LatAm Tech Weekly
#123- Powered by Nasdaq: Secondaries, Enterprise SaaS multiples, fintech investing, deals of the week... and much more!
Happy Sunday!
This week, I've come across several compelling reads that are shaping the trajectory of the VC market. We're diving into a variety of pivotal topics, including secondary deals, valuing enterprise SaaS companies, fintech investments, and the top contenders for IPOs in the U.S. this year. These subjects caught my attention, and I'm excited to explore them in today's newsletter's introduction. However, I highly encourage you to delve into the full articles for a more comprehensive understanding.
Lastly, a shout-out to my readers – I absolutely appreciate receiving your tips on articles and news! Since we kicked off 2024, I've noticed a bit of a slowdown in the recommendations coming my way. Please keep them flowing! Your insights and contributions are a vital part of this newsletter, and they help keep our content fresh and relevant. Keep 'em coming!
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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.
Starting out with the secondaries market, Pitchbook released an interesting note on the theme. In a challenging market, venture capitalists are increasingly attracted to secondary deals, leading to new strategies for buying startups' shares at discounted rates. Launchbay Capital, recognized for investing in well-known B2B software firms like Klarna and Monday.com, based in the UK, has launched a fund dedicated to this approach, focusing on providing liquidity to General Partners by purchasing shares in growth-stage companies. The fund recently achieved over 25% of its $100 million target in its first phase.
The secondary market has become more active with sales from early-stage investors and family offices seeking to liquidate assets and return cash to Limited Partners. A variety of investors have turned to this market in the last 18 months to increase liquidity.
Despite some recent IPOs, the backlog for VC-backed companies remains large, and the market is hard. To manage overinvestment in venture capital, Limited Partners are selling stakes in entire VC funds in the secondary market.
Moving on to Enterprise SaaS valuations, based on the recent Clouded Judgment by Jamin Ball and also another note by Pitchbook, the Enterprise Value (EV)/Revenue multiples in the enterprise SaaS sector have decreased and are expected to remain low. The median EV/ (TTM) revenue multiple at the end of Q4 was 5.6x, a 67% drop from the 2021 median of 16.8x. This is the lowest since 2016, and lower than the 7.3x and 9.3x medians of 2017 and 2018, respectively. The subdued multiples are attributed to current cost-of-capital conditions and unclear growth prospects for the sector. Pre-pandemic median revenue growth rates were 34% in 2018 and 27% in 2019, but fell to 24% in 2022 and further to 16% in 2023, marking the lowest rate recorded.
Revenue growth in public enterprise SaaS companies decelerated to 11% in 2023. The global SaaS market revenue is expected to drop to low teens in 2023 from mid- to high teens in recent years, mainly due to market conditions and reduced enterprise spending. The revenue growth decline is particularly noted in customer relationship management (CRM) and marketing/advertising, while areas like human resources (HR), enterprise resource planning (ERP), and business intelligence show more resilience.
Gross margins in SaaS companies increased to 75% in 2023, with a growth deceleration from 26% in 2022 to 22% in 2023. HR and ERP segments showed better gross margin growth compared to CRM and marketing/advertising.
Shifting gears to fintech, following two years of rapid growth, fintech seems to be settling back into a more normal rhythm. Fintech companies secured $34.6 billion in VC funding across 2,055 deals in 2023, representing a year-over-year decline of -43.8% and -32.4%, respectively. Valuations mostly declined, with the median of $19.4 million down -13% from 2022's figure. The recent figures are not that bad, as investors believed recent times were very stretched. Current multiples reflect a more stable environment.
Rapid changes to global monetary and fiscal policy have challenged fintech companies in recent years. Still, many have adapted and are—like Klarna, Stripe and others—readying themselves for an IPO. Demonstrating profitability has become increasingly essential for companies preparing for an initial public offering, since the market has favored public companies that have achieved this over the past year. Pitchbook’s VC Exit Predictor, which calculates exit probability using a machine learning model that is fed historic and real-time data on private company exits, predicted the 10 US venture-backed enterprise fintech unicorns with a high likelihood of going public: Stripe, Rippling and Tradeshift are on the top 3.
