LatAm Tech Weekly
#148 - Powered by Nasdaq: The Big Tech Rotation, Startups to Watch & Tech Talents, deals of the week… and much more!
Happy Sunday!
Things have been incredibly hectic lately, and I was struggling to find time for my "Startups to Watch" column. It was really bothering me because I know how much both founders and investors value the publication. After some careful thought, I found a solution—actually, WE found a solution. I partnered with Tech Talents, a newsletter written by my colleague Pedro Mesquita, which features real-time key talent movements in the LatAm tech ecosystem. This includes founders coming in and out of stealth, C-level changes in unicorns, and partner-level shifts in local VC firms.
The essence of "Startups to Watch" remains the same—highlighting early-stage startups from LatAm that are flying under the radar and have compelling stories to share. The only difference is that these startups will now be businesses that have just emerged from stealth, and I will also share profiles of founders with noteworthy backgrounds who have just entered stealth—all powered by Tech Talent’s data-driven approach.
We released our first edition this past Wednesday! I would love to hear your thoughts and opinions. Click here to read it and send some feedback my way!
P.S: Do you like the new layout? Comments, suggestions, feedbacks… always well appreciated!
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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.
On to the usual market update… this week, we witnessed "The Great Rotation" out of tech stocks. Wait, what?
A bit of context…
Over the past 18 months, Big Tech has been on an incredible run, earning the nickname "The Magnificent 7." This elite group—comprising Apple, Microsoft, Google, Amazon, Nvidia, Tesla, and Meta—has driven a substantial portion of the Nasdaq's overall gains. Currently, their combined weight in the Nasdaq is around 40%. Here’s a snapshot of their performance from the start of 2023 until now:
- Apple: +73%
- Microsoft: +82%
- Google: +103%
- Amazon: +119%
- Nvidia: +722%
- Tesla: +108%
- Meta: +295%
These are historic returns! The prevailing strategy over the past 18 months has clearly been to "buy big tech". During the same period, the Nasdaq gained 71%. This success has been driven by AI tailwinds and tech companies' ability to cut costs during challenging market conditions.
The Recent Shift…
However, something remarkable occurred last week: the Big Tech trade reversed. The Nasdaq fell by 4%, with individual drops among the Magnificent 7:
- Apple: -1%
- Microsoft: -3%
- Google: -4%
- Amazon: -6%
- Nvidia: -5%
- Meta: -7%
- Tesla: +3% (the lone exception)
The shift from tech stocks and the S&P 500 to small and mid-cap stocks is not random. This significant rotation started last week, resulting in a 12% performance spread within just five days. But why?
The release of lower inflation data triggered this divergence between small-cap stocks and tech stocks.
Last week’s lower inflation data had a profound impact on the market. It significantly increased the likelihood of an interest rate cut in September. Lower interest rates are highly beneficial for small-cap stocks, which rely heavily on bank financing. With the prospect of reduced borrowing costs, these companies stand to benefit significantly.
The small-company-focused Russell 2000 surged over 11.5% in five days, marking its biggest gain in such a stretch since April 2020. In contrast, tech giants in the S&P 500, which are cash-rich and less reliant on bank financing, do not gain from lower interest rates. As a result, the lower inflation data has led to a divergence in performance, with small-cap stocks outperforming tech stocks.
The S&P 500’s heavy weighting in tech stocks contributed to the recent market shift. This overexposure was a ticking time bomb that finally went off last week, leading to the rotation out of tech stocks. Investors, recognizing the risks associated with this overexposure, have started reallocating their investments into small-cap stocks, which are considered safer in the current economic climate.
At the same time, the Nasdaq is trading at nearly 30 times P/E, which is very expensive compared to historical averages of around 20 times. In summary, a view has started to emerge that the Magnificent 7 may be experiencing peak earnings and peak multiples. In contrast, the rest of the market is relatively cheaper and not at peak earnings, suggesting potential earnings growth ahead. This has created a perception of relative strength in non-Big Tech stocks compared to Big Tech. Just as the relative strength of Big Tech benefited the Magnificent 7 over the last 18 months, large fund flows are now starting to leave Big Tech, potentially moving towards what is perceived as the next area of strength—small cap stocks.
