Venture Capital in Mexico outlines a 40% drop in 2022

The venture capital investment o Venture Capital in Mexico grew at a much slower rate in 2022 compared to 2021. Companies based in Mexico raised a total of 2,513 million dollars through November 2022, 40% less than the financing they received a year earlier, according to the Transactional Track Record (TTR) platform.

After the party that startups experienced in 2021, with a total investment from Venture Capital that exceeded 4.5 billion dollars, which represents a growth of 240% compared to 2020, the key to entrepreneurial capital has closed a bit. However, the sector invested double the 1,200 million injected in 2020.

The number of Venture Capital transactions carried out in Mexico experienced a 3.2% drop during the year, that is to say that, although there were almost the same number of investments and exits in the sector, the amount of these was much less than in in 2021. Investments throughout the year focused on startups dedicated to software, financial services, and technology and internet services.

fewer unicorns

While between 2020 and 2021, seven Mexican startups became unicorns, that is, private companies valued at more than 1,000 million dollars: Kavak, Bitso, Clip, Konfio, Merama, Clara and Incode; during 2022, only two companies based in Mexico reached this category: Nowports and Stori.

The departure of the Colombian company Merqueo from Mexico and the start of a series of layoffs among startups both in the country and in the Latin American region were the first signs that the investment faucet was closing and the beginning of a complex macroeconomic situation, characterized by a high inflation and the consequent rise in rates by central banks globally.

In June 2022, Vincent Speranza, CEO of Endeavor in Mexico, said that although Latin American unicorn startups were valued, on average, at 18 times their annual revenues, which reached $150 million, it was to be expected that both the valuations and the level of investment will be recalibrated during the second half of the year.

layoffs and debt

Bitso, Plerk, Ualá, Cloudtend They are among the startups that cut staff to mitigate the effects of reduced investment and the macroeconomic situation. Beat, the app-based passenger transport platform that was among the competitors of Uber and Didi, announced its departure from Mexico and other Latin American countries last November.

Despite having announced an unprecedented expansion for a Mexican startup, towards Chile, Colombia, Peru and Turkey, through an investment of 180 million dollars, and later entering the United Arab Emirates, Oman and Saudi Arabia, with another 130 million dollars , the company recently announced massive layoffs that included its director in Mexico, Alejandro Guerra.

In addition to cutting expenses through the reduction of staff, Kavak signed an agreement in September with the banks Goldman Sachs, HSBC and Santander for 810 million dollars in financing, a strategy known as Venture Debt, an investment model through which which startups obtain capital in exchange for a portion of their shares, which can be recovered by entrepreneurs after debt payment.

Startups are preparing for lean times, after having experienced a venture capital financing party that had never been seen in Mexico or Latin America.

rodrigo.riquelme@eleconomista.mx