Venture capital sees lowest fundraising since 2017 | Markets

Brazil outperformed other countries in the region, notably Mexico and Canada, by leveraging investor selectiveness. However, that favorable position may be challenged by rising instability tied to U.S. President Donald Trump’s new trade tariffs, said Carolina de Oliveira, a partner at KPMG and head of private enterprise for Brazil and South America. “Mexico was directly hit by the U.S. trade tensions, and Canada saw nearly a 40% drop in investment this quarter,” she noted.

Ms. Oliveira explained that the wave of instability triggered by the April tariffs primarily impacted tech companies integrated into global supply chains. “This led to a correction in U.S. big tech stock prices and heightened caution among venture capital investors,” she said. As a result, there is now greater demand for due diligence and a strong focus on financial fundamentals.

In Brazil, these external headwinds are compounded by internal challenges, such as high Selic interest rates and skepticism about fiscal policy. “These factors raise the opportunity cost of capital and complicate fundraising for early-stage companies,” she said.

In the first quarter, Brazil attracted approximately $435 million in venture capital across 80 deals—up 4.3% from the $417 million recorded in the fourth quarter of 2024 and 8.75% higher than the same period a year earlier, when the country drew about $400 million. Ms. Oliveira emphasized that more mature companies continue to garner attention, thanks to their predictable revenue, validated customer base, and tested business models.

One example is QI Tech, a fintech operating in the banking-as-a-service (BaaS) space, which raised $250 million in a Series B round, reaching a $1.5 billion valuation.

Fintechs accounted for roughly 30% of Brazil’s venture capital deals in Q1 2025, with a focus on B2B solutions, payment infrastructure, and alternative credit. “Sectors gaining traction also include healthtech, AI for productivity and sustainability, as well as climate and cleantech startups driven by global decarbonization and energy efficiency trends,” said Ms. Oliveira.

Startups that do not meet these maturity benchmarks must get creative to secure capital and survive until investor appetite for risk returns. According to Ms. Oliveira, many startups have turned to hybrid financing models, such as venture debt and corporate venture capital funds. “Other options increasingly include financing linked to commercial contracts with large companies, especially in SaaS and energy sectors. The current climate demands creativity and capital efficiency.”

The dry spell in IPOs on Brazil’s stock exchange has added to the difficulty, as investors find it harder to exit their positions and realize profits. Mergers and acquisitions have become a go-to alternative. Ms. Oliveira noted that many large companies are acquiring startups to accelerate digital agendas or expand into adjacent markets. “Examples include hospital groups acquiring healthtechs and traditional firms buying AI platforms. While deal values remain below 2021 peaks, the M&A trend is strengthening as the primary liquidity channel in the current cycle,” she said.

Globally, venture capital investment rose from $118 billion in Q4 to $126 billion, largely fueled by mega deals such as OpenAI’s $40 billion round. The United States accounted for two-thirds of global capital, raising $126.3 billion.

In the KPMG report, Conor Moore, the firm’s global venture capital leader, noted that the cautious optimism seen at the start of Q1 “faded amid uncertainty triggered by a slew of executive orders and back-and-forth over tariffs and trade.” Mr. Trump’s policies also dampened expectations for a rebound in IPO activity. “Some companies may now need additional funding before they can go public at some moment in the more distant future” he added.