment increased by 16% in dollar terms, which is an increase of about $6.6 billion in the deployed capital. There was a fair distribution of gain. Late stage startups, early stage startups, startups at the seed stage and angels received about 20% funding in the current quarter as compared to the previous one. The only thing that faced a downturn was a technology growth rounds.

However, the global VC market is not yet restored. In the second quarter of last year, the total investment amount was $51.5 billion, but this year it was $47,8 billion, i.e., 7.2% less than the previous year. On the other hand, technology and seed sector experienced growth by 10.75% and 16.5% respectively.

 

Leading Investors

In a CrunchBase report, a total of 3200 VC rounds was analyzed during the second quarter of this year. During the first quarter, it was Tencent Holdings, Sequoia Capital and Accel Partners that secured the first position, wherein, each had a total of 9 rounds. In the current quarter, however, Tencent led 11 rounds, whereas, Sequoia and Accel led 14 and 20 rounds respectively.

In this quarter, some newcomers were also in the leading position, including Samsara, Grammarly, and General Catalyst. SoftBank also formed part of this list in the second quarter of 2017 along with True Ventures. Some firms dropped down from a leading position, while other newcomers made it to the top.

 

Technology Growth

Growth capital in the technology sector is also known as a growth equity in the business. Technology growth rounds have been defined as private equity rounds in the CrunchBase report. In these rounds, some VC investors from the previous rounds also participated as a continuation.

The dollar and deal volume also increased in this quarter compared with a volume of the same period last year. The overall increase was about 32%. The increase in dollar volume was of $160 million. Although, the deals in the current quarter were two times more than the deals in the previous quarter, the total value of funds was 45% less than the last quarter. This downfall represents the decline in round sizes over time.

 

Initial Public Offerings

The second quarter of 2017 experienced a small increase in the technology initial public offerings (IPOs), both in the United States and the Europe. This toned down the speculative noise that IPO window was closed for everyone except the big firms.

No significant regulatory filings or announcements were made in the third quarter of this year. Redfin, a real estate brokerage, filed documents with the Security and Exchange Commission, showing its interest to raise $100 million. And so far, it has managed to raise over $167 million from investors like Tiger Global Management, Draper Fisher Jurvetson, and others.

 

Although, the global VC market experienced a severe decline at the end of last year, the second quarter of 2017 was relatively better. Growth was observed in the dollar and deal volume for two-quarters back to back. Rounds are also experiencing growth; some venture capitalists doubled the bet on their investing activities. If the upward trend continues, the third quarter will bring the market back to normal after full recovery.