Em Conversa looks to uncover the secrets in Latin America (LatAm) that have caused the fintech market to boom, from being worth less than $50million in 2016, to $2.1billion in 2022. Tyson Morgan, head of Latin America, G Squared, discusses how the company is helping provide businesses in LatAm with more options to grow and expand.
Can you tell me more about the company and your role within it?
G Squared is a global growth VC firm that partners with dynamic companies throughout their life cycles as a complete capital solutions provider. As the head of Latin America for the firm, I work closely with LPs and early-stage venture managers local to the region.
On the relationship management side, our team in Miami and Mexico City helps G Squared diversify its LP base by raising capital in the region. We take a collaborative approach to working with early-stage venture managers in Latin America by providing liquidity solutions, via primary and secondary transactions, to their portfolio companies that have scaled into G Squared’s growth venture capital mandate.
Talk about fintech/liquidity trends in LatAm?
There are a couple of different trends within fintech in LatAm that are interesting to us at G Squared. First is payments and payment processing. As payments move from hard currency to digital, there is an opportunity for innovative companies to provide new types of financial services.
The second trend is the use of analytics and AI to identify credit-worthy new customers, which helps the local population establish credit and utilise banking services. Both of these fintech trends are helping businesses drive greater financial inclusion and thereby benefiting consumers that are becoming more prosperous.
What is G Squared doing to help improve the sector in LatAm?
We believe that some of the most innovative entrepreneurs in the world reside in Latin America. G Squared’s flexible approach to deploying capital allows us to provide primary financing to help scale a business or offer secondary liquidity to existing investors or employees to help a company stay private longer and scale even further.
If consolidation picks up in the region, we can also provide capital around mergers and acquisitions (M&A). This is all part of our mission as a complete capital solutions provider to the global venture ecosystem.
How do partnerships and liquidity compare in LatAm to the rest of the world?
Comparatively, LatAm, just like other regions around the world, has had to deal with a decline in the amount of capital deployed and fewer transactions being done.
The early-stage managers we work with in LatAm spent 2022 focused on existing portfolio companies and did not add many new businesses, which G Squared believes was the right action to take. Due to this focused strategy, early-stage managers could help their best performers scale thoughtfully to attract future funding or achieve an overall positive outcome via IPO or M&A exit.
What are some unique challenges associated with LatAm?
Political instability and a lack of exit options are the two concerns we contend with as a VC firm working with businesses in LatAm. Political instability has an impact on currency fluctuations, which we are sensitive to as a primarily US dollar investor.
From an exit perspective, G Squared is cognisant of the fact that there are fewer local IPO options in LatAm. We advise the companies we work with to scale enough to go public in the US where there is a significant amount of liquidity compared to a public exchange in Mexico, Colombia or Peru.
Plans for the future (roadmap and growth plan)
G Squared established a presence in LatAm about five years ago, and we have balanced our time listening to investors and entrepreneurs while also educating the market about our unique capital deployment strategy and the liquidity services we provide. As we look to invest in the current landscape, we believe fintech is the most exciting sector in the LatAm region because of the rapidly growing middle class needing representation from a financial inclusion perspective.
Finally, at G Squared, we look at fintech in LatAm, and any emerging economy around the globe, as creating a flywheel of prosperity.
A growing middle class means you have an increased demand for online goods and services. This demand then spurs technological innovation. With the assistance of capital, these fintech companies are able to grow and lead to a financially included middle class and a greater demand for goods and services. Fintech in an emerging economy like LatAm can make a huge difference for the local people, which is why we’re so enthusiastic about this sector in the region.