VC investment in the Americas continued to decline in Q1’23 amid deepening concerns about rising interest rates, high levels of inflation, and ongoing geopolitical challenges. The unexpected turbulence in the US banking sector during the quarter likely also sparked concern among VC investors in the region.

US remains key driver of VC investment in Americas in Q1’23

While the US continued to account for the vast majority of VC funding in the Americas this quarter, the country was not immune to the worsening macroeconomic conditions; both VC investment and the number of VC deals in the US declined for the fifth straight quarter in Q1’23. Canada attracted the largest deals outside of the US during Q1’23, including a $125 million raise by blockchain-based Bitcoin infrastructure company Blockstream and a $100 million raise by small business-focused operations management company Jobber. VC investment in Latin America was relatively quiet to start the year. Brazil, in particular, saw VC investment drop for the sixth straight quarter, with mobile application delivery company Daki raising the country’s largest round ($50 million) in Q1’23.

Canada’s health and biotech sector continues to attract deals

Within Canada, a number of sectors saw significant drops in VC investment during Q1’23, including fintech and ecommerce. By comparison, health and biotech showed more resilience, with a variety of companies attracting funding—if at relatively smaller deal sizes. During the quarter, Toronto-based Smile Digital Health raised $30 million, while Westmount-based LAmAb and Montreal-based Puzzle Medical Devices raised $25 million each. Interest in the agtech space continued to grow in Canada during Q1’23, although it is still considered a very emerging area of investment. During the quarter, Vancouver-based Terramera — a startup focused on removing synthetic chemicals from agriculture — raised $7.5 million.

Pre-seed deals maintain traction in Brazil

VC investment in Brazil was soft in Q1’23, driven both by global macroeconomic circumstances and by uncertainties related to change in government. While large deals were virtually absent in Brazil this quarter, pre-seed and seed deal activity remained active as VC investors focused on companies with good growth and return potential and that had more realistic valuations compared to later stage startups. VC investments in Brazil during the quarter were spread out in a number of sectors, with largest rounds in e-commerce delivery app, “green” mobility, martech and logtech companies. The Web3 gaming space also came into the spotlight in Brazil for the first time during the quarter thanks to a $6 million raise by blockchain-enabled gaming development company Jungle.

Corporates increasingly willing to work together

Corporate VC investment in the Americas fell for the fifth straight quarter in Q1’23 as corporates focused on other priorities, including improving the efficiency of their own operations. While the continued pullback in CVC funding was expected given the changing market conditions, corporate activity is expected to remain a key contributor to overall VC funding in the region given how many corporates use strategic VC investment to drive their R&D activities.

One growing trend seen in recent quarters in the Americas is the willingness of corporates to pull together to support certain startups given their similar technology needs and requirements. While competitors historically may have supported different startups, they are now more willing to buy into the same opportunities. This has led to VC funds being set up to work as the investment arm of like-minded corporates.

Trends to watch for in Q2’23

With the level of uncertainty expected to remain strong through mid-year, VC investment across the Americas will likely remain subdued heading into Q2’23. In the US, energy is expected to remain a big ticket for investors. In Canada, VC deal activity is expected to remain relatively stable quarter-over-quarter, with activity likely to center around small and mid-sized deals rather than on larger deals. In Brazil, startups will likely remain focused on the rationalization of their operations, teams and costs in Q2’23. M&A activity among Brazil-based startups could also see an increase.

Global venture Americas

One trend, not only here in Brazil but globally, is that investors are looking for returns right now rather than high growth. And when you look at pre-seed and seed companies—valuations generally are more realistic and the ticket sizes are usually significantly lower. When you put these two factors together, you see some good companies with nice profiles of growth versus return. We saw the great majority of the Q1 rounds taking place in these stages.

Rodrigo Guedes
Managing Director
KPMG in Brazil

  • VC-backed companies fall to $31.1 billion across 2542 deals

  • After relative resilience, dealmaking slides in Canada

  • VC deal value and volume fall in Mexico, mirroring global trends

  • Brazil sees slight bump in volume, while deal value drops in Q1

  • Largest 10 deals in Americas all come from the United States

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