When SoftBank announced in 2019 that it had committed $5 billion to invest in startups in Latin America, it felt like a turning point for the region.
And then, when the Japanese investment giant announced it was setting aside another $3 billion for startups there, it was further confirmation that Latin America was home to a massive startup ecosystem.
About $7.6 billion of this capital has been allocated across more than 80 investments, according to Juan Franck, Managing partner at SoftBank Latin America Funds. This means that SoftBank still has $400 million to support companies across Latin America, with about 50% of that money going to new investments and the other half going to existing portfolio companies.
Despite the fact that the total fair value of those investments was $6.4 billion at the end of 2022, the Latin American Fund’s managing partners say they are optimistic about continuing to put capital into the region.
“We continue to feel very excited about the opportunities in Latin America,” Alex Zapiro, managing partner of the funds, said in an interview. “We’re still very early where we are with our fund.”
The pair remains optimistic despite the fact that in February, SoftBank Group’s investment vehicles – including the Latin America Fund – Posted loss $5.8 billion in the quarter ending December 2022 as the Japanese tech investor continues to bleed through the market downturn and drastically cut back on new support.
This was the fourth consecutive quarter that SoftBank Group reported losing money.
While SoftBank declined to provide details on how many Latin American companies it has supported over the past 18 months, a source familiar with the matter told TechCrunch that since January 2022, the company has been involved in 16 iInvestments with a total value of about $400 million. Recently, SoftBank put the money into a financing round raised by Rankmi in Chile.
“We don’t have a predetermined target for the number of deals, the value of investments, or the number of companies we will invest in in 2023,” Szapiro told TechCrunch. “We still have dry powder from LatAm Fund II and access to Vision Fund II. We’re not concerned with deploying capital. The goal is to find companies that fit our investment thesis.”
competitive advantage
The duo believes that SoftBank, despite its losses, has a competitive advantage over other global investors putting money into LatAm startups in that it has members of its investment team operating in various parts of the region such as Brazil, Mexico and Miami. (This makes sense considering that about 80% of its investment dollars in the region have gone to Brazilian and Mexican startups.)
“From 2019 to 2021, a lot of players came to the region, but when the markets shook up a little bit, those tour boxes left,” Zapiro said. “We believe you need someone down to earth… We also understand the entrepreneurs in the market.”
In Latin America, where founders seek relationships as much as they do capital, SoftBank hopes to benefit from having an investment team that hails from the regions it seeks to invest in.
“A lot of founders are first-timers and this is the first time they’ve gone on a venture and they depend on us for a lot of things beyond capital,” Szapiro said. “So we help them with the legal side, with human resources and with things like product development and marketing. We have teams in those areas, and they rely on us a lot.”
For Frank, this is where SoftBank’s “long-term commitment” comes in, especially as the startup world faces a global downturn and capital isn’t easy to come by.
“2023 is really about going back to basics, focusing on your product, focusing on your customer, and also focusing on profitable and sustainable growth,” he told TechCrunch. And so portfolio management is as important to us as making new investments in existing portfolio companies or new portfolio companies. But the fact that we’re on the ground, working elbow to elbow with entrepreneurs, and it also shows up in follow-up investments. I think it’s also a great opportunity for us to cement our message of long-term commitment to the region.”
Over time, SoftBank has seen quite a few exits in the area, incl Itau, Brazil’s largest private bank, acquiring 35% of Avenue; paystand, US-Focused B2B Payments Network, Acquires 100% of Yaydoo, Brazilian Education Tech Giant Arco Educação acquires 75% of Isaac in an all-share deal. Other companies supported by the bank include Creditas, Kavak, Inter, VTEX, QuintoAndar, and Rappi.
Of course SoftBank is not the only company with people on the ground aiming to support and/or assist startups in the region. For example, Kaszek announced earlier this week that it had It closed at $975 million Through two new funds to support startups in the region. And last year, Latitude It raised $11.5 million in seed funding from investors like Andreessen Horowitz and NFX for its efforts to become “the operating system for every venture-backed company in Latin America.”
In recent years, SoftBank has also supported companies in other countries, such as Chile and Colombia, for example. And she plans to continue to do so.
“Good opportunities transcend geographic barriers,” Frank said. “So we don’t spend a lot of time thinking about the country we’re focusing on.”
Overall, the pair acknowledge that while the pace of investment has slowed in 2022 as many investment firms are “on lockdown,” demand for capital has also fallen — particularly in Latin America, where founders have historically had to be more disciplined than their peers. In the US because it is generally more difficult to raise venture money there.
“There’s a lot of dry powder out there, but I would say that funds in general are more disciplined in their business models and company valuations,” Frank said. At the same time, A A lot of the companies in our portfolio and across the region still have cash on the balance sheet that they raised in 2021 and 2022. This gives them the flexibility to continue to use that cash in the course of optimizing and extending the cash runway, and not having to go into the market in the short to medium term. , especially in a market where the context is likely to require terms that they are unwilling to accept.”