Venture Capital is a type of financing that provides capital to startups in exchange for a minority stake in the company.

These companies are in an early stage of development, where there is a high degree of uncertainty and associated risk, hence the name of this type of strategy, but with high potential for growth and return on investment.

One of the fundamental pillars of Venture Capital is the impact that these investments generate in society, where in addition to providing financing options to many companies, they have an impact on the economies of different countries. According to a study by Oxford Economics, for every dollar invested in VC, 7 dollars remain in the economy of that country.

How does it differ from private equity?

These strategies differ mainly in the percentage of ownership of the company that each acquires. On the one hand, in private equity funds, the investor takes control of the company, betting on its growth and maturity before selling it. On the other hand, venture capital funds acquire smaller percentages of ownership in firms that are still in the development stage, betting on selling when the company begins to mature.

The VC fund industry

Venture capital funds have been gaining prominence worldwide. According to data from Preqin, there are currently 2,469 VC funds with assets under management (AUM) of more than USD 200 billion, which represents a 21% increase over the last year.

The average return on venture capital funds globally was around 18% per annum in the last year and 12.5% per annum over the last five years.

In Latin America, VC funds have experienced explosive growth over the last three years, doubling the capital invested in this type of fund to reach a total of USD 4.1 billion in 2020.

This growth is largely due to the number of successful cases in this part of the world, with 26 companies achieving unicorn status (valued at over USD 1 billion) and 240 are classified as "Centaurs," which are currently valued at more than USD 100 million and are expected to achieve unicorn status in the short term. As a result, the region has gained prominence and is considered an area of opportunity for investment in startups.

Where is Chile?

In Chile, there are currently no public VC investment funds. There are 48 active funds, all of which are private and receive significant support from CORFO.

Investment in this type of strategy has been steadily increasing, reaching a total investment amount of USD 593 million in 2020, which is up 6% from 2019 and 68% over the last five years.

As mentioned above, CORFO has been a fundamental pillar in the development of this type of investment, providing support and financing, which has reached USD 349 million invested in this type of fund.

There are 374 Chilean companies that have benefited from this type of investment, with the fastest-growing sectors being information technology (50%) and fintech (20%).

There have been several success stories in Chile, among which three companies that achieved unicorn status stand out: Crystal Lagoons, Cornershop, and Orca Bio. However, there are many more that have achieved centaur status and are expected to become unicorns in the near future, including Fintual, NotCo, Betterfly, Poliglota, Protera, and PhageLab.

Venture capital is positioned as an attractive investment alternative, with expected returns above other alternatives and shorter terms. In Chile, there have been several success stories, which shows that there are many companies and ideas that do not come to fruition due to a lack of financing, an issue that could be resolved through venture capital investment funds that participate in these companies, in order to achieve success together and consolidate this investment strategy in the country.