The Scoop

2022: A Year In Review

Without a question, 2022 will forever be a year that will be etched in our consciousness. Shockwaves were felt across the global venture ecosystem where no region was left unscathed. Latin America was no exception, where venture funding dropped precipitously by 61% YoY for Q3 YTD 2022 to an estimated $6.4 billion. In many instances, there was a stark realization of the truth in the old proverbial saying, “when America sneezes, Latin America catches a cold.” However, despite the many ups and downs faced by the venture capital community, we are reminded that not all is lost and there are many silver linings for us to look forward to. In this final newsletter for the year, we would like to highlight some of the most monumental developments experienced as a firm and ecosystem participant; and leave you with a few thoughts on how these events have influenced our strategy.

H20 As a Firm
We believe that our most important resource is our team. That’s why in 2022, we doubled our size to eight people. We opened offices in Mexico City and Bogota, Colombia to reinforce our approach of being “local first, but regional investors”. We also invested heavily in developing our operational framework where we add value to our companies across three main themes: operational support, HR / organizational structure, and business insights. We continued to welcome new operating advisors and strategic partners where today we have been able to onboard 24 advisors with experience in people, operations, credit underwriting, fraud prevention, payments, growth, product development, among others. The support that we provide to companies is enhanced by the 12 new strategic alliances that we created this year with partners for hiring, technical support, office infrastructure, and software solutions.

During our latest portfolio survey, our NPS for portfolio support was characterized as great, which proves that we are fulfilling one of our main goals to be a strategic partner to help companies grow from ideation to product launch and eventually a successful exit for the founder and investors. Additionally, during Q4 2022 we made 99 total introductions to our portfolio companies, out of which 28% were for fundraising, 27% for potential partnerships, 15% regarding talent acquisition, 10% to our advisors, and the remaining 20% for customer acquisition and new market operations, among others.

An equally important milestone for us as a firm was the ability to reach our fundraising goals. We started our fundraising cycle in Q4 2021 with a Fund II target of $50 million. Despite the market turmoil, we were able to surpass $60 million of commitments from both existing and new investors. We take very seriously the trust that our Limited Partners have placed in us to not only preserve but also expand their wealth and this alongside supporting the development of the LATAM ecosystem continue to be two of our top driving forces.

H20 As an Ecosystem Player
This year we made five new investments, bringing our Fund II portfolio count to 12. We welcomed Seeri (B2B marketplace for retail stores), Tapi (B2B payment infrastructure), Bacu (digital food brand), Morado (B2B marketplace for beauty / wellness stores), and Aument (automation tool for e-commerce). We were also excited to see that 100% of our companies that started fundraising processes were able to successfully close at increased valuations, despite a difficult global fundraising environment. This points to the strong fundamentals of the companies in our portfolio.

2022 was also a year of firsts for the H20 Family. It was our first year hosting our Annual Partners’ Summit outside of Miami. In October, we welcomed 200 guests consisting of founders, international technology executives, investors, and LPs to our 3^rd Annual Partners’ Summit where we had two days of thought-provoking conversation on the future of fintech, how to build a AAA culture from day 1, tactics for regional expansion, and also highlighted the new generation of founders in our portfolio.

We also hosted a series of webinars and local events to share insights across not only our portfolio but our entire network. To this day, we continue to get positive feedback for facilitating conversations between the Head of Customer Acquistion at Tul and early stage B2B marketplaces in the region where we discussed best practices of developing growth strategies. We also hosted a virtual fireside chat between global growth equity investors and LATAM startups to discuss emerging trends in the e-commerce and marketplace verticals. Another noteworthy conversation was between Roger Laughlin, Co-founder of Kavak, and several tech companies on how to navigate the tumultuous funding environment.

This year we decided to open-source some of our learnings and key insights based on speaking to hundreds of early-stage companies in 2022. In October, we launched our Founders’ Tips Blog Series where we try to give founders a behind-the-scenes look at how we evaluate companies and best practices based on what we have learnt over the years (check it out here).

Our Investment Associate in Mexico, Montse Calderon, was highlighted by Lavca as one of the top 2022 Emerging Women Investors in Latin American Tech.

Food For Thought
Jack Welch, legendary former CEO of General Electric once said that “you do not have a great company until you have had a near-death experience.” Unfortunately, many companies that have raised venture funding have closed their doors over the last 12 months and many more will do so in 2023. With that being side, the ability to successfully navigate economic downturns is a testament to defensive business models and will define the next generation of technology winners.

At H20 Capital, we continue to focus our efforts on finding companies that can prove profitability before chasing blitz-scaling growth. We are inspired by disciplined founders with business models that are asset-light, can reach positive contribution margins within 12 months of inception with defensible business models, and that are receptive to H20’s active operating model approach.

No one knows what 2023 holds for the LATAM venture ecosystem, but we are convinced that if we continue to look for these types of founders, then our Fund II will remain on the path to achieving top-tier returns and we would have played an integral role in supporting our companies’ growth at every stage of their journey.

THE SCOOP