(Bloomberg) -- Latin America has seen its fair share of bank runs, defaults, hyperinflationary bouts, coup d’etats and expropriations.
Those experiences helped startup founders and executives react quickly to the financial turmoil that led to the collapse of Silicon Valley Bank this month and will continue to serve them well, said Francisco Alvarez-Demalde, co-founder of Riverwood Capital.
“They’re born in volatility,” Alvarez said in an interview in Sao Paulo. “Good companies get used to these moves. Good companies become amazing companies in moments of crisis.”
The biggest lesson to take from SVB’s sudden collapse is that events are unfolding at an ever-faster pace in digital banking, and that companies need to be nimble with a solid risk-management strategy when sitting on a lot of capital, he said. He declined to comment on specific exposure for his firm or portfolio companies.
Founded in 2008, Riverwood has invested in 28 companies in Latin America that have seen an average growth rate of about 50% a year. Roughly $1 billion of the Menlo Park, California-based firm’s $5.9 billion under management has been deployed to Latin America in the past decade, according to Alvarez, a native of Argentina.
While capital markets have tightened drastically, the need to support digitalization and automation trends in the region is accelerating. The capital crunch is forcing firms to focus more on sustainability and profitability, which is a “healthy process,” he said.
Some of Riverwood’s original investments include software firm Globant SA, which held an initial public offering in 2014, and VTEX, an e-commerce platform that went public in 2021. Alvarez sits on the board of both companies. Riverwood was also an early investor in GoPro Inc., iFLY, taxi-hailing firm app 99 and data-center operator Alog.
Startup Deals
Alvarez, who previously worked at KKR & Co. and Goldman Sachs Group Inc., founded Riverwood with Jeff Parks and Tom Smach. It now has about 55 employees and offices in Miami, New York and Sao Paulo, as well as Menlo Park.
The firm invests in growth-stage companies that have a proven path to profitability, more akin to a private equity strategy than venture capital, according to a spokesperson.
Deals in Latin America, like the rest of the world, have dried up since late 2021 as interest rates surge and investors reassess valuations after a historic boom. Venture capital investments fell by 50% in 2022 from a year earlier to $7.8 billion, according to the latest data available from LAVCA, which tracks private capital investment in the region.
The number of startup deals in Latin America are likely to begin recovering this year as some tech firms raise cash to snap up rivals or expand operations, Alvarez said.
“Moments like this is when it’s easier for strong companies to build,” he said. “You can hire better talent, you have less irrational competition.”
©2023 Bloomberg L.P.
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