LatAm Tech Weekly: Key Trends to Watch

This article is part of the LatAm Tech Weekly Series, written by Julia De Luca and powered by Nasdaq. Through Nasdaq’s global network, we partner with Latin American companies to support their entire business lifecycle to elevate their brand and access the global markets. Learn more about Latin American Listings here.

Unfortunately, I missed the South Summit this year. I heard it was a blast and packed with good people and quality content. I was not there in person, but of course followed everything that happened and will share some of it with you. For those who don’t know, South Summit is a big three day tech event that occurs in the south of Brazil every year. It broke some records in 2023: 900 speakers, 22k attendees and 2k startups subscribed to the challenge they conduct in loco. I was supposed to be a painelist, but ended up missing for a good reason: I did an in person Financial Analysis & Valuation course at Columbia Business School. For those who know me for a while now – it was always a dream of mine to study at an Ivy League. Even if for a couple of days, I was beyond happy to have the opportunity to do so! Now, back to reality and to our weekly… Let’s do it! 

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Opinions expressed here are solely my own and does not represent those of people, institutions, organizations that I may or may not be associated with in any capacity, unless explicitly stated.

As mentioned, several decision makers of the tech industry in Latin America shared their thoughts during the South Summit. You can find some below:

- Downrounds will be a reality for some local startups – whether founders like it or not. If this has happened with major companies worldwide (think Klarna and Stripe) – it will happen here.
- It is time for founders to be less passionate and more realistic: focus on profitability.
- People that joined tech with the idea that it would be a fast/easy way to make money given the boom years, are going back to their 9 to 5 jobs. Starting a business is NOT easy, and keeping it alive is even more tricky.
- Established and well known founders mentioned that we are currently experiencing the hangover of a great party. Investors are much more selective, both on the equity and on the debt side.

Shifting gears and talking about the market in general: in fact, markets are tough. But, as always, there are also several opportunities. Pitchbook published an article on the 10 largest private debt funds that are finding opportunity in a tight lending market. This year, some of the largest private debt funds are weighing investment strategies from direct lending to distressed debt. They are seeking capital to plug the current financing gap and are therefore building up their bets on companies that are undergoing a period of distress or change.

Yes, debt is one way to get proceeds to increase runway and sustain a business in an environment that raising equity is harder – and that the so called “IPO window” remains closed. This reminds me of an interesting piece by The Information also released this week. Jessica Lessin discusses Henrique Dubugras’ (founder of Brex) view on an IPO exit. He argues that “It’s not that the IPO window is closed, It’s just [that] people just don’t want the price right now.” That is, public investors and management have very different price views as for how much companies are worth. However, the piece argues that businesses make financing decisions based on the options in front of them at a certain point in time. And when their options run out, the calculus for going public starts to look very different. Let’s not forget about the M&A exit, which is becoming more interesting by the day.

Another clear trend I saw this week that is tied to all of this is the rise of Co-investments (LPs making direct investments alongside their fund managers ) as these funds turn to new sources of capital and their investors (the LPs) look to reduce fee burden.

According to Pitchbook data, total capital raised for co-investments with PE investment managers grew from $6 billion in 2015 to $10.3 billion in 2022. While fundraising declined from 2021 to 2022, levels still remained historically elevated. So far this year, PE firms have raised three funds with a total of $100 million for co-investment transactions. There we go: another option for raising equity.

If you thought I would not mention Elon Musk’s move against AI – think again! This week, Elon Musk and many other experts around the world have recently signed a petition requesting a six-month pause on research into artificial intelligence (AI) that is more powerful than ChatGPT 4, the OpenAI model that was launched this month.

The petition has gained support from a wide range of individuals, including Apple co-founder Steve Wozniak, members of Google's DeepMind AI Lab, Stability AI director Emad Mostaque, as well as U.S. AI experts and academics and executive engineers from OpenAI partner Microsoft. The signatories hope that the call for a moratorium will prompt a wider discussion about the future of AI and the role it should play in society. Several implications from this – and of course there is much more to come. As the story develops, I will provide facts and updates here.

Monday 

General news:

• SVB sold to regional lender First Citizens Bank: First Citizens Bank has agreed to buy $72 billion in deposits and loans from Silicon Valley Bridge Bank, the California lender formerly known as Silicon Valley Bank that was taken over by the FDIC two weeks ago.

• The Brazilian Central Bank authorized Pomelo to operate as a payment institution under local regulation: “instituição de pagamento”.

• Juliano Tubindo, VP of Strategy at Totvs, becomes RD Station’s CEO. Eric Santos, founder and previous CEO of the startup that was acquired in March 2021 by Totvs, is now president of the board and leaves the day to day operations.

• The Nasdaq stock exchange is preparing its entry in the custody of crypto – namely Bitcoin and Ethereum. This custody is the first step towards the creation of a whole set of services directed to the crypto industry.

