This post has been in my mind for a while. A recent World Economic Forum (WEF) report finally provided easy access to the data to support it.
We talk a lot about VC in this newsletter. Fund sizes, geographic splits, Brazil vs SSL, to name a few of my favorite topics. And let’s be honest, the asset class is sexy. Unicorns, mega rounds, founder profiles, big exits, massive failures by Forbes 30 Under 30… you get the idea. It generates more attention per dollar deployed than probably any other corner of finance.
But the reason VC actually matters has very little to do with what makes it sexy. It matters because of what it builds, and the impact of what it builds is wildly disproportionate to how small the asset class actually is.
I’ve been aiming at this text for a while, because I think the conversation in Latam often gets stuck on the surface level. We celebrate the unicorns, we lament the down rounds, we argue about valuations. We rarely zoom out and ask why we’re even trying to build this thing in the first place.
So let me try to lay that out.
Start with the size of the asset class. Global VC assets under management (AUM) sits around $3.5 trillion. That sounds like a lot until you compare it to private equity, which is roughly 4x that, or public equities, which trade in the hundreds of trillions. Less than 0.1% of new businesses ever receive a dollar of venture funding.
By any volume metric, VC is a rounding error.
Now look at the output. Here’s what stood out to me from the WEF report:
7 of the 10 largest companies in the world by market cap were VC-backed in their early stages (Amazon, Apple, Alphabet, Meta, Microsoft, NVIDIA, Tesla)
Among US public companies founded in the past 50 years, VC-backed firms are 47% by count and 77% by value
VC-backed companies account for 42% of total US public market cap
They account for 64% of all public company R&D spending
And here’s the one that really jumped off the page: 94% of R&D spending among US public companies founded in the past 50 years comes from companies that were once VC-backed
Yup, I had to double check that last bullet. Of every dollar that publicly traded American companies founded since 1975 spend on R&D, ninety four cents come from companies a VC once wrote a check into.
A tiny share of companies, funded by a tiny share of global capital, produce almost all of the technological progress that ends up in public markets.
It’s structural, and it’s worth understanding because it explains why you can’t just substitute another type of capital and expect the same outcome.
Banks lend against collateral and expect predictable repayment. A company with no revenue, no assets, and a 75% probability of failure is not a bankable risk. Public markets demand quarterly earnings and punish volatility. A company that needs to burn cash for years before it has a viable product can’t survive that scrutiny.
VC is built for exactly that kind of company. It tolerates failure (3 out of 4 venture-backed companies either die or fail to return capital). It accepts long time horizons (companies now stay private for 12+ years on average before going public). It pairs capital with active partnership (board seats, hiring help, network access). And it concentrates conviction in outliers, knowing returns come from the few breakout winners, not from averaging across the portfolio.
No other pool of capital is structured to do this. If VC didn’t exist, the companies it funds would have a really tough time finding capital. Most wouldn’t get funded at all. Those that do would probably have less capital than they need.
Public markets and PE don’t replace VC. They sit downstream of it.
Here’s the part that should be most interesting for anyone thinking about Latam.
The US venture industry as we know it didn’t exist before the 1970s. The pre-1980 fraction of new US public companies that were VC-backed was effectively 0%. Their share of US market cap was 1%.
What changed was a regulatory tweak. The 1974 Employee Retirement Income Security Act, and a 1979 clarification of the “prudent man” rule, allowed US pension funds to allocate to alternative assets including VC for the first time. Before that, pension capital was legally locked out of the asset class.
After that change:
VC-backed companies went from 0% of new US IPOs to 38% post-2000
Their share of US market cap went from 1% to 41%
The most important VC ecosystem in the world was built, in significant part, by a regulatory change that unlocked institutional capital.
This isn’t a story about America being great or Silicon Valley culture. It’s a story about developing capital pools, regulatory frameworks, exit pathways, and talent recycling. The countries that build the infrastructure have the ecosystem.
There is a lesson here for anyone building an ecosystem: the fundamentals are policy choices, not accidents of culture.
Now let me ground this in our reality, because the gap is not subtle.
Latam holds about 8% of the world’s population and roughly 6% of global GDP
Of the $3.36 trillion in global VC AUM, Latam holds $34 billion. Roughly 1%
Of the 1,920 privately held unicorns globally, 43 are Latam-based. About 2.2%
The US and China alone hold 82% of total unicorn value
The conversion rate is the part that hurts the most. In North America and Asia, roughly 1 in 60 VC-backed companies eventually becomes a unicorn (I actually found this hit rate impressive, the first time I looked at it). The WEF data doesn’t give a Latam specific ratio, but given that the region holds 1% of AUM and 2.2% of unicorns, the funnel is clearly narrower.
The question isn’t whether Latam can produce great companies. It already does. Look at the founders, the operators, the startups being built across Brazil, Mexico, Colombia, Argentina, Chile. The question is whether the ecosystem around those founders can convert their talent into the kind of compounding machine the US built. Right now, the data says we’re not there yet.
If you accept the WEF numbers, then VC is not a financial product.
It’s industrial policy. It’s development policy.
The countries that have functioning venture ecosystems produce 94% of their public company R&D from companies that didn’t exist 50 years ago. They build the firms that dominate global market cap. They create the founder factories that seed the next generation, the operators who become angels who become GPs who become LPs who fund the next wave.
The countries that don’t, import the output and pay rent on the underlying technology forever.
This is why I think the Latam VC conversation is more important than it sometimes feels. We’re not just trying to generate fund returns or back the next regional unicorn. We’re trying to build the only mechanism humans have figured out for converting ideas into globally significant companies at scale.
When we argue about fund sizes, or Brazil vs SSL allocation, or the lack of Series A capital in the region, we’re not having niche industry debates. We’re arguing about whether Latam ends up on the producing side or the consuming side.
I know where I would like to see Latam.
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