SoftBank’s Latin America investment strategy

Opportunities and challenges as investors divert their attention to LatAm.

SoftBank’s foray into Latin America has garnered significant attention, particularly following its successful exit from Brazilian fintech company Pismo, which Visa acquired in a landmark USD 1 billion deal. This pivotal event has spurred discussions about the potential developments in Latin America’s investment landscape.  

Alex Szapiro, SoftBank’s regional head and managing partner, has cited several macroeconomic factors as catalysts for a positive outlook in Latin America. These factors encompass the emergence of nearshoring in Mexico, the strengthening of local currencies, a more politically stable environment and a cycle of interest rate cuts led by countries such as Chile and Brazil. Szapiro contends that these elements are poised to converge, fostering an equity market more robust than anticipated.  

These sentiments are not unfounded, as the International Monetary Fund (“IMF”) shares this optimism, attributing it to the rapid financial measures taken in 2020. As a member of Alaya Capitals, a Venture Capital fund stated, “investment inflows keep coming to LatAm and investors are obtaining good returns. The region is not lacking any human capital at all.” However, it is imperative to recognise that some experts remain cautious, citing enduring political issues and infrastructure deficiencies as potential hindrances to sustained growth.   

Despite these challenges, investor sentiment in Latin America remains buoyant. The region continues to witness a burgeoning influx of venture capital, surpassing the growth rates seen in other regions. Notably, U.S. investors are diverting their attention from China towards Latin America. “There is a better environment for investment in LatAm,” sited the Vice President of a financial advisory service, “forecasts have improved especially for the 2 largest markets; Brazil and Mexico, from no growth predicted at the beginning of 2023, GDP could end the year with a 2% increase in Mexico and 3% in Brazil”. Although local investors in the region may exercise prudence due to political uncertainties, international investors are actively scouting for opportunities. 

“forecasts have improved especially for the 2 largest markets; Brazil and Mexico … GDP could end the year with a 2% increase in Mexico and 3% in Brazil.”

Vice President of a financial advisory service

Nonetheless, the founder of a climate technology software company emphasised that Latin America grapples with inherent challenges. The region “still lacks Tech, management, mentoring and advisory talent to thrive in Venture Capital,” retorted the founder. “Companies that want to invest in the region should fine tune their expectations and align them to the region’s capability.” Moreover, the software company founder alludes to a shifting focus within the venture capital world, as investors move away from the pursuit of unicorns (startups with valuations exceeding USD 1 billion) and pivot towards “camels” – companies that promise sustained, steady growth. This shift reflects a pragmatic approach to investment.  

“Companies that want to invest in the region should fine tune their expectations and align them to the region’s capability.”

Founder of a climate technology software company

The impact of SoftBank’s aggressive investments in Latin America was palpable upon its entry in 2019. “The outlook was good,” commented the Venture Capital fund member “and they had lots of liquidity”. The company’s robust investments played a significant role in “the high valuations of some companies in LatAm at that time”. The fund member saw Softbank as “Venture Capital tourist investors,” implying a lack of comprehension regarding certain characteristics unique to Latin America. “They bought a huge number of companies across different sectors, something not easy to deal with.” Over time there has been a recalibration, leading to a more balanced investment landscape in Latin America and “valuations becoming more realistic,” he reflected. 

SoftBank, following the successful divestment of Pismo, still retains a USD 6 billion stake, encompassing 91 Latin American startups. “Fintech is the jewel of the crown for Softbank,” our sources unanimously agreed. SoftBank “will probably sell more of their Fintech or marketplace companies shares, where they can show positive results,” the Vice President of a financial advisory service divulged. The company has charted a course for its capital allocation, with approximately 70% dedicated to providing additional funding to existing portfolio companies. The remaining 30% is earmarked for new ventures. SoftBank’s watchful eye is trained on the IPO momentum of mature holdings like Rappi, Kavak, Creditas, Madeira Madeira, Unico and Clip. 

“Fintech is the jewel of the crown for Softbank [and] will probably sell more of their Fintech or marketplace companies shares, where they can show positive results.”

Vice President of a financial advisory service

SoftBank’s confidence in Latin America stemmed from favourable macroeconomic factors, including nearshoring, currency strengthening and interest rate reductions. However, our experts emphasised the importance of aligning “expectations to the region’s capability and that is something SoftBank missed”. The sale of Pismo is anticipated to “initiate a sequence of exits from SoftBank’s Latin American ventures,” indicating ongoing changes in the investment arena. SoftBank’s substantial influence on valuations and market outlook in Latin America is undeniable. While its future role in the region’s investments is uncertain, its influence has certainly left a lasting mark. 

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