By mid-2024, QED Investors’ Mike Packer foresaw that the tide had turned, with Latin American fintech startups having exhausted their funding opportunities – a trend he believed would soon reverse, marking a comeback in investment activity. While momentum has not consistently trended upward as its best, it is currently making significant progress.
Fintech firms in Latin America have attracted more than their fair share of enterprise capital dollars this year, with a full quarter still to go until December 31st. As of 2024, a staggering $2.6 billion has been poured into 174 deals, according to PitchBook data. In 2023 alone, investors poured in a staggering $1.5 billion across 241 separate deals. While the numbers may not appear substantial, a remarkable 73% surge in funding allocation has been witnessed thus far in 2024 relative to its 2023 counterpart.
So far this year, the total investment is modest in comparison to the remarkable figures of 2021, which saw a whopping $7.5 billion invested, or even the significant $4.3 billion seen in 2022. As evident from these figures, the market appears poised for a significant shift.
“At a conference in Colombia, I was conversing with some of our esteemed seed founders when I mentioned, ‘I’m going to characterize this as the underbelly of Latin American fair funding,'” Packer told TechCrunch. I’m familiar with several pending deals; it appears we’re underperforming.
In recent years, the momentum swing has become increasingly evident across Latin America, with fintech offers garnering widespread attention and closing deals every month without fail.
A São Paulo-based startup secured a $41.5 million Collection B funding round, led by Base10, in January, to further develop its innovative expense management and corporate card software solutions. In July, fintech startup Could secured $15.5 million in funding to help its Latino employees send remittances back to their families in Latin America. A Brazilian AI fintech startup has secured $4 million in funding, with Lux Capital leading the round. Lux’s inaugural investment in Brazil occurred.
Packer notes that the market appears to be experiencing a revival in demand due to two primary factors. One aspect is that LatAm fintech companies that rode the wave of enthusiasm in 2021 are now revamping to secure their follow-on funding – with varying degrees of success, he noted. It’s far from just being a matter of companies merely taking off like planes on a runway. His agency is also witnessing fintech companies from its portfolio reach significant milestones, enabling them to resume growth and pursue the next stage of their development.
“At the beginning of the year, some firms were starting to gain traction and reach notable scale,” Packer said. “We expected a significant increase in deals due to their exceptional quality and substantial volume.”
While Nicolas Szekasy, co-founder and managing associate at Kaszek Ventures, notes some uncertainty about a significant difference in the LatAm fintech market this year compared to previous ones, he concurs with Packer that there has been a notable shift in the caliber of startups seeking funding.
Szekasy notes that the initial fintech surge in the region focused on client-facing solutions, but he’s now observing a shift towards experienced entrepreneurs building out infrastructure companies. The Canadian startup scene is benefiting from an influx of top-tier entrepreneurs, outpacing their US fintech counterparts. While Europe prioritizes stability, Latin America seeks a balance between tradition and innovation.
In the United States, you typically consider certain financial institutions to be fundamental rights. In emerging economies, the region’s financial markets remain underdeveloped, according to him.
Although the market may eventually gain traction and build momentum, it won’t come without encountering significant obstacles. While there has been limited diversity of exit options in the region thus far. Nubank’s 2021 initial public offering (IPO) was likely the most notable, valuing the digital bank at approximately $41 billion upon its debut. Since then, no major departures have occurred. Despite boasting some of the world’s most developed ecosystems, Mexico lacks a single substantial exit strategy.
Although a significant portion of funding for fintech companies in Latin America originates from domestic sources or local corporations focused on the region, as highlighted by Packer and Szekasy. As native funding increases, a new constraint emerges for startups seeking growth.
“The region’s funding levels are woefully inadequate following the 2021 budget correction,” Packer stated. “We’re eager to attract more buyers who will view Latin America as a viable global alternative, encouraging entrepreneurs to think differently and disrupt the status quo.”