You might be wondering why I’m discussing this in a newsletter focused on LatAm Tech. The reason is simple: everything is connected! Movements in the U.S. macro environment naturally affect their public markets, which in turn influence private markets. Investors’ sentiment in the U.S. impacts the global market, including our beloved LatAm Tech sector.
Even though there is often a time lag between when a funding round is signed and when it is announced, this week has been particularly exciting! The potential rate cut is a positive signal for the tech ecosystem. Lower interest rates make riskier investments more attractive, as risk-free assets will yield lower returns. With that in mind, some significant deals were announced this week: Matera, Netlex, and others...
General news:
A recent survey by Mercado Pago reveals that 1 in 3 Brazilians don't feel financially included. The ability to use Pix is a key driver for opening a bank account, with 32% citing it as their primary reason. This is second only to receiving salaries or benefits (35%). Moreover, it revealed that that over half (50.5%) of Brazilians believe cash will disappear in the next decade. Amid the Drex pilot, 36.5% see a national digital currency as beneficial, though 46% are unsure about adopting it quickly. Additionally, 39% are uncertain if cryptocurrencies will replace cash. Regarding AI, 41% think it can aid in making better financial decisions. The survey also highlights that 77% believe financial access has improved since the Real's introduction 30 years ago.
The generative AI (GenAI) boom, driven by the success of ChatGPT, has sparked a race among Brazilian financial institutions. However, many are investing without clear objectives. A BCG survey found that while 85% of financial leaders see GenAI as transformative, only 18% have a clear implementation strategy. This highlights the need for strategic planning in leveraging new technologies.
Allana Barros has been promoted to Director of Engineering at Arquivei, a platform managing tax documents for over 140,000 companies in Brazil. As the first woman in this tech leadership role, Allana's promotion reflects her professional achievements and Arquivei's commitment to gender diversity in leadership.
Economist Daron Acemoglu warns that AI's impact on productivity may be modest, cautioning against the current hype. He suggests that while AI offers potential, its actual effects on productivity improvements may not meet widespread expectations.
Binance appoints Guilherme Nazar as Vice President for Latin America. He will expand cryptocurrency industry development across the region, building on his leadership roles at Loft and Uber.
Deals:
Caliza, a US-based fintech, has raised $8.5M in a pre-Series A round to expand in Brazil and enter Mexico by the end of 2025. Founded in 2021 by Ezra Kebrab, Caliza offers an alternative to SWIFT for cross-border transfers using stablecoins. The investment round was led by Initialized Capital and included notable backers like New Form Capital and the CFO of Nubank.
General news:
Brazil positioned to play a crucial role in AI development for sustainability, says Itaú BBA, citing strengths in data centers and renewable energy. Despite potential challenges, that include regulatory complexity, tech advancements, infrastructure bottlenecks, and legal frameworks like PL 2338/2023, Brazil's renewable energy advantage could attract tech giants.
Brazil leads Latin America in fintech startups, boasting a diverse ecosystem that attracts significant investment. With over 1,000 fintechs, Brazil stands out as a regional hub, leveraging innovation to reshape financial services. The sector's growth underscores Brazil's emergence as a pivotal player in fintech across the continent.
CloudWalk, the Brazilian fintech behind InfinitePay, is preparing for its largest funding round ever, aiming to raise $400 million at a valuation of at least $4 billion.
Artificial intelligence is becoming an environmental issue. As the AI industry grows, it demands massive amounts of electricity, contributing significantly to carbon emissions. Training large AI models, like GPT-4, can emit over 284,000 kg of CO2.
Susep launches its third regulatory sandbox, prioritizing ecological transformation and tech innovation projects. This initiative aims to boost competition in the insurance market by selecting innovative and sustainable projects.
Geru, a fintech from Open Co, is expanding into the B2B2C market with its new Buy Now, Pay Later (BNPL) solution for e-commerce. The rebranded GeruPay allows customers to make down payments via Pix and finance purchases in up to 12 installments without a credit card.
Vivo, Brazil's major telecom operator, is set to unify access to financial products in its app following its SCD license approval. This move aims to streamline users' financial management, integrating banking services directly into the telecom app and enhancing customer convenience.
Grupo Universitário Integrado, a 35-year-old educational institution from Paraná, Brazil, is launching a corporate venture capital (CVC) initiative in partnership with Founders Club to invest in startups.
