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The Opportunity for Venture Capital Investors and Limited Partners in LatAm

The VC opportunity in LatAm is growing quickly. In Peru, PECAP continues to be a strong ally in developing the local VC ecosystem contributing an array of information from data generation to capacity-building for members.

Why is Venture Capital (VC) indispensable for emerging entrepreneurship ecosystems? Scaling impactful ventures requires liquidity and access to cash. The cycle goes like this: entrepreneurs with high-growth, high-impact ventures attract investors, some of those ventures create exponential gains in both revenue and impact, attracting more capital and triggering job creation.

Besides economic development, a stronger VC ecosystem can boost competitiveness and the adoption of new technologies. This sounds simple but fostering these opportunities in LatAm’s emerging market is a challenge due to the overall difficulty of running a successful business, coupled with a lack of direct support for high-growth entrepreneurs at different stages, and low access to capital.

Recent VC Growth in LatAm

Latin America is gaining traction as one of the most attractive emerging markets for VC/tech investment outside of Asia, according to the LAVCA 2020 LatAm Snapshot. As a result, in 2020, there was a record of 488 VC deals in the region. Despite the crisis caused by the pandemic, Mexico, Chile, and Uruguay grew their first unicorns: Kavak, Cornershop, and DLocal, joining Brazilian and Colombian unicorns Nubank and Rappi.

The resilience shown during the pandemic can be seen in the astounding numbers from H1 2021: a report from LAVCA (Association for Private Capital Investment in Latin America) shows that companies in the region raised approximately $6.2 billion in venture capital investments in the first half of the year, a 51% increase over the total invested in 2020. Compared to the last half-year, the increase was 138%.

Helping Build an Early VC Ecosystem

In Peru, the Peruvian Venture Capital Association (PECAP) is an essential advocate of venture capital, building the foundation for the development of the VC ecosystem. They began their journey focusing on collecting, interpreting, and providing Peruvian investment data. This led to collaboration with the public and private sectors, which facilitated connections with local and international investors.

After that, PECAP began focusing on public policy. They were fierce advocates of the first Fund of Funds (FoF), led by COFIDE, the Peruvian Development Bank, which was approved with an initial budget of US$ 20 million aimed at VCs with a regional focus.

Lastly, PECAP provides resources and training in support of the VC ecosystem. For example, they hosted an LP Matchmaking Event in the PVCC 2021 to facilitate connections between international LPs and regional GPs. Another example is the capacity-building mission implemented for select member funds to receive feedback from the experienced investor Susana García-Robles on fundraising best practices.

VC funds prepare: what are LPs looking for?

With the FoF around the corner, Susana’s mentoring was essential for these member funds. The mission consisted of training VC funds on how to pitch to LPs. Through 1-on-1 sessions, fund managers were able to draw from Susana’s 20+ years of experience in VC and obtain personalized feedback on their pitch and funding strategy.

In Susana’s masterclass, fund-managers learned two important considerations: (i) make a clear pitch: showcase what you have done so far, and your portfolio’s growth; (ii) understand what LPs want to know: your research capacity won’t make you unique, your track record and long-term vision will.

The other 3 takeaways were:

  1. Have a compelling structure to your fund, with a clear vision, goals, and fund size.
  2. Build a deck to showcase the focus, objectives, and investment case studies.
  3. Structure a clear roadmap on how to reach out to LPs.

Even though the Peruvian VC Ecosystem is nascent, clear opportunities such as the recent VC growth in LatAm, the active ecosystem builders, and the clear milestones for the funds are great signs of a maturing VC ecosystem. PECAP will continue its support in hopes of unlocking even more amazing opportunities in Peru and the region.

Source: ARCAP, LAVCA 2021 report, PECAP, Vagabondvc