Since the launch of Accion Venture Lab, we always knew Latin America was a critical region in our quest to find the most promising companies that can shape a new reality for the underserved. We were early investors in the leading small business lender Konfio, inventory financing provider Tienda Pago, payment solutions provider Clip, and alternative scoring platform Destacame, and we continue to look for new and disruptive companies. Last year we raised Venture Lab’s first third-party fund, adding a total of $33M to our assets under management to follow our mandate of being the first institutional investor in groundbreaking early-stage fintech for inclusion companies.
The vast market opportunity and the exceptional entrepreneurs in the region have caught the eye of both local and global investors, pushing venture capital activity to record levels — especially in fintech. As one of the most active seed-stage funds in Latin America, we often partner with prominent local players to co-invest in high profile fintech startups.
Looking for opportunities with an entrepreneur’s eye
As the new Investment Officer for Latin America, I lead deal activity and support our portfolio companies in the region. Before joining the team, I was an investment banker at Lazard’s Buenos Aires office and later left to become an entrepreneur. For the past four years, I was the co-founder of a digital lender for micro, small, and medium enterprises (MSMEs) that used technology to improve underwriting and access to financing for underserved companies in Argentina. As a former entrepreneur, I try to put myself in the shoes of the founders when I am looking at a new investment opportunity or helping our investees with strategic decisions.
Top inclusive fintech trends in the region
Brazil and Mexico have consolidated as the leading entrepreneurial ecosystems in the region and will continue to attract the largest volume of venture capital in Latin America. These, together with the maturing fintech landscape in Colombia, are the markets where we will push harder to grow our portfolio. Although we might also invest in other countries, one thing is clear: we will only engage with companies that are offering truly responsible financial products.
A new generation of startups is rising to join the fintechs already disrupting traditional finance — and they’re all about meeting customer needs more completely. Today, it is not enough to provide services faster than the incumbents, have a better user experience, or acquire clients at a lower cost. We are continuously looking for companies that align with our mission of helping the underserved — those that build great products that don’t sacrifice quality and pricing for speed. As global investors, we follow these criteria in our work around the world, but there are some particular trends we are interested in for Latin America.
- Holistic approach to MSMEs. Serving companies has always presented a more significant challenge than working with consumers. The existence of more than one owner, opaque financial statements, relationships with clients and suppliers, and an overall greater number of variables to analyze, create higher entry barriers and makes it more difficult to work with small businesses effectively. The first generation of fintechs brought some of these barriers down by solving a specific need with technology. Today, with growing competition both from fintechs and traditional players, being a single-product company is not enough. Startups need to offer a complete suite of financial services to be efficient and competitive. We want to help companies that deeply understand the needs of Latin American MSMEs and are building the banks of the future for them — like Konfio, which started with unsecured loans and now also offers a credit card, financial education, and insurance products, or Cora, which is launching a neobank for small and medium businesses in Brazil.
- Fairly priced consumer lending. The days of high-yield, direct “free credit” are coming to an end as low-entry barriers are increasing competition and pushing default rates and acquisition costs to unsustainable levels. Therefore, business models where the interest rate is the only variable used to control profitability are no longer sustainable. They put too much pressure on their customers and are already in the public eye for causing more damage than helping them. We are excited about new, more sophisticated schemes that can offer better pricing for low-income populations by providing a broad product offering that subsidizes loans, or by using new assets as collateral to improve underwriting and lower default rates. Companies like R5 and Facio are now providing affordable loans to consumers against their assets or future earnings.
- Platform fintechs. Big tech companies such as Google or Facebook, and newer, more local platforms like Colombia’s Rappi are playing an increasingly central role in the financial lives of consumers. With millions of users, these companies initially added fintech services to satisfy user needs, but now they’re expanding outside the frontiers of their core business. We want to support companies like Zolvers that start as a platform with a clear path to adding financial services or fintechs like SmartMei that leverage the data and users of larger platforms to better distribute their products.
- Sophisticated and consumer-centric insurance products. There is still a lot of room to grow in insurtech in Latin America. In a market with no clear winners yet, we are glad to see startups working closely with large insurance companies to develop and distribute unique products. Whether specializing in insurance for cell phones, cars, or health care, we are looking for companies, like Pier in Brazil, that don’t just act as a broker or a comparison site but are changing the way insurance products are built, priced, and sold.
- Agri-Fintech solutions. In a region where agriculture is a significant economic force, driving almost 5 percent of the GDP across these countries, we’re excited to see fintech startups like Siembro, which uses sector-specific data to improve underwriting models and partners with players across the supply chain to provide financial services to the small farmers. We have success stories in our portfolio with companies in other parts of the world, like Pula and Apollo Agriculture, and we are eager to replicate their success with new companies in Latin America.
The impact investment scene keeps growing
Financial inclusion is rooted deeply in many Latin American fintech startups who, from the beginning, design their products to address a large underserved or underbanked population. However, there is a growing number of companies that go the extra mile and commit to having a positive impact in society, not only by bringing an excluded population into the financial sector but by doing so in a responsible way.
By offering better pricing, lowering default rates, or by becoming more efficient as they broaden their product offering, companies are favoring their customers and creating a more sustainable business for themselves. It is not a coincidence that that innovation-focused events are taking place in this vibrant regions for venture capital: Finnosummit consistently brings together top fintech and insurtech entrepreneurs to meet with financial entities and international investors, and FLII, which also covers other impact areas such as energy and education, is celebrating its tenth annual edition this year. As I step into my new role at Venture Lab, I’m excited to help drive transformation in this dynamic market and accompany startups as they grow to become a new and more responsible generation of leading fintechs.