No Leaks, No Litigation: Why Venture Capital Disputes Are Rare in Latin America

Conventional wisdom holds that disputes in the startup world rarely reach court. A recent study by Abe Cable and Emily Strauss complicates that account for the United States. Using an original dataset of lawsuits involving VC firms active from 2014 through mid-2025, they find that nearly one quarter were involved in litigation. When courts tightened one route to liability, claims migrated to another. Cable and Strauss describe the pressure as “hydraulic”: plaintiffs seeking a deep pocket often find another way through by shifting among courts and legal theories.

At the closing panel of the 2026 Law and Finance of Private Equity and Venture Capital Conference, I was asked to react from a Latin American perspective. My main reaction is that the contrast could not be more striking: if the U.S. system is leaky, the Latin American one is largely sealed. Yet what may sound like good news for investors in fact conceals a more complicated story.

A Sealed System

VC litigation is rare in Latin America because the institutional architecture closes many of the channels through which American plaintiffs reach investors.

Consider shareholder class actions. These actions are available but are emphatically different from those in the U.S., where a plaintiff can file suit on behalf of others “similarly situated.” In Brazil, for example, individuals generally cannot bring collective claims; standing instead belongs to public bodies and qualifying associations. In Mexico, affected shareholders ordinarily must join the case. These rules foreclose the business model of the U.S. entrepreneurial plaintiffs’ bar.

Derivative actions are also heavily filtered. Shareholders generally must hold a substantial percentage of the company’s shares before they can sue on its behalf (e.g., 5% in Brazil for privately held companies and 25% in Mexico). In Colombia, the traditional action under Law 222/95 depends on shareholder-meeting approval, which in practice limited minority shareholders’ rights. A 2024 decree sought to give any shareholder a direct route, but the decree remains contested.

Claims analogous to what Cable and Strauss call business torts—fraud, unjust enrichment, conversion, and tortious interference—exist, but procedural rules make them less potent. For example, there is no broad U.S.-style discovery and no jury pressure.

Two features may nevertheless appear to create leaks. The first is arbitration. In Chile, internal corporate disputes are subject to compulsory arbitration, and in Brazil the growing use of arbitration clauses among listed companies points to arbitration’s broader role in corporate disputes. Still, while arbitration offers claimants an alternative forum, its costs and confidentiality may in fact help keep the system sealed: smaller claims may never be brought, while those that proceed generate little public doctrine to inform future claims against deep-pocketed investors.

The region’s investment environment may also appear to create a leak. Latin America has long presented substantial country and legal risk, from expropriation and regulatory instability to uncertainty over veil piercing. Of these, only the last directly implicates private claims against VCs: if portfolio-company liabilities can readily travel up the ownership chain, plaintiffs may have a path to investors’ deep pockets. My work with Raphael Andrade identifies this risk in Brazil, where veil-piercing concerns are especially pronounced in labor litigation, but even there finds no pattern of independent VC funds being held liable for ordinary portfolio-company obligations. Thus, while these risks may explain investors’ cautious behavior, they do not show that private plaintiffs routinely reach VCs’ deep pockets.

This distinction is critical: Latin America may present greater legal uncertainty than the United States, yet comparatively little risk of litigation against VCs themselves. When it comes to using corporate litigation to reach investors’ deep pockets, the system remains largely sealed.

Opting Into the Leak

Interestingly, Latin America’s most successful startups rarely remain within this sealed system. As I have documented at the ECGI Blog and in a recent paper, virtually all unicorns in Chile and Colombia, and most in Mexico, use what I call Offshore Governance: their financing and governance are organized through a Delaware or Cayman parent.

Through Offshore Governance, parties select not only the law governing decision-making and cash-flow rights, but also the forum in which disputes are resolved. Thus, a Delaware parent creates a path to the Court of Chancery, and a U.S. listing creates exposure to federal securities litigation. The resulting litigation exposure is beginning to materialize. In Malca v. Rappi, for instance, an early investor sued Colombian delivery startup Rappi and a co-founder in Delaware over shares allegedly withheld from a SoftBank tender. Brazilian financial-services company XP Inc. also faced a class action arising from its 2019 IPO. 

To be sure, these cases remain exceptional and, to my knowledge, none has yet targeted a VC. Proceedings far from revenue-generating customers and home-country governments may also carry less reputational cost. Offshore Governance structures will therefore remain attractive even if they increase VCs’ exposure to litigation.

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Alvaro Pereira is an Assistant Professor of Law at Georgia State University College of Law.

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This blog is based on a paper presented at the 5th conference on The Law and Finance of Private Equity and Venture Capital, held at Goethe University Frankfurt. The conference was convened by Bocconi University, the DFG LawFin Center at Goethe University Frankfurt, LSE Law School, the Faculty of Law of the University of Oxford, and the Institute for Law & Economics at the University of Pennsylvania, together with ECGI., Visit the event page to explore more conference-related blogs.

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