General news:
Itaú has developed a bitcoin (BTC) and ether (ETH) trading platform using the solution provided by Liqi for such tools. Announced in December, this platform represents Itaú's entry into the cryptocurrency market. Liqi, known for its asset tokenization operations, announced at the end of last year that it would close its own brokerage to focus on providing technological infrastructure to other companies. This enables these companies to offer cryptocurrencies to their clients, a business model known as crypto as a service (CaaS).
OpenAI CEO Sam Altman is seeking to raise billions from investors to create a network of factories for AI-specific semiconductors.
In the context of evolving receivable registry systems, registrars and financial institutions are collaborating with the Brazilian Central Bank to develop a feature that allows the change of the recipient's account in a boleto (a Brazilian payment method). The intention is to edit the instrument when trading a duplicate or real estate receivable in the market, for example, with the goal of enhancing the efficiency and security of credit operations. The regulations marked the beginning of the development of this new format, but the process involves several stages and could extend until 2027.
JGP and BB Asset, from Banco do Brasil, have decided to establish a new asset management firm specializing in ESG (Environmental, Social, and Governance) investments. The company is expected to be launched with assets totaling around R$ 500 million, composed of the existing ESG funds managed by JGP. The ESG portfolios from BB Asset, amounting to nearly R$ 1.2 billion, will continue to be under the management of Banco do Brasil.
With a new funding round in the pipeline, BrandLovrs accelerates its go-to-market strategy. The MarTech company, born as a spin-off from Adventures and backed by heavyweight investors, aims to capitalize on the organic growth experienced in 2023 for further expansion.
Livia Chanes (former country manager for Brazil) is the new CEO of Nubank in Brazil and will be dedicated to the overall growth of the company.
Deals:
Canadian Constellation's arm reaches 12 acquisitions in Brazil. The company has been implementing a strategy of complete acquisition of businesses, yet without significant interference in their operations. The latest addition to its portfolio is the recently finalized acquisition of Servcom. This family-owned company, founded nearly 40 years ago in Belo Horizonte, specializes in the development of software and technological solutions tailored for notaries.
General news:
In 2023, spending on artificial intelligence (AI) saw a significant surge, as reported by Itaú Unibanco. The bank's survey revealed that expenditures on the paid versions of major available AI tools grew by 205%. Additionally, there was a remarkable 642% increase in the number of transactions involving these tools, with an average transaction value of R$ 175.
Creditas is nearing an IPO, but it won't happen in 2024, says Sergio Furio. The CEO and founder of Creditas, revealed that the company will prioritize growth and maintaining breakeven throughout this year.
Honor, a spin-off of Huawei, is set to debut in Brazil in April. Additionally, Oppo, the fourth-largest smartphone manufacturer globally, is establishing a network of regional distributors. Local manufacturers express concerns about the "Shein effect.
Deals:
Cargado Raises $3M for US-Mexico Logistics Platform. Founded by Industry Veterans, Targets Seamless Cross-Border Freight Operations.
General news:
In 2023, spending on artificial intelligence (AI) saw a significant surge, as reported by Itaú Unibanco. The bank's survey revealed that expenditures on the paid versions of major available AI tools grew by 205%. Additionally, there was a remarkable 642% increase in the number of transactions involving these tools, with an average transaction value of R$ 175.
Hi Ventures, Formerly ALLVP, Launches AI Fund in Mexico. The announcement was made at the Bolsa Institucional de Valores (BIVA) in Mexico City. The rebranding reflects the firm’s evolution and its renewed focus on harnessing Artificial Intelligence for regional technological advancement.
Palenca Partners with Falabella Card to Boost Financial Inclusion in Mexico. This collaboration enables Falabella to increase product placement, reduce delinquency rates, and refine digital risk assessment processes.
