Latin American Founders See Decline in VC Funding Due to Investor Retreat from Underrepresented Cohorts

The latest Crunchbase data reveals a sharp decline in venture funding for Latin American-founded companies in the United States. According to the report, these companies raised only $250 million out of the $39.85 billion allocated in venture funds in Q3 this year, marking a significant drop from the previous quarter.

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Decline in Venture Funding

The data shows that Latin American-founded companies have seen a substantial decrease in venture funding, with the cohort raising only 0.63% of the total venture dollars allocated in Q3. This is a far cry from last year’s numbers, where they raised $2.3 billion in the same quarter and $1.3 billion in Q2 this year.

Overall Decline in Funding

The decline in funding for Latin American-founded companies is not isolated to just this cohort. According to Crunchbase analysis, minorities and women overall are seeing a dramatic dip in venture funding this year. TechCrunch previously reported that Black founders raised $187 million this Q3, which is significantly lower than the amount allocated to Latin American-founded companies.

Female-founded Companies

The data also reveals a decline in funding for female-founded companies, with the cohort raising only 1.9% of all venture funds so far this year. This is a drop from the 2.4% they raised last year. TechCrunch noted that investors tend to pull back towards their old networks during economic downturns, which often means funding founders who are familiar to them – and those people tend to be white men.

Early-stage vs Late-stage Financing

While there is some encouraging news for early-stage Latin American-founded companies, with funding on pace to exceed 2021’s total, the reality remains that women and minorities are not faring well when it comes to raising VC. Much of the decline in numbers came from a decrease in late-stage financing.

Experts Weigh In

The experts weigh in on the issue, highlighting the need for greater diversity in venture capital and startup ecosystems. "We need to see more diverse investors, entrepreneurs, and teams," says Dominic-Madori Davis, Senior Reporter at TechCrunch. "This is not just about writing checks; it’s about creating a more inclusive environment that fosters growth and innovation."

Parsing the Data

To reach the $250 million figure for Latin American-founded companies, Crunchbase used the midpoint of PitchBook and CB Insights Q3 data, contrasted with the Crunchbase Latin American figure for U.S. venture results in the third quarter. This is considered the fairest and clearest way to parse available data.

Conclusion

The decline in venture funding for Latin American-founded companies is a wake-up call for the startup ecosystem. It highlights the need for greater diversity, inclusion, and representation in venture capital and startup investing. As the industry continues to evolve, it’s essential that we prioritize creating a more inclusive environment that fosters growth and innovation.

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