The Value and Need for Venture Capital Funding in Latin American Startups

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Venture capital is essential for startups to scale, but it is unevenly distributed among founders in the startup landscape. Crunchbase data shows that Latino entrepreneurs receive just 2% of venture capital investment in the United States, despite accounting for nearly half of net new small business growth between 2007 and 2017.

Announcements like the recent closing of $100 million from L’Attitude Ventures to support Latino founders of early-stage startups in the United States are important not only in the need for more capital, but also to draw attention to the disparities these entrepreneurs face. There are unexplored opportunities in the United States, especially the undercapitalized Latin American market, and now is the time to maximize the potential.

“Our pipeline is full of Latina/o founders who have competed at the highest levels of the industry and have an unwavering passion for solving major problems using their skills, competitiveness and connections,” said Kennie Blanco, General Partner of ATTITUDE Ventures.

The business boom

Latino startups in the United States represent a huge sector of the market and are only growing. Data from Bain shows the total economic output of Latin Americans was $2.7 trillion in 2019, making it the world’s seventh largest economy. Not to mention, Latinos are 1.7 times more likely to start a business than any other racial group in the United States. With Latin America’s population expected to double over the next four decades, there is tremendous opportunity for even more economic growth.

Moreover, these startups make huge contributions to the US economy. Responsible for 50% of the net growth of new businesses over the past decade, Latin American businesses are seeing annual revenue growth of 10% compared to 7% for white-owned businesses.

If it weren’t for Latin American startups and businesses, according to a report by the Stanford Latino Entrepreneurship Initiative, the total number of small businesses in the United States would actually have declined between 2007 and 2012.

Small slice of pie

With these numbers, it should be obvious to invest in Latin American entrepreneurs. Yet there is a huge funding oversight and Latinos are not getting their well-deserved share of investment capital.

Latin American startups have received just 2% of U.S. venture capital investments, a percentage that has remained virtually the same since 2017. Worse still, seed funding – which is the most critical phase for startups – has almost completely stagnated.

There is data to prove this point. Revenue growth for Latin American companies slows to the $1 million mark. This is the critical window where a company needs capital to scale, and Latino founders face hurdles in securing funding that their peers don’t have. This reduces their chances of profitability since without capital they are forced to pay higher rates, increase their debt and reduce their cash flow on a large scale.

Access to the financial pipeline

There is obviously a missed opportunity here, and Latino entrepreneurs need all providers of capital – not just venture capitalists – to pour more funds into this startup market. This underfunding problem starts from day one for Latino entrepreneurs and negatively affects them throughout their life cycle.

Once the startup gains traction, it again faces issues accessing funding. Seeking both venture capital and angel investors, Latino founders are struggling to get in the game and must rely on previous, often more expensive sources of funding that they have outgrown.

Changing the face of the investor

There is a recognized need for venture capital investments in the Latin American market. Moreover, the need for diversity extends to those who make the investments.

According to a 2021 report by the non-profit organization LatinxVC, only 2% of U.S. venture capitalists are Latino and nearly 86% of institutional venture capital firms do not have Latino professionals.

There are a few Latino-focused funds pushing to change those stats. L’Attitude Ventures, Vamos Ventures, Mendoza Ventures, Leap Global Partners and Chingona Ventures are several funds that not only focus on the Latino startup market, but are led by Latino investors.

There is a recognized – and data-proven – financing problem for Latino entrepreneurs in the United States. As Latino-focused venture capitalists strive to close the gap, the scale of the opportunity suggests there is a need for many others to step up and create more opportunities for a diverse and inclusive economy .

“Latinos are the most underinvested demographic group in the country. L’ATTITUDE Ventures is proud to support the vision of Latino entrepreneurs who are innovating across many different industries,” said Gary Acosta, General Partner at L’ATTITUDE Ventures.

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