The Rise of Venture Capital in Central America: USD $266M in Six Years
According to the latest report by Cuantico, titled "Central America Venture Capital Report 2023," Central America has attracted over USD$266 million in venture capital investment over the past six years. This capital influx has been primarily directed towards early-stage startups, with a particular focus on Belize, Costa Rica, and El Salvador—regions that are emerging as key hubs of innovation and entrepreneurial activity.
Overcoming Recent Challenges
Despite the global slowdown in 2023, which affected various markets, the venture capital (VC) ecosystem in Central America continues to show promising growth. Historically, the region has faced significant challenges, including inadequate financial infrastructure, governance issues, and deficiencies in public services. However, these very challenges have now turned into opportunities for visionary entrepreneurs who seek to make a positive impact.
Today, Central America offers significant potential across various industries, making it an attractive destination for startup investments. A recent study by Atlantico highlights that returns on investment in Latin America surpass those in other developing markets, such as India and Southeast Asia.
Insights from Industry Experts
Jose Kont, the executive director of Cuantico, remarked, "Latin America as a whole is an emerging market from a venture capital perspective. However, Central America is still nascent in terms of VC. With less than ten years of history in this field, we are witnessing the emergence of the first local investors and the development of the region's initial startups."
Dynamics of the Venture Capital Industry in Central America
The report identifies the creation of the Central America Venture Capital Association (CAPCA) in 2021 as a key milestone for the VC industry in the region. Since its inception, CAPCA has grown to over 20 members, reflecting a growing interest and development in this type of investment.
The figures from the past three years underscore the growth of venture capital in the region: USD$42 million in 2021, USD$123 million in 2022, and USD$30.8 million in 2023. Additionally, the number of transactions has significantly increased, rising from an average of 22 deals per year between 2018 and 2020 to an average of 43 deals per year between 2021 and 2023.
Costa Rica stands out in the region, both in terms of the volume of investment and the number of transactions, driven by key investors such as Caricaco, Carao, Atta Impact Capital, and Danta Fund.
The Role of Angel Investors
In 2023, the Central America Angel Fund Initiative (CAFI) was launched, marking the region's first angel investor network. Nicole Schaub, CAFI's coordinator, emphasized the crucial role of angel investors in the early stages of startups: "Our mission is to support individuals who want to back emerging startups in the region. The work and support provided by angel investors are vital during the initial stages of any startup."
Notable Transactions in the Region
While the venture capital ecosystem in Central America is still in its early stages, several significant transactions have fueled regional growth. Notable examples include Belize's AgriTech startup Dimitra, which raised USD$20 million in 2022. That same year, El Salvador's fintech N1co secured USD$19 million in its seed round. Additionally, in Costa Rica, GreenEnergy and Huli, startups in the cleantech and healthtech sectors, respectively, each raised USD$5.5 million in Seed rounds during 2022 and 2023.
This growing interest in regional startups has also attracted international investors, such as BID Lab, which participated in the 2023 Seed round of Cubo, a Salvadoran fintech focused on financial inclusion, with an investment of USD$3.5 million.
A Promising Future for Central America
Jose Kont concludes that the region will continue to grow in terms of venture capital and startups: "What we are seeing today in countries like Guatemala or El Salvador is similar to what happened in Mexico or Chile a decade ago. These startups that are securing their first rounds of investment will be the ones attracting more capital as they grow, creating a virtuous cycle that will inspire more people to start businesses—not out of necessity, but out of a desire to create solutions with a global impact."
For more details, you can access the full report at the following link: Central America Venture Capital Report 2023.