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Heading into 2024, Mike Packer, partner at fintech-focused QED Investors, expects we will hit the bottom in terms of funding for fintech startups in Latin America within the year. Although the momentum wasn’t a straight shot up and to the right, Packer’s prediction may still have come true.
The amount of venture capital money invested in Latin American-based fintech companies has surpassed 2023 with another month left in the year. So far in 2024, $2.6 billion has been invested across 174 deals, according to PitchBook data. This compares to $1.5 billion invested across 241 deals in 2023. Although these are not huge totals, 2024 has already seen a 73% increase in funding volume compared to 2023.
This year’s total so far is still dwarfed by 2021, when $7.5 billion was invested, and 2022, when $4.3 billion was invested. But these numbers show that the market is starting to shift.
“At a conference in May, I was talking to some of our seed founders and said, ‘I’m going to call this the bottom of equity financing in Latin America,’” Packer told TechCrunch. “I knew a bunch of deals were in the works, and it looked like we had hit bottom.”
The momentum swing can be seen anecdotally, as well as interesting fintech deals being closed in Latin America throughout the year.
São Paulo-based Conta Simples raised a $41.5 million Series B led by Base10 in January for the company’s expense management and card programs. In May, Felix Pajo raised $15.5 million to help Latino workers send money to their families in Latin America. Brazilian AI fintech company Magie has raised $4 million in a round led by Lux Capital. This was Lux’s first investment in Brazil.
We’re likely to see a rebound in deals for two reasons, Packer said. One of them, he added, is that the Latin American fintech companies that built on the hype in 2021 are now re-emerging to raise their next round — for better or worse. But it’s not just companies that go off the rails. He added that his company is also seeing the fintech companies in its portfolio achieving milestones and ready to come back to reach the next level of growth.
“You had companies that were starting to become profitable, and they were hitting an interesting range at the beginning of this year,” Packer said. “We thought the volume of deals would go up in terms of quality and quantity.”
While Nicholas Sikasi, co-founder and managing partner at São Paulo-based Kaszek Ventures, said he’s not sure he’s noticed much difference in the Latin American fintech market this year compared to the year before, he agreed with Bakker that the change in quality has been Startups looking to scale up are notable.
Sikasi added that the first wave of fintech in the region was consumer-focused, but now they are seeing savvy entrepreneurs building infrastructure businesses. He added that it is good that they are seeing an influx of high-quality founders because when compared to the fintech markets in the US and Europe, Latin America still needs a lot of innovation.
“Financial services that you take for granted in the United States or more developed markets are completely immature in the region,” he said.
Even if the market continues to gain momentum, it will not be free of headwinds. There weren’t many exits in the area yet. Nubank’s 2021 IPO is the most notable, valuing the new bank at $41 billion at the time. There haven’t been any major exits since then. Packer added that Mexico, one of the most developed ecosystems in the region, still does not have one major exit.
In addition, the majority of funding for fintech companies in Latin America still comes from local funds or companies focused on the region, Bakker and Sikasi said. While the amount of local funding is growing, this is still a limiting factor for startups looking to raise money.
“I think the district is underfunded after the (post) 2021 correction,” Packer said. “We need more investors to look at Latin America as a global opportunity and we need entrepreneurs to believe they can make a difference and change things.”
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