Deals:
Vammo raises R$ 30M with EXT Capital to expand its electric motorcycle rental network in São Paulo. The startup, founded in 2022 by Billy Blaustein (ex-Tesla) and Jack Sarvary (ex-Rappi), aims to accelerate investment in new bikes and batteries and increase battery swap stations. The investment, structured by Solis Investimentos, includes equity and debentures and is expected to reach R$ 120M by 2025.
RX Ventures, Renner's corporate venture capital fund, has invested in the US-based retail media startup Topsort. Topsort, founded in 2021, specializes in digital media solutions for retailers using AI, and serves clients in over 30 countries. This investment, part of Topsort's Series A round, aims to enhance customer experience through personalized shopping journeys.
Smart Fit, one of Latin America's largest gym chains, has completed its acquisition of Velocity studios for R$ 183 million. This strategic move aims to expand its market presence and enhance its portfolio, which includes brands like Race Bootcamp, Vidya, Jab House, Tonus Gym, and One Pilates. With this acquisition, Smart Fit now oversees 103 Velocity and Kore functional training units.
General news:
Brazilian fintechs received 66% of LatAm funding over the past decade: Brazilian fintechs attracted $10.4B in investments from 2014 to mid-2024, accounting for 66% of the $15.6B total in Latin America, according to Distrito’s report.
Porto Alegre's Instituto Caldeira estimates R$ 400 million in damages from recent floods, with R$ 155 million needed for restructuring. The innovation hub, which hosts over 130 companies and startups, faced significant losses in equipment and infrastructure, leading to a 38-day closure.
Deals:
Netlex, a Brazilian contract management platform, has raised R$ 126 million from Riverwood Capital. The investment will be used to enhance the platform’s technology and expand its team. Netlex’s solutions streamline the creation, analysis, and management of contracts, catering to a growing demand for legal tech in Brazil.
Matera, a Brazilian digital banking software firm, secures R$500 million from Warburg Pincus to expand in Brazil and the US market. The investment, from Warburg's WPGG 14th fund, aims to bolster Matera's growth and explore acquisitions, driven by robust financial performance and strategic opportunities in payment solutions and corporate financial products.
Warner Music invests in Sua Música, the 'Spotify of the Northeast': In a rare move, Warner Music is acquiring a minority stake in Sua Música, a digital distributor and streaming platform known as the 'Spotify of the Northeast'. The investment aims to amplify regional music discovery and expand into national and Latin American markets, leveraging Sua Música's strong presence and artist connections. This marks Warner's first investment in a Brazilian company in a decade, signaling strategic growth in regional music catalogs and artist development.
Brazilian startup CTA Smart has secured R$ 16 million from Invisto and Indicator Capital to boost its expansion in the U.S. market. Operating under the brand Link2Pump, CTA Smart aims to significantly increase its international revenue, which currently makes up 15% of its total. The company provides fuel management solutions for corporate fleets and plans to grow its U.S. operations by 200% this year.
Meu Pescado secures R$2M for expansion: The fish and shrimp monitoring startup raised R$2M in a funding round led by Aimorés Investimentos and Japan's Incubate Fund, with participation from angel investors. The startup's app, which works offline, helps aquaculture engineers analyze data to boost productivity.
General news:
Canastra Ventures, a new VC founded by Pedro Dias, Artur Dias, and Larissa Bomfim, is set to invest R$20M in Brazilian AI startups. With a focus on early-stage companies with a minimum viable product (MVP) and a strong founding team, Canastra Ventures plans to write checks of R$500K for 7% equity.
After setbacks from recent floods, Pix Force, a Brazilian startup specializing in computer vision and AI, is expanding to the US. Despite significant equipment losses, the company is now opening an office in Houston, Texas.
Neogrid is revamping its portfolio and focusing operations to achieve a good "Rule of 40". CEO Jean Schmitz emphasized a strategic shift towards more profitable and scalable solutions, reducing reliance on lower-margin products. The move aims to drive sustainable growth and enhance shareholder value by prioritizing efficiency and high-margin opportunities.
Academia Soul, an edtech specializing in AI-driven socio-emotional learning, forecasts a revenue of R$ 150 million, a 300% increase, by expanding its programs nationwide. With an impact on over 2.3 million students and 3,500 schools, the company plans a R$ 10 million investment in AI tools.
