Looking ahead to 2024, Mike Packer, a partner at fintech-focused QED Investors, predicted that funding for fintech startups in Latin America will bottom out by the end of the year. Although the momentum was not straight to the top right, Packer's prediction may have been correct.
With one month left in this year, the amount of venture capital invested in fintech companies based in Latin America has already surpassed that of 2023. According to PitchBook data, $2.6 billion has been invested in 174 deals so far in 2024. This compares to $1.5 billion invested in 241 deals in 2023. Although these totals are not very large, 2024 has already seen a 73% increase in funding compared to 2023.
The totals so far this year still pale in comparison to 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 turn around.
“At a conference in May, I spoke to some seed founders and said, 'We're going to call this the bottom of Latin American equity investing,'” Packer told TechCrunch. “I knew there were a lot of deals going on, but we seem to be off the rock bottom.”
Interesting fintech deals have closed in Latin America throughout the year, and we have seen anecdotal fluctuations in momentum.
São Paulo-based Conta Simples raised $41.5 million in Series B funding in January for its expense management and corporate card software led by Base10. In May, Felix Pago raised $15.5 million to help Latino workers send money to their families in Latin America. Brazilian AI fintech Magie has raised $4 million in a round led by Lux Capital. This was Lux's first investment in Brazil.
Packer said the deal is likely to be revived for two reasons. One is that Latin American fintech companies that raised money on the 2021 hype are now resurfacing for another round of funding — for better or for worse, he added. . But it's not just businesses that are running out of runway. He added that the company has also confirmed that fintech companies in its portfolio have achieved milestones and are ready to exit for the next level of growth.
“There were companies that were starting to turn a profit and were reaching interesting scale earlier this year,” Packer said. “We thought trade volumes would increase both in quality and quantity.”
Nicolas Szekasy, co-founder and managing partner of São Paulo-based Kaszek Ventures, is not sure if he has noticed any major differences in the Latin American fintech market this year compared to previous years. However, the quality of startups seeking funding is remarkable.
Zekashi added that while the first wave of fintech in the region was consumer-focused, experienced entrepreneurs are now building infrastructure businesses. He added that compared to the US and European fintech markets, Latin America still needs a lot of innovation, so the influx of high-quality founders is a good thing.
“Financial services, which you would take for granted in the United States and other developed markets, are very underdeveloped in this region,” he said.
Even if the market continues to gain momentum, it won't be without headwinds. A significant number of withdrawals have not yet taken place in this region. NuBank's 2021 IPO is the most famous, at the time valuing the neobank at $41 billion. There has been no major exit since then. Packer added that there is still no major outlet for Mexico, which is one of the most developed ecosystems in the region.
Additionally, the majority of funding for Latin American fintech companies still comes from local funds and regionally focused companies, Packer and Zekasy said. Although the amount of local funding is increasing, it remains a limiting factor for startups looking to raise capital.
“I think this region is underfunded due to the financial crisis. [post] It’s a fix for 2021,” Packer said. “We need more investors to see Latin America as a global opportunity and entrepreneurs to believe they can make a difference and change things.”