Corporate Venture Capital establishes itself in Latin America through fintech, sustainability and health care startups
Alliances between large companies and startups are becoming increasingly more tight knit in Latin America. 90% of the large companies interviewed are taking a punt on Corporate Venture Capital initiatives in the region, according to a recent report prepared by Opinno Research Institute (ORI) and MIT Technology Review in Spanish, in which BBVA Spark participated. Fintech, sustainability and health care are the areas of activity that most interest corporations, which generally invest in early stage startups and have their sights set on artificial intelligence.
The entrepreneurial ecosystem in Latin America has matured in recent years. One sign of this is the increase in the number of successful startups: in March 2018, just two unicorns (technology companies valued at more than $1 billion) were present in the region, a figure that has grown to more than 30 today, according to data from CB Insights.
Large companies are also taking more of a punt on innovation, as shown by the ‘Corporate Venture Capital and its impact in Latam‘ in a report prepared by Opinno Research Institute (ORI) and ‘MIT Technology Review in Spanish‘: the study found that 90% of the 32 large companies that participated in the study, including BBVA Spark, are committed to developing Corporate Venture Capital (CVC) strategies in the region. This method of financing allows large corporations to enter the capital of startups to finance the development of the activity of the emerging company.
“For a CVC, investing in a startup can be a profitable investment, and it also serves to foster a culture of innovation within the company. For a startup, it’s a seal of approval to have a well-known company invest in you: it brings a lot of volume [of work] and allows you to vigorously test the model,” said Joe Naffah, the head of BBVA Spark Mexico, during the presentation of the report, held a few days ago at the BBVA Tower in Mexico City.
Because of these advantages, Corporate Venture Capital is playing an increasingly fundamental role in the region. “Open innovation initiatives have become increasingly relevant in corporate strategies. In this sense, CVC is more present in the organisations and there are many references in Latin America,” said Beatriz Ferreira, director of Opinno LatAm, during the presentation of this study.
What does Corporate Venture Capital invest in?
The report collects responses from companies in six Latin American countries (Argentina, Chile, Colombia, Guatemala, Mexico and Peru). Brazil was not taken into account in the analysis because it has a more mature entrepreneurial ecosystem than the rest of the countries in the region. In addition to financial investment in startups, CVC offers unique advantages for companies, such as access to new markets, the opportunity to innovate in the long term, and a boost in the connection between innovation and technology for Latin American organisations.
In its in-depth study of Corporate Venture Capital in Latin America, the study reveals four main things.
1. Fintech and sustainability, the activities of most interest to corporations
40% of companies consider that the most attractive sector for CVC initiatives is fintech. After this, industry, sustainability and emerging technologies capture the interest of 28% of large companies. Meanwhile, health care, with exponential growth following the COVID-19 pandemic, is attractive to 25% of respondents.
2. The importance of the early stages
Regarding the investment stage, the conclusions of the document show that most CVCs opt to collaborate with startups in their ‘early stage’, when they are still in the earliest stages of development. However, they prefer to back projects that already have a validated business model or have even demonstrated traction in their market, rather than those that have just started out. Specifically, 47% of large companies invest in the preseed stage, 80% in seed and 83% in Series A rounds.
3. Artificial intelligence, the technology par excellence
Innovation is the general trend, although there are some technologies that are attracting greater interest from corporate venture capital in Latin America.
- Artificial intelligence (AI). 41% of the CVC funds interviewed place particular importance on investing in this technology, which is experiencing a strong boom with the popularisation of generative AI tools such as ChatGPT.
- Electric mobility. 31% of the CVCs surveyed are backing it.
- Technologies related to sustainability and the environment. As in the previous case, 31% of the corporations are interested in them.
Other technologies that interest large companies in Latin America are those related to payments, early detection of diseases or advanced data analysis.
4. Internal teams for opportunity assessment
To achieve success in this type of programme, it is key that the team is designed and structured for flexible and efficient identification of opportunities. Specifically, according to the report, 54% of the companies interviewed have an internal investment committee (i.e., from the company itself), 36% are hybrid (i.e., with both internal and external experts) and only 10% of the companies have an external investment committee.
Joe Naffah, Country Manager of BBVA Spark in Mexico, during the presentation of the report.
BBVA and Corporate Venture Capital
When it comes to materialising their investments within their CVC initiatives, large companies in Latin America use a variety of avenues, as BBVA demonstrates. On the one hand, it invests in startups through its venture capital fund Propel. Last year, the firm led a Series A funding round in the fintech Truora. The solutions offered by this Colombian company, which is present in the main countries in the region, facilitate the connection of users to online shopping platforms and fintech services through different digital channels.
In addition, in 2022, BBVA created BBVA Spark to accompany entrepreneurs on their path to growth through a comprehensive range of services adapted to their needs, with specialised financing solutions such as ‘venture debt‘ and ‘growth loans‘ or with working capital optimisation tools for day-to-day operations.
“BBVA Spark is like a startup that was born within BBVA to promote and provide banking services to technology and innovation companies. Today, we operate in Mexico, Colombia and Spain,” said Joe Naffah, the head of BBVA Spark Mexico.
A promising future for collaboration between companies and startups
Although Corporate Venture Capital has generally grown in recent years, a slowdown was observed in 2022, as has also been the case for venture capital investment. On a global scale, corporate venture capital experienced a 43% drop in 2022 compared to 2021 investment data. In the case of Latin America, the decline was 72%, with a total investment of US$1.2 billion (1.1 billion euros). Moreover, there is still room for growth of this strategy in the region: in 2022, investment accounted for 3% of the global share, compared to 31% in the United States, which is the world leader, according to data from the ‘State of CVC 2022 Report‘ from CB Insights.
Despite the economic and political turbulence and the decline in investment, Naffah said it is “a great time” for corporate venture capital. “Great companies are often created in periods of turbulence and change,” he said during the presentation of the report.
For this reason, he appealed to the entrepreneurs during the meeting to encourage them to continue to face the challenges they are facing. “Today your competitors are more dormant […]there’s a lot more potential market,” Naffah said. In his opinion, startups that manage to hold their own during this period “will be better positioned when the market returns to its growth stage.”
According to the conclusions of the report, corporate venture capital will continue to evolve in the region in the coming years, with a greater role for partnerships between large companies and startups and a stronger commitment to investing in sectors guided by social interest.
This will result in an increase in CVC initiatives in health care solutions, innovative financial services, and sustainable and climate change mitigation oriented products. Regarding the technologies that will be prominent in the coming years, Web 3, cryptocurrencies, genomics and artificial intelligence will foreseeably be the major vectors according to this study.
Latin American society has already prepared the ground for the seeds of innovation to grow. And large companies will play an increasingly critical role in allowing startups to flourish and the entire ecosystem to mature in the region. Collaboration is strength.
