Canary, the Brazilian venture capital firm backing some of Latin America’s successful startups like Buser, Salve, Hashdex, Facily and Trybe, closed on its third fund that was oversubscribed with $100 million in commitments.

Since its formation in 2017, the firm invested in more than 100 companies in Latin America through its first two funds, on which it raised $45 million and $75 million, respectively. Those startups have in turn raised over $2.3 billion in new investments.

Marcos Toledo, Canary’s co-founder and managing partner, started the firm with Florian Hagenbuch, Mate Pencz, Patrick de Picciotto and Julio Vasconcellos. It is agnostic in terms of sector and aims to be a local partner for U.S. firms seeking investments in the area.

Toledo expects to invest in about 50 companies, and first checks from the fund were signed starting in the summer.

We emailed with Toledo recently to learn more about the fund.

TC: How long do you usually wait between new raises?

MT: We normally raise a new vintage after two or two-and-a-half years.

Why was now a good time to launch a new fund?

Launching a new fund right now is a reinforcement of the potential of the region for innovation and our vision of the future: still lots of problems to be solved, paired with a growing pool of talented people starting or joining new companies.

When Canary was founded, in 2017, it was founded under the hypothesis that there are plenty of talented people that, with the right support and incentives, could create businesses with huge impact, capable of changing Latin America. We thought the tech market in the region was in its early stages and had many opportunities.

A few years later, we are not only happy to see that our belief was right, but also that this trend is accelerating, with more and more people making a shift in their careers, becoming founders or joining a startup team, instead of going to work in traditional jobs (for instance, our second vintage had 50% more second time founders than the first one, and this number seems to be higher for the new vintage).

In addition to that, we are very excited about our positioning in the market, having access to more than 90% of all funding rounds that have happened in Brazil since 2017. Moreover, the VC market is still in its early days in Latin America and there are plenty of structural problems and industries waiting to be disrupted in the region, something that excites us about the transformation to come in the next few years. There is a true opportunity to consolidate ourselves as one of the main VC firms in the region.

What was it like raising a fund in this environment?

More than just raising capital, in Canary we seek to have, as investors, long-term oriented partners that can add real value to our invested companies. In this third fund, we are excited to say that not only we were heavily oversubscribed, but also fortunate to renew the partnerships with some leading Brazilian and global families, several partners of renowned global funds, as well as a large proportion of the best tech founders in the region.

We also had the chance to expand our investor base across geographies, such as Asia, LatAm and the U.S., and to different pools of capital, such as U.S. endowments and foundations. Cases of success in the region are helping more and more investors to understand the market and see the potential of really big companies to be created around here. Moreover, the push for digital transformation and disruption in Latin America is each and every day making our hypothesis stronger.

brazil’s canary sings with closing of biggest fund with $100m in commitments

Image Credits: Gustavo Scatena / Canary founders group

Where will the new fund be targeted?

As in Canary’s two first funds, this third fund is focused on writing the first institutional check for the best founders in Latin America. We always saw the opportunity for the whole region, but decided to start with Brazil. Now, we are increasingly investing in companies all over the continent, from countries like Mexico, Colombia and Argentina.

Considering sectors, we maintain our agnostic approach: we believe that excellent founders will always find a way to look at the best opportunities and build amazing companies. As we often say, we are not experts in sectors, but we are specialists in finding talented people with ambition to transform the lives of millions of Latin Americans. More than that, we are also focused on helping these founders in areas that can unlock disproportionate value, like fundraising, building their founding teams, commercial connections, public relations and data insights. Our focus is basically on people, first checks and LatAm.

Canary’s first two funds each invested in approximately 50 companies and our expectation is to do around the same number of first checks. We also have a share of the capital reserved to participate in subsequent rounds.

Is there a particular sector where you are seeing a lot of startups coming into or raising funds?

We have the opportunity to get a first look in the market, and since 2017, we have had access to 93% of the deals that were invested by top-tier VC funds in Brazil. Of course, fintech has been a major sector for LatAm startups in recent years and we see that there are a lot of opportunities still available to be explored by bold and ambitious founders.

In Brazil, specifically, we are also seeing a very interesting moment regarding insurtechs, with local regulators not only approving, but also pushing for more innovation in the market. Healthtech is also rising up in the region — the COVID-19 pandemic was a wake-up call about how the health industry is structured and how it can be transformed for better.

Also, as an effect of the pandemic, we are seeing plenty of startups transforming e-commerce and working to make its infrastructure better, from payments to logistics, not without mentioning social commerce companies.

Another enthusiastic opportunity we are seeing are B2B marketplaces that can transform whole industries from the inside. It is a major global trend that is increasingly growing in the region.

What is the investment landscape like in Brazil/Latin America right now? How has it changed in the past 12 months? What do you predict for the next 12 months?

The investment landscape in LatAm is very accelerated right now, a surprise if you consider our perspective about 18 months ago, when COVID hit the region. 2020 and 2021 are record years for VC investments in Latin America, with new but not surprising factors. We are seeing more and more global VC firms writing their first checks in the region (and we are proud to be local partners in the early stage for firms like Dragoneer, a16z, SoftBank, QED and Ribbit).

We are also seeing a first wave of companies doing their IPOs and completing the investment cycle: exits and distributions of stock options do not only bring more money to the table, but also work as success cases and can influence the future of the market and bring more talented people to the ecosystem.

There will also be a lot of experienced executives and operators thinking about their next steps, and this is a positive cycle that can be repeated with different companies going to the public market. Moreover, we are also seeing other countries in LatAm maturing their ecosystems at a faster pace, with plenty of talented people starting new businesses and looking to solve significant problems for the whole continent.

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