The VC Opportunity in Peru

Investments in Venture Capital (VC) in Emerging Markets have taken off since the beginning of the decade. Latin America appeared to be lagging behind in innovation, but perception and reality changed with the emergence of a new generation of dynamic entrepreneurs who have leveraged the moment, with an increasingly connected middle class consuming online, eager to try new products and services.

The last two years have been crucial for Latin America’s takeoff in Venture Capital, with a 2X growth in investments in 2018. In March 2019, SoftBank announced a $ 5 Billion Innovation Fund focused on Latin America, while large technology companies were rapidly acquiring Latin consumers: in 2017, Latin America became the second most important market for Uber. In addition, the first regional unicorns (private tech companies valued at over $1 Billion) emerged, such as 99, Pagseguro, Nubank and Rappi.

Opportunities have expanded in scope and sector, with fintech, edtech, health tech, HRtech, e-commerce, logistics, B2B/SaaS, and agtech, which shows that the ability to innovate and disrupt is expanding to many sectors.

So far, Brazil has lead the headlines, with 73% of total VC investments in Latin America. But in 2018, the “heatmap” of LAVCA showed a significant and expanding activity in the rest of Latin America, mainly in the countries of the Pacific Alliance, with the appearance of unicorns and centaurs (private tech companies valued at over $100 Million) outside the binomial Argentina / Brazil, such as Rappi in Colombia, and Konfio and Grin in Mexico.

Peru is growing fast too and converging with the rest of the region, offering at the same time access to unique opportunities as it closes its gaps, and a doorway to the Pacific Alliance (PA), a market of 230 million customers and $ 4 Trillion of GDP, with a huge investment deficit in the scale-up phase and a positive regulatory environment as well as increased mobile penetration (currently at 63% of population, data from the World Bank).

Investments in Venture Capital in the PA have increased 4X in 2018, as the ecosystems of Mexico, Colombia, Peru, and Chile integrate into a regional market with common platforms. The PA is today the sixth largest economy in the world, its members share language and culture, and they are coming closer together thanks to technology.

What until recently was possible only in more advanced and large-scale emerging markets, such as China and India, today is increasingly achievable in almost any country in the region, as long as it has access to a regional market sufficiently large and attractive (more than 100 million consumers). The large capital gaps that remain in the PA are a great opportunity for a Fund acting from Peru, focused on scaling companies throughout the rest of the Pacific Alliance.

On the verge of this disruptive environment, Salkantay launches Salkantay Exponential Fund (SXF), an emerging markets Venture Capital fund. SXF has the purpose of making equity and equity-related investments in great companies. It will fill the VC gap in the startups and scaleup phase of Peruvian companies expanding abroad and in global companies expanding to the PA. It will capitalize on regional trends and connect Peruvian and Latin American companies to the world.

Sources:

(1)Data from the World Bank

(2) LAVCA’s Annual Review of Tech Investment in Latin America, 2018

(3) The Mobile Economy Latin America and the Caribbean 2018