Central America received over $266 million in venture capital investment over the past six years, according to the latest Central America Venture Capital Report 2023 released by Cuantico this week.
Investment has been concentrated in early-stage startups, particularly in Belize, Costa Rica, and El Salvador.
Despite the global slowdown in 2023 across various markets, the nascent VC ecosystem in the Central American isthmus is showing promising signs of growth.
Furthermore, although the region has faced significant challenges, including inadequate financial infrastructure, bureaucratic governance, and deficiencies in public services, these obstacles are now seen as opportunities, making Central America an attractive destination for startup investments.
Jose Kont, CEO of Cuantico, notes that Latin America, as a whole, is an emerging market from a venture capital perspective. “In other words, it is a region that already has global visibility and is making an impact through startups that are revolutionizing various traditional sectors.”
However, when discussing Central America, Kont observes that “it is still an emerging region in terms of venture capital. With an ecosystem of less than ten years of history, the region is witnessing the emergence of its first local investors and the development of its first startups.”
VC Industry Dynamics
The venture capital industry in the region has seen notable growth since 2021, coinciding with the establishment of the Central American Venture Capital Association (CAPCA), which recorded $42 million that year; $123 million in 2022; and $30.8 million in 2023.
Additionally, the number of transactions has increased since then, 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 both for the volume invested and the number of transactions. This dynamism is driven by investors such as Caricaco, Carao, Atta Impact Capital, Danta Fund, and others.
In 2023, CAFI (Central America Angel Fund Initiative) emerged as the first regional network of angel investors. According to its coordinator, Nicole Schaub, CAFI supports individuals who wish to back emerging startups in the region as angel investors, which are crucial in the early stages of any startup.
Notable Venture Capital Transactions in Central America
Although the venture capital ecosystem is still in its infancy, there are notable transactions that are energizing the region. For instance, Dimitra, a Belizean AgriTech startup, raised $20 million in 2022.
In the same year, Salvadoran fintech N1co secured $19 million in its seed round. More recently, in 2022 and 2023, other significant rounds occurred in Costa Rica, with GreenEnergy, a cleantech firm, raising $5.5 million, and Huli, a healthtech company, also raising $5.5 million in its seed round.
According to Cuantico, this emergence of startups in the region has attracted regional investors like BID Lab, which participated in Cubo’s seed round, a Salvadoran fintech focused on inclusion, raising $3.5 million in 2023.
“It is clear that the region will continue to grow in terms of venture capital and startups. What we see today in countries like Guatemala or El Salvador is akin to what happened in Mexico or Chile a decade ago,” said Kont.
Kont added that the startups undergoing their first rounds of funding will be those attracting more investment as they continue to grow, creating a virtuous cycle. “This growth will encourage more people to become entrepreneurs, not out of necessity, but by realizing what others are achieving and the desire to build solutions with global impact.”
Source: Bloomberg Linea
