The Venture Capital Law Review – 3rd Edition: Chapter 1 Argentina
Áreas de práctica relacionadas: Private Equity & Venture Capital
THE LAW REVIEWS
The Venture Capital Law Review – 3rd Edition: Chapter 1 Argentina
I) Overview
Despite being known for its volatile macroeconomic environment, Argentina is still one of the leaders of the Latin American region when it comes to tech talent, agribusiness, start-up creation and attraction of capital to financing entrepreneurial activity.
As known worldwide, in the field of traditional markets, livestock and agriculture have historically been two of Argentina’s main industries. In fact, some of the largest meat and crop producing companies in the world are Argentinian. In this context, Argentina is one of the leading countries in the region in technology applied to both sectors: tech and biotech. In addition to these sectors, two other markets have been growing steadily for the past few years – the fintech and commerce and enterprise software markets, in which we have started to evidence (and will continue to see) a growing attraction and investment.
Concerning these areas in Argentina, during 2022 venture capital (VC) market volume decreased compared with 2021. Funding rounds raised over U$S 480 million in 54 capital rounds. The funds mostly originated from the United States, totalling almost 80 per cent. Even though most of this investment came from foreign funds, when it comes to local funds, those that lead in terms of volume of money are Kaszek Ventures (regional), Bridge Lane (Australia and regional), Draper Cygnus (Argentina), DC Ventures (the United States, Ireland and Argentina) and Alaya Capital Partners (Argentina and Chile).
II) Year in review
The year 2021 was marked as the year of records in terms of VC investment. In 2022, the great excess of capital began to generate inflation and this made the US Federal Reserve increase the interest rates to reduce inflation, generating a market with less liquidity and a decrease in VC investment, as well as flight to quality types of investment. The year 2023 is expected to be a year of transition between the excess of investments of 2021 and the corrections made in 2022 to a year of increase in the VC industry. The year 2023 is expected to be marked by more rational investments and a trend of not to invest in companies that will then be undervalued. Furthermore, fintech is expected to be the sector in which to invest in 2023, more specifically fintech oriented to small and medium-sized enterprises, digitalization and web.
As detailed above, 2021 was an exceptional year for the global VC market, with record highs in the number of transactions and amounts involved. Although 2021 had record highs in terms of transactions and amounts involved, 2022 was not as high as the previous year for the reasons explained above. VC market volume decreased from US$1.2 billion to US$480 million. The fintech sector stands out as the most active in financing rounds, with 18 per cent of the total number of deals, followed by:
a. blockchain (16 per cent);
b. foodtech (9 per cent);
c. edtech, biotech, e-commerce, and logistics (7 per cent each); and
d. proptech, healthtec and marketplace (4 per cent each).
In the context of a local economic crisis, the start-ups targeted by VC do not depend on the local market but are companies that have revenue abroad and are not as affected by local turbulence in the market.
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The Venture Capital Law Review – 3rd Edition: Chapter 1 Argentina