• Brazilian legal tech Docket raised the bar at its C-level after the BRL110 mm raise in December 2022. The startup hired Guilherme Vaisman (former Ambev and Vale) as CFO and Alejandro Raposo (former Claro and Unico) as VP of Sales.

• ClearSale posted the second positive quarter in a row, bringing more confidence to the bulls in the story. While revenues accelerated to a nice 15% YoY in 4Q22 – and they would have been even better if the USD/BRL weren’t a headwind – margins expanded meaningfully (both gross and EBITDA); and this includes a BRL 5.6 million provision for Americanas.

Deals:

• Mamotest, startup from Argentina that develops a digital telemammography network for patient navigation focused on defeating breast cancer raised a USD 3.3mm seed round with Johnson & Johnson Impact Ventures, Merck for Mothers, Sky High and Sonen Capital.

• Certa Consulting, startup from Argentina that provides Salesforce-related services to companies across different industries was acquired by Nespon Solutions by an undisclosed amount.

• 4MSTech, Brazilian startup that provides information technology services and consulting specializing in Microsoft cloud infrastructure and solutions was acquired by BeyondSoft.

• Jobecam, Brazilian video selection platform that automates job talent selection through the use of video technology raised a USD800k angel round with Arminio Fraga, Daniel Gleizer and other undisclosed investors.

Tuesday 

General news:

• E-commerce giant Alibaba is dividing the company into six separate units, which will include a cloud intelligence group, a digital media and entertainment group, and a global digital commerce group, among others. Each group will be able to solicit external financing and can also seek to go public independently, Alibaba said.

• Apple launched a buy now, pay later service, which will allow customers to apply for loans ranging from $50 to $1,000 that they can use with any merchant that accepts Apple Pay. 

• Thais Pianucci, former Arco Educação and Somos Educação, joins the executive team at edtech Alura. She will head Alura Start, the business line of the company focused on K-12 education. It has a B2B model and offers solutions to both private and public schools across Brazil.

• Neobank Neon announced Fernando Miranda, former CEO at Easynvest and Investments unit head at Nubank as co-president of the startup. He will respond directly to founder and CEO Pedro Contrad. Even though still burning cash, Neon currently has over 23 million customers and the focus is to monetize the client base.

• Roughly 4 years after announcing the start of its operations in Brazil, German fintech N26 finally started to onboard customers that were on the waiting list. The fintech operates in 24 countries and has a valuation of USD9bn.

• Cubo Itau launched a new hub/ vertical in construtech. It was co-created with big local players such as Gerdau and Dexco. 

• E-commerce retailer Amaro asks for “extrajudicial recovery” (Brazil’s version of Chapter 11). The current debt of the company surpasses the mark of BRL 245mm – BRL 151.8 is owed to banks and BRL 92.8 to suppliers.

Deals:

• Comp, a Brazilian startup that hosts the largest and most updated compensation database in Latin America, raised $2.7M (R$14M) led by Kaszek, with participation from Canary, Norte, 1616 Ventures, and angels.

• ATSaude, Brazilian startup that offers information technology and services primarily for the healthcare sector was acquired by Semantix (Nasdaq listed deep tech company).

• Propi, real estate marketplace company from El Salvador raised a USD2.5mm pre-seed round with Panorama Capital.

• AgriAcordo, Brazilian B2B digital marketplace for the sale of agricultural inputs, announced an undisclosed funding round of USD1.65mm - investors were also not disclosed.

Wednesday 

General news:

• Elon Musk and a group of artificial intelligence experts and industry executives are calling for a six-month pause in developing systems more powerful than OpenAI's newly launched GPT-4, in an open letter citing potential risks to society.

• Spanish data processing group Nabiax has sold its Latin American operations to London-based Actis. The transaction was valued at $500 million, Reuters reported.

• The Brazilian SEC (CVM) authorized platform SMU to start the negotiation of tokens from startups in the secondary market. The tokens, which represent startups that raised proceeds through equity crowdfunding, will start to negotiate in the coming months.

Deals:

• Sundes, startup from Chile that offers a travel booking platform raised a USD 500k seed round with undisclosed investors.

• Intera, Brazilian startup that develops a digital recruitment and selection platform that focuses on finding, attracting, and screening professionals for vacancies in the digital market raised a USD2.3mm seed round with Aware Super and HESTA. 

• Pacto, Mexican company that develops a digital commerce platform designed to order and pay in restaurants working as a point of sale (POS) integration center, which allows users to take orders, process payments, and generate invoices through its Pay-through-Pacto with Stripe feature, raised a USD4mm seed round with funds such as 500 Global, Polymath Ventures, DILA Capital and others.

• FUEX Payments, startup from Puerto Rico that provides financial services through API solutions that enable payments via global payment card brands for businesses, governments, and financial institutions was acquired by Zenus Bank. Terms of the deal were not disclosed.

• Argentine unicorn Technisys announced its consolidation under the Galileo Financial Technologies brand. Both firms are part of SoFi Technologies, a company listed on the Nasdaq Technology Index. While Technisys was born in 1999 to develop software solutions focused on digital banking, the American Galileo is responsible for driving innovation in payments and other financial products through APIs (application programming interface). From this merger, they will complement each other to create a single solution for companies.

