LatAm Tech Weekly: Shift in VC Standards

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.

As we near the end of the year, there’s definitely a feeling of wrapping things up in the air. With just a few days left, it's a good time to start thinking about what we want for 2024. This isn't something to rush through – it’s about taking the time to really think through the tough questions and figuring out what we want in different areas of our lives. I’ve already started my own reflection. How about you? Are you ready to dive into planning for the new year?

Thanks for reading Weekly Tech Update Subscribe for free to receive new posts and support my work.

Share Weekly Tech Update - Julia 

Follow me on LinkedIn , Instagram or Twitter for daily updates!

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.

I read a very interesting piece by Pitchbook on the latest investors’ demand called “OpenAI tumult, FTX blowup help bring VC governance back in vogue.” Essentially, venture capitalists, who for years had loosened their governance standards, are now reverting to insisting on board seats in their portfolio companies. This change is largely attributed to high-profile cases like FTX's collapse and the unexpected ousting of OpenAI CEO Sam Altman, which underscored the importance of governance for VCs and their limited partners.

In the article, Yash Patel from Telstra Ventures pointed out that there's a significant uptick in the number of investors demanding board seats, a change driven by the dissatisfaction of limited partners, particularly following the events of 2021. During the last investment boom, fear of missing out led many investors to relax their standards, including less rigorous due diligence and relinquishing rights to detailed financials and business plans. However, as company valuations increased, investors found themselves with smaller stakes in each company, while founders often retained more control, at times even refusing board seats to VCs.

Tomasz Tunguz from Theory Ventures also recalled how before 2018, investors typically assumed “directorship roles” in Series B funding rounds, a practice that became less common during the pandemic. The frenetic pace of deal-making led many VCs to overcommit to multiple boards, stretching their ability to effectively manage and monitor these businesses. Laurie Yoler from Playground Global mentioned instances of board members being spread so thin that they struggled to even remember basic details about the companies they were overseeing.

The prevalence of 'party rounds,' where early-stage startups raised capital from a large number of investors, also contributed to the decline in board representation, as no single investor held a large enough stake to warrant a board seat. However, the trend of party rounds is now waning, with the average number of investors in a round dropping to the lowest in a decade.

The case of FTX, which notably lacked a board of directors, exemplifies the dangers of uncontrolled investor enthusiasm during that era. The revelation of fraud within the company highlighted the potential benefits of closer oversight. OpenAI's situation was unique due to its nonprofit status limiting investor representation on the board, but it also reflected the broader culture of light governance prevalent at the time.

The market's shift to being more investor-friendly is now enabling VCs to act more forcefully in demanding governance roles. Investors now have greater leverage in demanding board seats, as the era of 'free money' is over and entrepreneurs face fewer financing choices. The industry appears to be learning from cautionary tales of poor startup governance, with Microsoft's recent success in securing a board observer seat at OpenAI post-tumult being a prime example of this new approach.

Monday 

General news:

• Itaú, LatAm’s largest private bank, started allowing its clients to trade cryptocurrencies through its investment platform íon. It is one of the first banks in the region to venture into the buying and selling of digital currencies, such as Bitcoin. Initially, the only digital currencies available for trading will be Bitcoin and Ether, which are the first and second highest in market value tokens globally. The access to these digital assets will be rolled out in stages, meaning not all clients will have access to this feature immediately. According to Guto Antunes, head of Itaú Digital Assets, the rollout to registered íon clients will be gradual. He emphasizes that this gradual implementation depends on regulatory clarity.

• Future Cow, a Brazilian startup, is pioneering in the alternative dairy market with its first 'milk' produced in a fermentation tank, backed by approximately R$2 million in investments.

Tuesday 

General news:

• CamelFarm Ventures, the family office behind Zee.Dog, has launched Camel Saudi Properties to invest in Saudi Arabia's commercial properties, offices, and luxury apartments.

• American fintech Jeeves, after over a year in Brazil, is prioritizing the country in its global expansion, focusing on corporate payment solutions and expense management.

Deals:

• E-commerce platform Nuvemshop, targeting small and medium-sized businesses, has acquired marketing automation company Perfit as a new business unit, aiming to boost sales and marketing efficiency.

• Peruvian Veef, a producer of vegetarian and vegan food products based in Peru, secured $0.09M in Angel funding led by Ryan Bethencourt.

• Strong by Form, a Santiago-based manufacturer of timber-based bio-composite materials designed to replace steel and concrete, raised $5.2M in a Seed Round led by CMPC Ventures.

Wednesday 

General news:

• Brazilian management platform Omie has achieved breakeven and anticipates a 70% increase in revenue this year, maintaining financial stability with Series C funding still in reserve.

• Veteran startups like Shein and Reddit are poised for potential IPOs in the United States in 2024, capitalizing on their decade-long operations.

• Marcello Hasegawa, formerly of Nubank and Microsoft, has joined BHub as the Head of AI, leading a team of over 60 engineers and data scientists.

• RecargaPay has raised R$70 million through a FIDC to bolster its credit offerings and focus on developing products tailored to customer needs.

• Sign-Speak, created by a Latina entrepreneur, offers real-time sign language translation and was featured at the AWS convention in Las Vegas, highlighting AI advancements.

Thursday 

General news:

• WeWork, despite its U.S. bankruptcy, is investing in Brazil's healthcare sector, including a partnership with Clina.Care, driven by a joint venture with SoftBank.

• Justo partners with iFood to become the official supermarket on the app, elevating the online grocery shopping experience.

Deals:

• Letrus raises R$36 million to advance literacy through AI, with the aim of enhancing its school presence and educational methodology.

• Nonco attracts Valor Capital and Hack with its institutional client-focused crypto brokerage, securing R$50 million for operational expansion in Brazil.

Friday 

General News:

• The financial sector in LatAm leads in Corporate Venture Capital (CVC) and open innovation, with around 23.4% of organizations investing in corporate capital or startup collaboration programs, according to a survey by ACE Cortex.

• Experts predict a new era of digital identity with Drex, the digital real, and blockchain technology, enhancing personalized and secure client-financial institution relationships. 

What did I learn from readers?

I received from a reader a report on Enterprise SaaS venture investment in Q3 by Pitchbook. It turns out that it was weaker than expected, at $6.6 billion. It was short of the Q2 positive turn of $9.2 billion. The number of deals made a meaningful drop to 324 after holding steady at around 400 per quarter since Q4 2022.

What am I reading?

• Latest Clouded Judgement by Jamin Ball

What am I listening to? What am I watching?

• Latest Acquired Episode: VISA

Quote of the week:

“Oh yes, the past can hurt. But from the way I see it, you can either run from it, or learn from it.” – Rafiki (Lion King) - yes, spending too much time with my young nephews :)

Originally published on my Substack.

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

Other Topics

Technology