(Bloomberg) -- Venture capital firms plan to invest more in Latin American startups that offer loans and artificial intelligence products, while lower US interest rates could open the door to more initial public offerings as soon as this year after a dry spell in the region.
Fund managers anticipate there’s much more room for financial-technology lending to run in a volatile region where about one in four Latin American adults don’t have a bank account and there’s relatively low levels of credit access.
“That’s something we’re still very bullish about. Why? Because credit is still extremely underdeveloped in Latin America,” Tomas Roggio, co-founder and general partner at US-based Latitud Ventures, said in an interview. The fund specializes in providing pre-seed money to startups and has about $30 million in assets under management.
The venture capital push into Latin America reflects how the region has become a battleground for fintech heavyweights such as Nubank and MercadoLibre, which both saw lending surge 50% or more year-on-year in the third quarter of 2024. As publicly traded companies with a combined market capitalization of approximately $165 billion, they’re the most visible faces of a broader fintech ecosystem that more than quadrupled in number of firms to 3,069 by 2023, according to the Inter-American Development Bank.
In particular, the number of fintech lending companies has soared, outpacing all other segments except payments and remittances, according to the IDB report. Venture capital firms like Latitud see the opportunity: About a third of the almost 100 companies that it already backs are startups that directly or indirectly provide credit such as Finkargo and Digitt. Roggio expects credit-related startups will represent at least 40% of about 20 companies Latitud plans to invest in this year.
Latitud’s executives also see strong potential in startups developing AI agents — software capable of performing tasks that require interacting with people — because of the potential to boost business productivity and reduce staffing.
Felipe Fujiwara, a general partner at US-based Bicycle Capital that raised $440 million in 2023, expects startups that offer financial services will account for a significant share of the 10 to 15 companies the fund plans to invest in through 2028. That’s because financial products in Latin America have some of the highest margins in the world, he said in an interview.
Latin American startups faced a challenging fund raising environment over the the last two years due to high US interest rates and greater investor scrutiny of their business models. VC investments in startups were almost flat year-on-year at about $4.2 billion in 2024, according to preliminary data compiled by Lavca, a nonprofit association for private capital investment in the region.
“Given the current macro environment, you are seeing a little bit of scarcity of capital in late stage VC rounds, which is good for us. We have capital to deploy,” Fujiwara said.
Executives at Kaszek, the largest Latin American-based venture capital firm, see potential Federal Reserve interest rate cuts and a more business friendly Trump administration paving the way for startups to go public this year.
“We are very bullish on IPOs,” Kaszek senior partner Nicolas Berman said in an interview. “We focus on companies that are going after very large markets and we expect those companies to be IPOing in the coming years.”
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