Investments for Peruvian startups drop 40 per cent during first half of 2020

Lima, capital of Peru. Photo: ANDINA. Sketched by the Pan Pacific Agency.

LIMA, Sep 8, 2020, Contxto. There’s no two ways about it: investment deals for startups in Peru have slowed down. Recent findings by the Peruvian Seed and Venture Capital Association (PECAP) showed that a total US$9.93 million were dispersed towards the country’s startups during the first half of 2020, Contxto reported.

In terms of sheer funding, this is a 30.6 increase compared to the same period in 2019. However the PECAP also reports a 40 percent decrease in deals when compared to the same period in 2019. Evidently, Covid-19 had a role to play.

Of the US$9.93 million, edtechs ate up the majority of these funds (37.9 percent). After which came logistics startups (25.9 percent), e-commerce companies (25.2 percent), fintechs (7.1), and then “others” (3.9 percent).

But this drop also highlights an underlying issue with the startup ecosystem of Peru, that has less to do with Covid, and more with funding opportunities.

Throughout the first half of 2020, the majority of funding (67 percent) stemmed from foreign investors—be it angels or VCs. However for the PECAP, this means there is a gap for companies wanting to close equity.

“Local funding options need to increase in order to democratize access to capital for a larger number of Peruvian startups,” says Luis Narro, PECAP’s Executive Director.

On that note, there is some good news.

Peru’s Development Bank, the Cofide, will launch its fund of funds to strengthen local startups during the final quarter of 2020.

“However it’s crucial that players like accelerators, angel investor networks, seed funds, and others continue to earn support. This will guarantee a healthy financing cycle for startups in Peru, especially within the current circumstances,” added the Executive.

The PECAP team also picked up on another investment trend.

During the first half of 2020, 64 percent of investments were part of follow-on rounds. According to the PECAP, of the five new startups to raise equity, only two took place after mandatory lockdowns were ordered in Peru.

In a nutshell: It’s the same startups closing additional equity, and as we’ve discussed before: With Covid-19, investors are more interested in supporting their current portfolio companies rather than chipping in on new projects.

Hopefully, as lockdowns measures relax, funding will pick up the pace in Peru for the remainder of 2020.

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