Given the current scarcity of equity-based capital, fintechs are turning to other forms of financing, such as debt and lines of credit, according to a report by private capital firm Glisco Partners and startup consultancy Endeavor.
During the first quarter of 2023, debt accounted for US$344 million, or 45% of the total US$750 million in startup financing in the region. The figure includes venture capital and growth stage investments.
The data reveals the growing importance of debt-based financing at a time of high interest rates and weak economic growth.
The bleak macroeconomic context has fueled caution among investors. In the first quarter, the injection of resources in initial capital and growth in LatAm hit a five-year low. The US$406 million invested compares with US$3.3 billion in the same period of 2022.
The report also notes that the average amount raised in investment rounds during the quarter was US$5 million and the lion’s share of capital was concentrated in early stage startups (seed and series A), while companies in late stages were left wanting capital.
Nevertheless, the fintech sector continues to represent the biggest recipient of startup investment in LatAm —38% of the total— although the amount raised in the first quarter was 52% less than in the last three months of 2022.