In a recent report by HolonIQ, it was found that 60% of the top 100 most promising edtech companies in Latin America are from Brazil and Mexico. The report also highlights that Mexico, Brazil, Argentina, and Colombia lead the region in this sector. Additionally, in contrast to other global trends, Latin America shows a strong presence of early-stage edtech companies, which make up 30% of the list.
Stark Bank, Brazilian startup, announced it has hired three new female executives to lead its marketing, product, and commercial teams. Founded in 2018, the bank processes over R$ 100 billion annually and has companies such as Localiza, Grupo Ultra, and Quinto Andar among its clients.
Deals:
Daki, operator of a grocery delivery application platform intended to offer multi-category grocery supplies to customers, raised $5,11M in Early Stage VC funding lead by 4Equity. It was a media for equity transaction.
General News:
The study "Beyond Borders," an annual report by Ebanx on digital markets and payments in emerging economies, forecasts that by 2026, Pix (Brazil's instant payment system) will account for 40% of online payments in Brazil. This is almost equal to credit card payments, which are expected to make up 42% of the volume. In 2023, Pix held a 29% market share, while credit cards accounted for 49%. These projections are based on data from Payments and Commerce Market Intelligence (PCMI).
Santander’s Mexican unit to debut its digital banking service, Openbank, in the coming months. Matías Núñez, Director of Digital and Innovation at Santander México, revealed that the bank’s digital product is in its final stages of preparation, with the launch scheduled for this year.
Deals:
Convex Secures $700K for Proptech Expansion in Colombia. The company, focusing on real estate technology with a digital emphasis, aims to exceed annual sales of one million dollars and expand into at least 10 new markets.
Ozone API, an Open Banking API platform that spearheaded the development of open ecosystem standards, has just raised £8.5 million. The fintech's Series A funding round was led by Gresham House Ventures, a British fund specializing in scaling high-growth software and technology businesses.
What did I learn from readers?
A friend send over a great post by a16z by Mark Andrusko called New year, new trends.
As time is always scarce, here is a summary with the main points for you:
In 2023, key trends in fintech were identified, including the rise of developers as key decision-makers in financial services, the integration of software into financial professional services, and the push for AI to digitize Latin American SMBs. Moving into 2024, several significant developments and observations have been noted:
AI in Personal Finance: According to Plaid's Fintech Effect Report, consumers are increasingly interested in AI solutions for their financial needs. Key findings include:
53% of respondents hoped AI could help them reduce bill spending and negotiate lower rates.
About half wanted AI assistance with customer service issues, budgeting advice, and managing subscriptions.
Millennials and Gen Z are more receptive to AI solutions, with 60-65% seeing potential in the technology.
However, there's a strong preference for reviewing AI-generated financial decisions, particularly among Gen Xers.
Improvements in the Macro Economy: The U.S. economy's January jobs report was stronger than expected, adding 216k jobs and maintaining a 3.7% unemployment rate. Wage growth continued to outpace inflation, marking real wage gains over six consecutive months. This robust economic performance suggests less need for stimulus, such as rate cuts.
Regulatory Proposals: The Consumer Financial Protection Bureau (CFPB) proposed a new rule to limit overdraft fees charged by banks and credit unions and require more transparent disclosures. This rule aims to align overdraft lending services with the Truth in Lending Act, potentially impacting the annual $9 billion revenue from overdraft fees that financial institutions earn.
These developments indicate a dynamic period in fintech, with AI adoption in personal finance, a robust macroeconomic environment, new regulatory proposals, and significant activities from incumbent banks shaping the landscape.
What am I reading?
CB Insights: Generative AI predictions for 2024
Nvidia’s frenemies. AI girlfriends. Pocket-sized LLMs. Here are our 18 genAI predictions for 2024.CB Insights: State of Fintech 2023 Report
Fintech startups hit a wall in 2023, with annual funding cut by half.
What am I listening to? What am I watching?
Twin Flames Documentary (Netflix)
Quote of the week: