Arch Cap started operations after the outburst of the pandemic with the goal of providing liquidity to Latin American fintech companies to improve and consolidate their existing financial products. “We are at the prime moment when these startups are going to start paying off within five years, but they need that Mexican ally that has that expertise,” said Victor Lau, senior managing director and partner of ArchCap, a new investment fund looking for giving liquidity to fintech companies.
Lau commented that the fintech market will be one of the main pillars of ArchCapital because it is growing and showing potential in Mexico and the rest of Latin America.
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Arch Capital will not only serve the fintech sector
The company plans to help fintech companies not only with investment rounds, but also with the regulation process, improve their products and with the internal part of the business, which are areas where fintech companies, according to Lau, require a lot of advice. “We want them to go to the United States and ask for a Series A or if they have a Mexican fund that specializes in Latin America to invest in them. Currently, there are very few and they are not specifically for the Latin American market,” said Lau.
Arch Capital also has two other segments the fund will serve: Real estate and Renewable energy and Biotechnology.
Stefano L. Corsini, CEO and Chairman of Arch Capital, said that the company chose the real estate segment because the hospitality area has been severely affected. While in the area of renewable energies, due to the lack of capital and public resources, the projects are not achieved.
“These are difficult times where private equity and venture capital funds can be of great help to society in general,” Corsini said.
In which fintech categories will the fund invest?
For now, the fund is mapping fintech companies in Mexico and Latin America, although it has already located between four and five fintech companies with which ArchCap will talk and know if they are open to raising their A-round.
The focus of fintech companies will be mainly on Series A and only a few tickets small in Series B. That is because the Bs in fintech and biotechnology are a little higher.
Series A rounds in fintech, according to Lau, are close to $10 or $12 million on average. Although, Arch Capital will not enter the sector alone, but in conjunction with other funds and co-invest, as is the case with most of the funds.
“In Mexico, there are three types of fintech categories: payments, collective funding and debt. From all these really exist very niche processes where we want to invest and we want the money begins to generate not so much new products but the existing ones will be improved and consolidated,” said Lau.
In Latin America, there are funds amounting to $8 billion, of which 75% is concentrated in two sectors in particular: payments and loans.
In Mexico, there are eight of the 25 main fintech companies financed in the region and concentrate on three categories: loans, payments and digital banks, according to the KoreFusion 2020 LATAM Fintech report.
Victor said that they will not be a ‘hero’ of the fintech categories that are not turning to other investment funds, because there are reasons why these fintech categories, such as crowdfunding, are not being funded as much as loans or payments.
“It is a process where crowdfunding and the process to collect real estate investment or loans would still seem to be fresh. The process regulatory issues at that point are the heaviest; more difficult because it is limited in the type of investor you can have.”
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