Recently, the president-elect of the United States, Donald Trump, said in a statement that he will impose tariffs of 25% on products from Mexico and Canada, plus an additional tariff of 10% on all products from China.
This type of rhetoric has generated widespread uncertainty in different Latin American markets, including Venture Capital, where many investors in the entrepreneurship ecosystem are waiting for what may happen in the region in the face of the proposed regulations of the U.S. president.
According to Leonardo Castillo, who heads growth and product marketing at Fintual, a Chilean financial asset manager, the level of U.S. debt continues to be an issue of concern, which also puts upward pressure on the Federal Reserve’s target interest rate. “VC firms, both in the U.S. and Latin America, are very sensitive to this level of rates, as it is a key aspect of their financing. A higher rate would mean more expensive financing for VC in the region,” Castillo said in an interview with Contxto.
However, LatAm’s venture capital space has always had a long-term investment horizon that means a myriad of opportunities for many years to come, both for local and international players that see the region as a place to invest and grow their businesses.
“This long-term perspective reduces the impact of short-term policy changes that could arise from a change in leadership,” Melissa Guevara, Senior Associate at Caricaco Ventures, a Costa Rican Venture Capital fund, told Contxto. “History has shown us that after presidential elections, all financial assets tend to overreact (up or down) but then return to their previous trend,” adds Guevara.
“On the other hand, most of the Latin American startup portfolio is focused on solving problems we have in our region. The change of administration in the United States in most cases does not influence these “local” problems, so startups have a lot of market to cover,” adds Guevara.
New Regulations
According to Fernando Florez, Chief Revenue Officer at Making Sense, a technology consulting firm based in Palo Alto, California, with development centers in Argentina, Mexico and Colombia, Trump has already made it clear during his first administration that he has no qualms about applying tariffs and restrictions to protect what he considers “national interests.” Florez says he does not see capital flow to markets such as Latin America being complicated because of it.
“Although Trump is a protectionist, during his first presidency he was moderate in some of the basic measures taken by his government. In this sense, I also believe that visa regulations may lead to a talent shortage that will benefit nearshore,” Florez told Contxto.
“If this is the case, it would not be strange to think about relocating operations to countries close to the United States, especially in industries such as technology or infrastructure, which is something that is already being done with good results, so it would be a safe investment, beyond the context,” adds Florez.
On the other hand, Guevara states that “by nature, the VC industry is very adaptable. Both investors and entrepreneurs are used to navigating between economic cycles, regulatory changes and political changes. That said, as an investment fund we have to be aware of the changes that this new administration may impose in order to make more strategic decisions regarding the industries and business models in which we invest”.
Strategies to implement
Trump has stated that from his first day he will impose new tariffs aimed at Mexico, Canada and China, countries that have long been U.S. trading partners. The imposition of these tariffs could indirectly impact the Latin Venture Capital industry.
That is why they must implement strategies that somehow help reduce the impact that could reach the industry. “In times of uncertainty, investing in LatAm can be a strategic opportunity to diversify and take advantage of markets with high growth potential. Sectors such as fintech and edtech are in full expansion and offer solutions tailored to local needs that also have the potential to scale globally,” said Florez.
From the perspective of Guevara from Caricaco Ventures, first you have to be clear about the investment horizon. If it is long term, you have to be calm and go back to the fundamentals. Good investments will continue to be good investments, you just have to remain calm while the period of overreaction that markets tend to have passes.
A still uncertain outlook
It is difficult to make accurate predictions about what is to come for the Latin American venture capital landscape over the next few years. What is clear is that there could be polarization due to the types of speeches Trump is making.
The region has historically had the ability to adapt to changing policies in different regions of the world and has been resilient in terms of many factors. The times ahead will likely bring a boom in local startups focused on solving problems in the region, with less dependence on external policies. If there is one thing that has been noticeable for many years now, it is that resilience and creativity always find a way.
There is no doubt that during the last few years of slower economic growth in the United States, it has been demonstrated that startups in Latam can grow their own market without depending entirely on the U.S. or European market.
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