Latin America is experiencing a boom in venture capital investments.
In the first six months of 2021, the region registered nearly $6.5 billion in VC investments, a number even higher than the $4 billion registered in 2020 as a whole, according to the Association for Private Capital Investment in Latin America (LAVCA).
Crypto is playing a big part in this regional investment surge, thanks to large sources with fresh money triggering unprecedented funding round levels and the birth of two crypto “unicorns” in Latin America, among several other milestones.
According to LAVCA, smaller crypto deals have been recorded in Latin America since 2016, when Mexico-based crypto exchange Bitso raised $2.5 million from Cometa fund and several other venture capital firms.
“Then, in 2021, we saw a definite uptick in crypto investments in terms of volume and ticket size,” a spokesperson for LAVCA told CoinDesk.
Latin American crypto startups raised $517 million in announced VC funding during the first half of 2021, the same spokesperson said in a written statement.
Of the nine new unicorns, or privately held startup companies valued at over $1 billion, born in the first half of 2021 in Latin America, two are cryptocurrency related. Mexican crypto exchange Bitso was the first after raising a $250 million Series C led by Tiger Global, at a $2.2 billion valuation. Mercado Bitcoin, the largest crypto exchange in Brazil, raised $200 million in a Series B round from the SoftBank Latin America Fund and reached a $2.1 billion valuation.
These massive amounts for the crypto firms this year far outstripped their 2020 counterparts. Bitso previously set a record for Latin American fundraising last year after raising $62 million – a mere fraction of its 2021 round – in a Series B.
Kaszek, which led that Series B round, is always looking for opportunities in Latin America, co-founder and managing partner Hernan Kazah told CoinDesk. However, the first waves of crypto projects were more global in scope and did not present specific solutions for regional problems, so Kaszek didn’t get involved.
There is certainly no shortage of regional problems to address.
“In Latin America we [are used to] exchange rate volatility, costly regulations and untrustworthy currencies. In Argentina, a 10-year-old understands that there are different exchange rates,” Kazah said.
He notes that projects are coming up with applications for local use.
“Those players will be able to do much better than global players in Latin America,” he said.
Ignacio Plaza, managing partner at Latin American venture firm Draper Cygnus, echoed these thoughts. In 2021, Draper Cygnus announced a $50 million early stage fund for pre-seed to Series A investments rounds.
According to Plaza, underdeveloped financial services in Latin America are one reason why the region is an ideal place for crypto.
“Crypto is going to replace the existing financial infrastructure,” he said,
Regionalize as soon as possible (or sell)
Some Latin America-focused projects, after raising big rounds, start expanding regionally.
Mercado Bitcoin, the largest Brazilian crypto exchange, plans to expand from Brazil to Argentina, Chile, Colombia and Mexico, Roberto Dagnoni, CEO and executive chairman of 2TM Group, Mercado Bitcoin’s parent company, told CoinDesk.
The company has already been in talks with peers about potential acquisitions, he added.
After it raised $50 million in a Series B founding round in September, Ripio plans to open operations in Colombia, Mexico and Uruguay before the end of 2021, Chief Brand Officer Juan José Mendez told CoinDesk. He added that the company plans to start operating in Spain in the first quarter of 2022. The company plans to announce the acquisition of an exchange in Colombia in the next few weeks.
On a smaller scale, two Argentina-based crypto exchanges, Lemon Cash and Buenbit, face similar scenarios. Both raised their Series A – $16.3 million and $11 million, respectively – and started their expansion processes across Latin America.
Bitso, established in Argentina and Mexico, is so interested in Brazil that the company’s co-founder and CEO, Daniel Vogel, moved to Sao Paulo and hired Facebook veteran Vaughan Smith as the company’s first chief operating officer to boost expansion in that country.
The flood of fresh money is also sparking mergers and acquisitions.
In February, Latin America-focused exchange Bitso bought Quedex, a crypto derivatives trading platform, based and regulated in Gibraltar, while Argentina’s Ripio acquired BitcoinTrade, the second-largest crypto exchange in Brazil, in an undisclosed transaction made in January.
Kaszek sees outstanding regional talent creating global projects. The fund made its first decentralized finance (DeFi) investment in August, leading a $3 million round in Exactly, a startup that is building an open-source, non-custodial credit protocol on the Ethereum platform, with a global scope.
Exactly was founded by Gabriel Gruber, an Argentine entrepreneur who had previously founded the proptech company Properati, later sold to OLX group.
NXTP Ventures, one of the oldest venture capital funds in Latin America, also invested in Exactly. According to co-founder and managing partner Ariel Arrieta, DeFi’s ability to enable and support growth is unmatched by other industries.
“It’s one of the factors that make these investments more attractive,” he told CoinDesk.
The fund started looking at crypto in 2013 when one of its limited partners, Wences Casares, founder of crypto bank Xapo, introduced the founders to the subject, Arrieta said. In the crypto and blockchain segments, NXTP Ventures’ portfolio currently consists of Securitize, Ripio, RSK, Koibanx and Waynyloan.
A large portion of the pitches Kaszek considers on a weekly basis is crypto-related.
“Before, the joke was that all the startups included the words ‘big data.’ Now they all include ‘blockchain,’” he said.
Companies are thus inclined to include the word “crypto” when it comes to raising money, according to Plaza.
“Today you can’t have any fintech project if you don’t include the crypto business,” he said.
Kazah said Kaszek’s crypto investments in 2021 will exceed those of 2020. “They won’t represent 100%, because we still see opportunities in fintech, e-commerce, marketplaces. However, we will certainly do much more than last year,” said the investor.
Plaza said he often sees presentations of crypto projects that raise funding rounds 10 times oversubscribed.