Despite the drop in funding, some Latin American startups continue to draw investment capital as digitization moves forward in the region. Last month, Mexican payments fintech Pacto raised $4M from venture capital investors to take its business to a national level.
The startup was founded during the pandemic. In early 2021, it began offering point-of-sale software tailored to restaurants and bars in Mexico. Following the wave of SME digitization after Covid, they now seek to expand nationwide.
“With this new funding, we plan to win over the Mexican POS market for the restaurant industry,” said Rodrigo Kuri, co-founder of Pacto, in a press release. The fintech allows restaurants and bars to manage their operations through its platform. It claims it has contributed to a 19% increase in revenue and 50% in tips.
Restaurants lagging in digitization
The company hopes to build a customer base of 1,500 merchants by the end of this year. However, it argues that the addressable market is far more extensive. There are an estimated 584,000 restaurant businesses in Mexico, many of whom lag in digitization.
The company will reportedly apply the new money to engineering and product development to support the expansion. Mexican venture capital fund DILA Capital was the lead investor. The round also had participation from FEMSA Ventures, 500 Global, August Hill, Polymath Ventures, and Georgetown Angels.
“We are very excited to have the support of a diverse group of investors from Latin America and the United States, who share our vision of making digital tools more accessible and efficient for small merchants,” said Ryan Croft, co-founder, and CEO of Pact, in a press release.
“Pacto builds tools and technology to empower merchants to move beyond cash payments and accelerate growth in their digital business,” said Alejandro Diez Barroso, managing partner at Dila Capital.
According to company data, total investment in Pacto – “Pact” in Spanish – now amounts to $6 million. The startup had raised $2 million in a pre-seed round a year ago.
A hot fintech market in Mexico
The news adds to a series of investment rounds in the Mexican fintech market. Despite the broad fall in funding in Latin America, some smaller-sized startups successfully attract investments.
Last month, Mexican startup Cometa raised $5 million in a seed round to provide payment collection software to schools in Mexico.
Bigger fintechs are also expanding. Mexican fintech Clara secured a $90 million debt facility this year to grow its footprint in South America. In addition, fintech lender Konfio upsized its outstanding borrowing line with U.S .firms Goldman Sachs and Gramercy to a combined $227 million to increase SME loans.
More recently, Grupo Financiero Banorte said it was edging closer to launching its own digital bank in the country.
Mexico overall has become a hotbed of fintech activity. According to the Inter-American Development Bank, it is the second-largest ecosystem in the region. It had 512 financial technology companies as of 2021.