Following last quarter’s email about our generally bullish outlook for 2023, my Partners and I would like to share what we’re seeing first-hand across the Global South.

Will Poole:

My two most recent trips have been to Brazil and India. I had not been back to Brazil since a few days before the pandemic lockdown – it was enlightening to reconnect with our investing partners and portfolio founders and to use the opportunity to finish negotiations and close an excellent deal for our Global South Fund II. I also attended the World Agtech Conference and an excellent pre-event by our partners at SP Ventures (LatAm’s premiere Agtech fund).

Observations:

• As you’ve read and you’ll hear again from my partners below, the VC market has slowed across all stages, except with hot early-growth companies on a crystal-clear path to profitability.
• Agriculture export in Brazil is an amazing growth story over the past three decades – judging by the energy at the conference, opportunities are accelerating rapidly. Net exports grew 13.5x to USD 96B by 2021, while in the same period, the US moved from a USD 20B exporter to a 26B importer. The Agtech startup founders I met were diverse, building companies ranging from climate-friendly ag-input substitutions to ag marketplaces, complex fintech solutions, and all points in between.
• Generative AI is further along in India than what I saw in Brazil. While the awareness is high, like everywhere else, the number of companies at the prototype stage or beyond was notably less than what you’ll hear from Surya below. My sample size was not huge, which could also be a factor. I recently published “Late for the GAI Train” in TechCrunch about my efforts to get our entire Global South portfolio going faster with GAI.

Susana Garcia-Robles:

I recently participated in the LatAm Tech Forum in Miami, organized by Riverwood Capital, a very successful LatAm asset manager with $5.9B under management. They have an impressive network of tech entrepreneurs in the region, and this event was all about listening to their stories, vision, and successes.

Observations:

• Sobriety is the name of the game for companies – Riverwood co-founder Francisco Alvarez-Demalde stressed this and related points when speaking about his portfolio feeling healthy. We know that investors should focus on sustainable growth when choosing companies – today, LatAm funding flows reasonably well for companies showing responsible growth, good fundamentals, and who listen to investors (the panel appealed to allocators to avoid paralysis and keep backing VC funds because this vintage will be very good).
• Credit is more attractive today than in recent years – this is because of the hesitation of many companies to have their valuations challenged in today’s environment.
• I joined a discussion about Edtech and GAI with approx. 35 entrepreneurs, fund managers and other investors. Issues raised revolved around how to benefit from the amazing opportunities that GAI offers in this space when the sentiment among teachers can be quite negative.
• GAI can revolutionize personalized learning and enhance teaching assistants. Solutions can adapt the learning pace and assist in tailoring educational content to individual students’ needs, providing targeted recommendations, and offering real-time feedback. This level of personalization and administrative support can significantly enhance the productivity of teachers and, subsequently, learning outcomes for students in LatAm, where individual learning needs and diverse backgrounds are prevalent.

Dave Richards

In my recent trip to Ho Chi Minh City, Jakarta, and Singapore, I met dozens of founders of early-stage and early-growth companies.

Observations:

• All of them are adjusting to the new “profitable growth” mindset, which often means shutting down marketing channels with less effectiveness and stopping to serve less/unprofitable customers/regions/segments. In many cases, this means taking a revenue decrease from which they must build up again with higher quality unit economics.
• Many of them are also getting more focused on their working capital needs. This includes experimenting with discounts for early customer payments and looking for trade finance facilities to reduce the amount of capital caught up in accounts receivable cycles.
• Many are starting the journey to apply GAI to improve their internal operations efficiencies and explore potential ways to improve their products/services. The former are often “quick wins”, while the latter requires rethinking their product plans.

Surya Mantha:

While I’m typically based in Bangalore, I’ve spent time in other major economic centers of India this year, such as Mumbai and Delhi, to keep our ears to the ground and network with like-minded entrepreneurs and investors.

Observations:

• Indian VC funding has indeed nosedived. There is a slowdown at every stage. The stream of bad news about corporate governance and founder malfeasance does not help. In particular, the woes of Byju’s’ — the most valuable Indian startup — have created a significant drag on investor sentiment.
• That said, life goes on in the world’s 5th-largest and fastest-growing major economy. India’s medium to long-term attractiveness is intact. A huge demographic dividend, deep entrepreneurial talent, sound macroeconomic policies, a big infrastructure push by the government, and favorable geopolitical tailwinds make India a “must-have” in any investor’s portfolio.
• Startups are using the slowdown to reorient their strategies and operations towards age-old principles of business being again back in vogue. Cash (flow) is King, and companies (and their boards) have a laser-sharp focus on maintaining runways that will see them through the funding winter.
• Investor sentiment will improve – if not in six months, then in 12 or 18. There is a lot of dry powder waiting to be deployed in India. And when it does turn, the companies that have used this time to transform themselves will emerge stronger and attract investor interest, as they should.
• Finally, Main Street continues to hum along nicely, unlike China…