Cash is King: LatAm’s top-funded startups go shopping

By Naiara Lew and Oscar Caipo

It is no news that in the past 4 months Latin American startups have increasingly struggled to raise additional capital from VC funds. Global macroeconomic conditions have led the VC and Startup ecosystems to a moment that juxtaposes the startup funding boom that we witnessed from 2015 to 2021, where most of LatAm’s current unicorns were founded and funded. More specifically, during 2020 and 2021, more than $22 billion was deployed in the region, making 2021 the record year when it comes to startup funding. Therefore, this current somewhat lower-paced environment we’ve witnessed in the past months leaves the startup ecosystem in LatAm in a weird place.

On one hand, you have a large amount of well-funded, late-stage companies that have recently raised large rounds and will probably survive the current macroeconomic downturn, while on the other hand you have many early-stage companies that either couldn’t raise enough capital to survive this VC winter or have been burning cash at an increased pace and are currently under survival mode.

In more concrete terms, ~70 companies from Latin America have raised an investment round larger than $50 million during the past 2 years, of which ~45% were valued at +$1bn — achieving unicorn status. We have already seen that from the 70 above-mentioned companies, more than 50% have been involved in at least one M&A transaction in the past 2 years. When looking only at unicorn-sized startups in the same time-frame, we see that this metric increases to an astounding 69%, portraying that well-funded startups (especially unicorns) are already going shopping.

We can find clear examples of this trend in our own portfolio. Frete (fka CargoX), the Brazilian “Uber for trucks” acquired TMS InterSit, a transportation management software provider, in July 2022. Betterfly, the Chilean wellness and insurance platform unicorn, acquired six companies across Chile and Brazil in September 2021. Lastly, Nuvemshop (or Tiendanube in Spanish-speaking LatAm) acquired two companies in Q4 2021: Mandae, a logistics company and Ecommerce na Prática, an edtech platform.

Considering the fundamentals behind performing M&A’s, it makes sense that having an economic downturn might increase the amount of transactions seen in the LatAm ecosystem. At NXTP, we believe that the conditions for an increase in M&A transactions are clearly met in the region as several later stage startups currently have excess cash on hand (creating no need to raise new funds), valuation multiples are relatively low when compared to the past 3 years, and, in many cases, the existing investors of these startups are willing to provide the funding for an M&A transaction. Moreover, performing M&A transactions will help these startups enter new markets, increase market share, add new talent to the existing team, and acquire and implement new products and technologies to its operations