Dealflow | February 20, 2019

50 deals that signal a growing impact investing market in Latin America

Dennis Price
ImpactAlpha Editor

Dennis Price

Mérida, Mexico – An increasing number of proof points are beginning to add up to a viable impact investing marketplace in Latin America.

In the past year, ImpactAlpha has tracked more than 50 impact investments in Latin American companies. Investors and entrepreneurs gathered here for the annual Foro Latinoamericano de Inversión de Impacto can point to Latin American and Caribbean ventures ventures that are generating financial returns through social and environmental impact – and raising capital and realizing exits.

“The mainstream is moving in your direction,” economist George Gray Molina told the crowd at the opening session of “the FLII,” held outdoors at an historic hacienda outside this city on the Yucatan peninsula.

For example, China’s Tencent invested $180 million in Brazilian credit unicorn Nubank, one of a raft of deals into Latin America ‘neobanks.’ The 100% digital banks are reaching previously under- and unbanked customers on mobile phones and personal computers.

China’s Tencent invests $180 million in Brazilian credit unicorn Nubank

TPG Growth’s Rise Fund, along with its co-investment partner Elevar Equity, doubled down on education in Argentina with equity investments in Digital House and Grupo VI-DA, which provides high-quality Spanish-language books to schools at a lower cost than physical books.

And Blue Like an Orange, which has raised $100 million for a mezzanine debt fund, has made its first two loans, to ride hailing firm Cabify and small-business lender Produbanco in Ecuador.  

Proof points

Growth in impact investing assets (among 81 five-year repeat respondents) in Latin America and the Caribbean has outpaced growth in other regions, notching a 15% compound annual growth rate over the last five years (vs. an industry average of 13%), according to the Global Impact Investing Network. In the GIIN’s latest investor survey, investors reported $36 billion in impact assets under management in Latin America.

A separate report found Peru stepped past Mexico as the top destination in Latin America for impact investment capital over the previous two years.

Peru tops Latin America in impact investments

Investors in the region continue to worry about the shortage of options to exit their investments and get their capital back. While funds seeking market-rate returns are increasingly active, early-stage and risk-tolerant “patient” capital is in short supply. And few funds are pursuing innovative deal structures to accommodate investors’ and investees’ needs, according to the GIIN survey.

Still, anecdotal evidence of successful exits is accumulating. Brazil’s Vox Capital scored a 26% return with the sale of its stake in affordable healthcare network TEM. In Ecuador, Oikocredit, Triodos and MicroVest Capital Management sold their stakes back to Banco Solidario, among the first banks in Latin America to specialize in microcredit. German venture capital firm Project A recouped its investment in the natural products ecommerce platform Natue when Brazil’s Mundo Verde acquired the company for an undisclosed sum.

Earlier, Adobe Capital exited NatGas, a fast-growing startup that converts taxis and buses to natural gas. All told, impact investors have notched more than 50 exits across Latin America, according to a report from Impaqto, a consultancy in Ecuador.

Among the highlights of impact investing dealflow in Latin America:

Climate-smart and sustainable. Ventures in Brazil, Mexico, Chile and Central America are raising capital to confront the mounting challenges of climate change.

Missing middle. In Brazil, Mexico, Colombia and Ecuador, entrepreneurs are finding new ways to close the financing gap for small businesses.

Inclusive fintech. Brazil’s Nubank’s $180 million raise might have been the largest but fintech firms in Brazil, Argentina, Uruguay and Mexico are raising capital to expand access to financial services.

Farmer finance. A growing group of ventures in Mexico, Nicaragua and Argentina are delivering products and services to the 15 million family farms (including 10 million subsistence farmers) in Latin America and the Caribbean.

New schooled. Ventures in Brazil, Argentina, Mexico and Peru are creating new opportunities for education and training to reach the two-thirds of Latin America’s young people that don’t advance into higher education.

Well Being. Brazil’s a hub for healthtech and healthcare delivery innovation.

Circular economy. Greening supply chains and reducing the textile industry’s environmental impact is a growing opportunity.

Stocking the pipeline. Larger, later stage impact investments started somewhere.

Sustainable Development Goal champions. Accelerators are stocking the deal pipeline with ventures targeting the 17 U.N. global goals, while investors deploy capital to help them scale.

  • Agora Partnerships graduated 30 Latam and Caribbean startups targeting the Global Goals.
  • Blue Like an Orange’s $100 million mezzanine debt fund and TPG Growth’s $2 billion private equity Rise Fund deployed capital to ventures align with the the Global Goals.