Meta has suspended its generative AI features in Brazil following a ruling by the National Data Protection Authority (ANPD). This includes tools like custom sticker creation in WhatsApp, which used user data for AI training.
General news:
A global cyber outage hit businesses worldwide due to a software update failure in CrowdStrike's Falcon tool. Affected sectors include airlines, banks, retailers, media, and railways, with many experiencing the "blue screen of death" on Windows devices.
University students in Brazil have developed an AI that helps users plan diets and calculate calories via WhatsApp. Created by startups Plana and Nutritionista Virtual, this tool offers a user-friendly approach to health management. Users interact with the AI, which uses advanced algorithms to provide personalized meal plans and track nutritional intake.
Loft's CMO, Sérgio Esteves, discusses the company's significant strides in 2023, achieving breakeven and profitability within five years. Loft unified CredPago, CrediHome, and Vista brands, repositioning as a 100% B2B company to support Brazilian real estate businesses.
Deals:
Winnin, an AI platform that transforms video consumption data into cultural insights, has secured Series A funding led by Alexia Ventures and Kaszek. While the investment amount remains undisclosed, the funds will support product development, international expansion, and AI-driven trend analysis. Additionally, Patrick Arippol of Alexia and Nicolas Szekasy of Kaszek join Winnin's board.
Fidelity Investments, one of the world's largest asset managers with over $13 trillion under management, has acquired a 5.14% stake in Banco Inter, becoming its fourth-largest shareholder. This move highlights Fidelity's confidence in the Brazilian digital bank's growth.
LAVCA Tech Brasil 2024
Date: August 21
Location: Google HQ na Faria Lima
Description: LAVCA Tech Brasil is an annual meeting of LAVCA's network of Brazil-focused VCs and tech investors in São Paulo. This year's meeting will include keynote fireside chats, breakout sessions and networking opportunities designed to build meaningful relationships amongst investors active in the region.
Brazil Tech Summit:
Date: August 9
Location: São Paulo
Description: This international summit features 100 global speakers and focuses on catalyzing entrepreneurial and business ecosystems in emerging markets. It includes panels on trends and opportunities in Brazil, industries of disruption, and the role of technologies like AI and blockchain.
Digitalks Expo:
Date: August 23-24
Location: São Paulo
Description: A major event that brings together professionals from various tech sectors to discuss digital transformation, innovation, and technology trends.
Colombia Tech Week:
Dates: August 26 - September 3
Location: Bogotá and CaliOverview: Colombia Tech Week 2024 is set to be a major event in the Latin American tech scene, bringing together startups, venture capitalists (VCs), accelerators, corporates, and international tech communities. The event aims to position Colombia as a hub for investment and innovation, with a focus on fostering connections and creating business opportunities across the region.
Sao Paulo Tech Week
Dates: Sept 16-22
Location: São Paulo
Description: Several events focused in LatAm Tech taking place in the city. Notably, Cubo Conecta will happen on September 18.
Bossa Summit 2024
Dates: Sept 25-26
Location: São Paulo
Description: his event is a major gathering for the Venture Capital market, featuring over 400 speakers, extensive networking opportunities, and a range of workshops and mentoring sessions. It's designed to bring together more than 10,000 attendees, offering around 200 hours of content on business and innovation.
LAVCA Week 2024
Date: 8-11 de Outubro
Location: Conrad NY Downtown
Description: LAVCA Week convenes leading private capital investors from Latin America and around the globe each year for a series of meaningful discussions and private meetings covering the latest trends in private equity, venture capital and other private capital strategies. Participation at LAVCA Week is carefully curated and capped. LAVCA Members, non-member private capital investors and qualified institutional investors are invited to attend. LAVCA Members have access to special early bird rates through 29 August 2024.
#fswk24 - O Momento Atual dos VCs na Saúde
Date: November 6
Location: Rio de Janeiro
Description: This event focuses on the current landscape and opportunities for venture capital investments in the healthcare sector. Attendees will gain insights into the latest trends, challenges, and strategies for investing in health tech startups and innovative healthcare solutions.
Clouded Judgment by Jamin Ball - The Fourth Industrial Revolution, the Intelligence Revolution
Tech Crunch: CrowdStrike outrage: How your plane, train and automobile travel may be affected
“Family is not an important thing, it’s everything” - Michel J. Fox