Thursday 

General news:

• VC firm Kaszek is currently looking to raise USD 1bn across two funds. One will be dedicated to growth companies, and the other one to early stage. Since the firm’s inception in 2011, it has raised USD 2bn in 7 funds that have invested in companies such as Nubank, Quinto Andar, Loggi, Creditas and others.

• Accel-KKR announced the completion of fundraising for two funds – Accel-KKR Capital Partners VII LP and Accel-KKR Emerging Buyout Partners II LP – closing on $5.3 billion of new capital commitments. Accel-KKR Capital Partners VII LP closed on its hard cap with $4.4 billion of equity capital commitments while Emerging Buyout Partners II LP closed on its hard cap with $920 million of equity capital commitments. The new Emerging Buyout fund will continue Accel-KKR's long-standing strategy of investing in software and tech-enabled services companies, with a special focus on small-cap companies.

Deals:

• ECSA, Brazilian startup that launched a Brazilian Real stablecoin, just raised a round with Y Combinator focused on increasing the liquidity of its coin and thus making it dominant in the market. The round, of USD 3mm, also had the participation of Arca Capital, DB88 and Artichoke (the last two funds based out of Hong Kong). Enthusiasts of the theme, such as Eduardo Vasconcellos, GIC investor, also participated in the round as angels.

• Nescara operates as a Salesforce partner and offers customer relationship management services. It offers digital transformation services, technical analysis, Salesforce ticket tracking and reports and dashboards with marketing, sales and service solutions. The company was founded in 2008 and is based in Sao Paulo, Brazil. In March 2023, Nescara was acquired by Globant. The terms of the transaction were not disclosed.

• No waste: Aravita just raised BRL 12 million in a seed round led by the American fund Qualcomm Ventures and the Argentine fund 17Sigma, from Pierpaolo Barbieri, founder and CEO of the Argentine fintech Ualá, valued at US$ 2.45 billion.

Friday 

General news:

• WePayments, Brazilian fintech specialized in instant mass cross border payments, just received the Payment Institution license from the Brazilian Central Bank. The company is currently looking to raise a USD11mm Series A round.

• Three former Softbank executives are joining forces to create a new growth fund dedicated to LatAm: Bicycle Capital. Marcelo Claure, Paulo Passoni and Shu Nyatta are the managing directors responsible for the USD500mm fund. Claure will commit USD200mm, and Mubadala is almost closing its ~USD200mm investment in the vehicle. The remaining is currently being raised with other investors.

Deals:

• Luxy, Brazilian open NFT marketplace that allows creators to tokenize and sell their digital artwork, was acquired by Syscoin. Terms of the transaction were not disclosed.

• Access, Brazilian fintech company specializing in payment solutions and banking as a service was acquired by BV. The terms of the transaction were not disclosed. 

What did I learn from readers?

The Kamaroopin team, growth fund led by Pedro Faria and owned by Patria, launched a very interesting research called: The Fascinating World of Growth Equity. I received it from several readers, and below you can find some of the conclusions. Great read! The analysis includes a comprehensive overview of the current landscape for the asset class in Latin America and worldwide, covering a total of almost 4k funds of Growth Equity, Venture Capital and Private Equity.

• Findings reveal that Growth Equity has a superior risk-adjusted return in most parts of the world, and investing in the asset class in Latin America provides diversification benefits as it is uncorrelated with Private Equity and Venture Capital in the region.

• The adjusted MOIC for Growth Equity in Latin America is higher than in

  Asia, Europe, North America, Africa, and the Middle East.

• Despite the strong early stage investment activity in Latin America, there has been a noticeable lack of investment at later stages. Only 62 series C rounds and 59 series D+ rounds were recorded, indicating a shortage of growth equity capital in the region.

• As a result, the team predicts that many of the successful companies that have emerged from the early stage investment will soon require substantial growth equity capital to continue scaling their businesses: demand for rounds post Series A will be approximately USD 6.1 billion yearly. However, the current dry powder for Growth Equity capital in the region is only USD 3.7 billion, including opportunistic investments by global firms without dedicated LatAm teams. This will create an annual imbalance of USD 2.4 billion between supply and demand for this type of capital.

• The performance of Growth Equity investments tends to be cyclical and exhibit a negative correlation with NASDAQ multiples. This means that investing in Growth Equity funds during periods of price contractions and interest rate increase, increases investors' chances of obtaining more attractive returns. 

What am I reading?

• VEF Annual Report for 2022.

• Earnings Quality by Doron Nissin - This paper is being written by the professor of my course at Columbia! We read several parts during class, and I recommend it if you like the theme of valuation, financial modeling, numbers - and of course - the quality of the reported earnings in the corporate world.

What am I watching ?

• How I met your mother: series on Prime Video - relaxing is also important and crucial.

Quote of the week:

"It's far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.” Warren Buffett

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.