When SoftBank announced in 2019 that it had allocated $5 billion to investments in Latin American startups, it felt like a turning point for the region.
And when the Japanese investment conglomerate announced it had committed another $3 billion to startups there, it was only further confirmation that Latin America was home to a formidable startup system.
According to Juan Franck, about $7.6 billion of that capital is divided among more than 80 investments. managing partner of the SoftBank Latin America Funds. This means that SoftBank still has $400 million to support companies across LatAm, with about 50% of that money going to new investments and the other half to existing portfolio companies.
Despite the total fair value of those investments reaching $6.4 billion at the end of 2022, the Latin America Fund’s managing partners say they are optimistic about continuing to deploy capital in the region.
“We remain extremely excited about the opportunities in LatAm,” Alex Szapiro, managing partner of the funds, said in an interview. “It’s very early days where we stand with our fund.”
The pair remain optimistic despite the fact that in February SoftBank Group’s investment vehicles — including the Latin American Fund — recorded a loss of $5.8 billion in the quarter ending December 2022 as the Japanese tech investor continues to bleed through the market downturn and push back new support significantly.
That was the fourth straight quarter in which SoftBank Group reported losing money.
While SoftBank declined to provide details on how many companies in Latin America it has supported over the past 18 months, a source familiar with the matter told TechCrunch that since January 2022 the company has participated in 16 iinvestments with a total value of approximately $400 million. Recently, SoftBank poured money into a funding round raised by Rankmi in Chile.
“We don’t have a predetermined target for the number of deals, the value of investments or the number of companies we will invest in 2023,” Szapiro told TechCrunch. “We still have LatAm Fund II dry powder and access to Vision Fund II. We are not concerned with capital commitment. The goal is to find companies that match our investment thesis.”
Competitive Advantage
The duo believe that, despite the losses, SoftBank has a competitive advantage over other global investors investing in LatAm startups, with members of the investment team working in different parts of the region, such as Brazil, Mexico and Miami. (This makes sense considering that about 80% of the region’s investment dollars have gone to Brazilian and Mexican startups.)
“From 2019 to 2021, many players came to the region, but when the markets faltered a bit, those tourism funds left,” Szapiro said. “We believe you need someone on the ground… We also understand the entrepreneurs in the market.”
In Latin America, where founders seek relationships as much as capital, SoftBank hopes to benefit from an investment team drawn from the regions in which it plans to invest.
“Many are first-time founders and it’s their first time starting a venture and they rely on us for much more than capital,” Szapiro said. “So we help them on the legal and HR side and with things like product development and marketing. We have teams in those areas and they count on our help a lot.”
For Franck, that’s where SoftBank’s “long-term commitment” comes in, especially as the startup world is in a downturn worldwide and it’s not nearly as easy to get capital.
“2023 is really about going back to basics, focusing on your product, focusing on your customer and also focusing on profitable and sustainable growth,” he told TechCrunch. “And so portfolio management is as important a task for us as making new investments in current portfolio companies or new portfolio companies. But the fact that we’re on the ground, operating elbow to elbow with the entrepreneurs, and also showing up for follow-up investments. I think it is also a great opportunity for us to reinforce our message of long-term commitment to the region.”
Over time, SoftBank has seen some exits in the region, including Itaú, Brazil’s largest private bank, acquires 35% of Avenue; payment status, a US-focused B2B payment network, acquiring 100% of Yaydoo and the Brazilian edtech giant Arco Educação acquires 75% of Isaac in an all-stock deal. Other companies it has supported include Creditas, Kavak, Inter, VTEX, QuintoAndar and Rappi.
Of course, SoftBank is not the only company with people on the ground dedicated to supporting and/or helping startups in the region. For example, Kaszek announced earlier this week that it is closed at $975 million about two new funds to support startups in the region. And last year Latitud Raised $11.5 million in seed funding from investors such as Andreessen Horowitz and NFX for its effort to “become the operating system for every venture backed company in LatAm.”
SoftBank has also supported companies in other countries, such as Chile and Colombia, in recent years. And it plans to continue to do so.
“Good opportunities transcend geographic barriers,” Franck said. “And so we don’t spend too much time thinking about the country we’re focusing on.”
Overall, the couple admits that while the pace of investment slowed in 2022 as many venture firms were essentially “locked down”, demand for capital has also declined – particularly in Latin America, where founders have traditionally been forced to exercise more discipline. than their US counterparts because it is generally more difficult to raise venture capital there.
“There’s a lot of dry powder out there, but I would say funds in general are much more disciplined on business models and company valuations,” Franck said. “At the same time, one many of the companies in our portfolio and across the region still have the money on their balance sheets that they raised in 2021 and 2022. So that gives them the flexibility to actually continue to use that money in a context of cash runway optimization and expansion, and not really have to go to market in the short to medium term, especially in a market where the context may be conditions would require that they are unwilling to accept.