NXTP Ventures recently reached a USD98m final close for NXTP Fund III, its third flagship fund to invest in B2B enterprise startups in Latin America. LAVCA sat down with Managing Partner Alexander Busse to dive deeper into the fund’s thesis, the changing landscape of institutional investors allocating into Latin America VC and the evolution of B2B startups.

LAVCA: NXTP started investing in Latin American founders in 2011 – more than 12 years ago. Has your investment thesis changed since then? If so, how? 

Alex Busse: When NXTP started investing over a decade ago, the tech market and ecosystem in LatAm were in their absolute infancy. The entire market was up for grabs and ripe for disruption and NXTP’s investment thesis aligned with that opportunity in that we wrote very early-stage checks into a lot of businesses across multiple sectors and business models, both B2C and B2B. Companies like Auth0, Mural, Nuvemshop, Amaro and Frete.com were all part of our Fund I, a 2013 vintage.

When we went out to raise Fund II we re-evaluated our strategy and looked back at the successful companies from Fund I, the learnings we had gained by partnering with them and also assessed the market to understand where we saw the most opportunity. This led us to focus exclusively on early-stage B2B businesses in a couple of core verticals (SaaS, E-commerce enablers, fintech, B2B marketplaces, data and AI).

Our Fund III thesis is identical to Fund II’s thesis. Over the years our focus has led to deep domain expertise and a powerful expert network in these well-defined sectors with strong secular tailwinds.

LAVCA: How have your conversations with LPs evolved since you began fundraising for Fund III? What are some of the newer institutional investors in the asset class looking for in a partnership with NXTP Ventures?

Busse: Most newer institutional investors who partnered with us in Fund III have been monitoring Latin America for a long time and are long-term investors. They are very familiar with the investment opportunity and have been impressed by how the ecosystem has matured, the quality of the founders and see opportunity in the low penetration of technology in both the SMB as well as enterprise tech stack.

Through NXTP the LPs look to gain exposure to this underpenetrated, high-growth region through a fund manager with a strong track record and a well-defined and compelling investment strategy. Additionally, we see strong interest from LPs in co-investment opportunities that align with the investors’ overall investment strategy and desire to gain direct exposure to the region’s most exciting companies.

LAVCA: How do you see the enterprise and B2B investment landscape shifting in the coming years in Latin America? Any specific insights you’d like to highlight, and how do they inform how you think about the new companies you will back?

Busse: We believe demand for digital products and services will increase significantly following the trends we see in more mature markets. Enterprises have clear digital transformation mandates and are under pressure to make their operations and workflows more efficient – technology allows them to do so.

In general, we will continue to see enterprises migrate to the cloud and build infrastructure that allows them to seamlessly use many more cloud-based applications and integrate them efficiently. These solutions will span all departments from finance, sales and customer experience, to human resources and marketing, among others.

While we are still in the early innings of tech adoption, we are already starting to see the increased verticalization of product offerings – instead of building solutions for a wide array of industries, start-ups are starting to focus on one specific segment and are building products specifically tailored to that industry. As we continue to see the market mature, we believe we will start to see an increased number of verticalized solutions.

LAVCA: In your view, what are some of the biggest unmet needs that B2B founders have in Latin America that NXTP can help address? What does it mean to be a value-add investor in this normalized market?

Busse: LatAm is still an immature market and there is limited experience in building large, profitable businesses. As such most founders still lack experienced mentors and team members who have solved the very same challenges they are facing today. There are limited playbooks and comparables in the market so oftentimes at NXTP, we connect the founders in our portfolio with seasoned entrepreneurs and experts in the US and Europe.

Our portfolio support can roughly be divided into five main buckets:

1. Being a critical thought partner to founders thinking through important strategic decisions
2. Help with recruiting and building the team
3. Introductions to seasoned domain experts and experienced operators
4. Investment readiness and introductions to next-round investors
5. Help with structuring and streamlining operations.

By virtue of being a B2B-only and sector-specific fund, our network and playbooks are highly relevant to all our portfolio companies.