With different opinions arising on the effects that the US Federal Reserve’s bond tapering program will have on the emerging market economies, especially Brazil and Mexico, we review the Latin American venture capital deals market from January 2007-2014 YTD. Venture Deals Analyst shows 269 venture capital deals in Latin America in the period January 2007-2014 YTD at an aggregate value of $1.2bn. The largest deal during this period was a BRL 169mn (approx. $75mn) funding round of ePharma, a Brazil-based pharmacy benefit management service provider, led by Valiant Capital Partners, with participation from Aberdare Ventures. The country that has seen the highest number of venture capital deals and greatest aggregate deal size across this period is Brazil: 143 venture capital financings at a total value of $783mn. Following this, Mexico was the second highest: 58 venture capital deals at an aggregate value of $240mn, 69% lower than the total value of venture capital investments in Brazil.
However, these figures alone could be misleading as an indicator that Brazil is by far the stronger of the two in terms of venture capital deal activity. When looking at the market share of Latin America in terms of number of deals in the past three years, a slightly different picture is apparent – both are competing for market share, but the figures show that venture capital investments in Mexico are proving increasingly common. Venture capital financings in Mexico accounted for 12% of all venture capital investments in Latin America in 2011, with this market share increasing over threefold to 39% in 2013. Brazil, on the other hand, accounted for 57% of venture capital financing in the region in 2011, increasing to 63% in 2012 but then dropping to 47% in 2013. Preqin’s Venture Deals Analyst shows two venture capital deals in Brazil announced in 2014 YTD, at an aggregate value of $26mn, and no deals in Mexico as of now.
When looking at how the whole of Latin America has performed over the 2007-2014 YTD period, it is pretty much as expected: very little activity in the 2007 venture capital deal space with an aggregate deal value of only $16mn and the onset of the financial crisis leaving investors uncertain. Following this, there was a 1,150% increase in 2008, up to $200mn – the year the Federal Reserve’s bond buying scheme started and when the traditional markets of North America and Europe in particular were at their worst. This potentially motivated investors to seek longer term investment opportunities in the more ‘guaranteed’ emerging markets, as the dollar weakened. 2009 saw an enormous 92% drop in aggregate venture capital deal value in Latin America, at a time when the financial crisis became crippling across the globe. Figures rose to $145mn in 2010, saw a minimal drop of 0.7% in 2011, followed by substantial rises since: 57% in 2012 and 104% in 2013. As of the end of February 2014, Latin American venture capital deals in the year so far have recorded an aggregate deal size of $26mn, which signals underperformance when compared to the same period in 2008 ($81mn), 2011 ($51mn) and 2013 ($78mn).