Venture capital

Due to the progress made in terms of competitiveness, economic environment, innovation, and risk level, Colombia is seen as one of the countries with the greatest potential to attract venture capital funds in the region. The growth of the venture capital industry combined with the government’s commitment to invest in the entrepreneurial ecosystem has made it possible for Colombia to climb in the Latin American Venture Capital Association’s (LAVCA) ranking. In 2019, Colombia was the second country, after Brazil, with the largest amount of capital invested in the region, around USD 1.275 billion in investment (LAVCA, 2020).

Why invest in this sector?

How much has the private equity industry grown in Colombia?

• Since its inception, the number of funds has increased with a CAGR of 23.6% (1995-2018). At the end of 2018, there were 132 private equity funds created, 122 of which were operational.
• In 2018, the private equity fund (active funds) industry in Colombia had USD 5.688 billion in committed capital and USD 10.315 billion in invested capital available[1].
• Colombia offers the possibility of diversifying risk and investments in different sectors. As of 2018, invested capital was distributed as follows: acquisition/growth (USD 2.357 billion), real estate (USD 2.947 billion), infrastructure (USD 5.160 billion), venture capital (USD 58 million), impact (USD 58 million), and natural resources (USD 361 million) (Colcapital, 2020).
• According to LAVCA and considering historical capital commitments, Colombia is the third most important market in Latin America, only behind Mexico and Brazil (LAVCA, 2019). In 2019, it was the country with the second highest amount of capital invested in the region with around USD 1.275 billion invested (LAVCA, 2020).

How does the financial sector support the growth of businesses and new projects?

• The financial sector has grown 13.1% (CAGR) over the last five years[2], with assets that exceeded US $612.3 billion in 2019.
• In 2019, there were 939,682 companies with at least one formal financial product. There has been an upward trend in recent years, which indicates that more companies had access to the formal financial system[3].
• In the same year, commercial credit was the product with greatest penetration among Colombian companies, with a 53.7% market share[4] market share.

How is the entrepreneurship ecosystem in Colombia performing?

• According to the Global Entrepreneurship Index, Colombia is the third most entrepreneurial country in Latin America, ranking above countries such as Uruguay, Costa Rica, Peru, and Panama.
• Additionally, Colombia is the fifth most innovative country in Latin America and has a significant number of startups that lead innovation in Latin America[5].
• In Colombia, 2,696 startups were identified as having a high potential for success, according to a study conducted by Universidad Nacional, Medellín campus.

Is Colombia an attractive country for venture capital?

• In 2019, Colombia was the Latin American country that received the second most venture capital investment, which totaled to US $1.275 billion, ranking above countries such as Mexico, Argentina, and Chile.
• According to the IESE Business School, Colombia is the region’s second most attractive country for venture capital. According to the Global Entrepreneurship Monitor, one of Colombia’s strengths is the government’s role in supporting the country’s entrepreneurial ecosystem.
• Bogotá ranks second in Latin America in amount of venture capital raised. With more than US $1.760 billion, Bogotá is the second city in the region, after Sao Paulo, where companies raised the highest amount of capital between 2010 and 2019, after Sao Paulo[6].
• Some of the world’s main venture capital funds and accelerators have invested in Colombia, including Wayra, Rockstar Accelerator, Delivery Hero, and SoftBank.

How much does the regulatory framework facilitate the operation of private equity funds?

• Colombia offers an institutional and regulatory framework that facilitates investment through vehicles such as investment funds, as long as they do not establish a new entity (that is, they create a stand-alone trust fund), managed by qualified professionals with the aim of making capital investments in companies not listed in the stock exchange.
• Its regulatory framework is established in Decree 2555/2010, Decree 1242/ 2013 and Decree 1984/2018 (especially for private equity funds), and they aim to invest capital in companies and/or projects, providing them with added value, such as networking, sophisticated management systems, and better corporate governance systems for value generation. Any individual or company can be an investor and the minimum amount of investment required is 600 minimum monthly wages (SMLMV, as per its Spanish acronym) in cash or in kind (approximately, $526,681,800 COP or USD 132,386).

Investment opportunities:

The following investment opportunities have been identified:

• Colombia is the fourth largest IT market in Latin America. A robust domestic business network, which together with a competitive IT infrastructure, a stable regulatory framework, and an ecosystem that supports enterprise and innovation, make Colombia the ideal platform to use venture capital in leveraging startups with high growth potential domestically and internationally.

[1] ColCapital Gestores Colombia survey in December 2018, last figure available from August 2020.
[2] Financial Superintendence of Colombia.
[3] TransUnion, prepared by Banca de las Oportunidades.
[4] TransUnion, prepared by Banca de las Oportunidades.
[5] Global Innovation Index.
[6] Crunchbase, 2020. Calculations by Invest in Bogota.