LatAm Tech Weekly
#61 - Powered by Nasdaq: VCs market cap, new startup exchange BEE4, Iti's recyclable plastic, and much more!
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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.
This year’s decline in public markets has indeed diminished the exit opportunities for private startups with extended valuations. With time and increased pressure upon runways, many companies will be eventually coming face-to-face with down rounds. This is a most feared scenario - but a recent analyst note by Pitchbook showed that in the long run, data shows it’s actually not that bad… Just 13% of companies raising a down round from 2008 to 2014 were unable to raise a new round or exit immediately after the down-valuation investment.
On to Q3 data, research shows that VC deal count continues to trend downwards for the second quarter in a row (4,074 in Q3), despite remaining high on a historical basis. Deal value hit a nine-quarter low in Q3, with only USD43 bn being invested in VC deals in the US across all stages. Even though the data is relative only to the US, as I have mentioned here before - the region sets the global trend. So, we can safely assume this is true for LatAm as well. On to a more positive note (as always, I am an optimist) VC fundraising has set a new annual high through only three quarters of 2022. US-based VC funds have raised USD 151 bn, surpassing last year’s previous record and taking the 21-month fundraising total to close to USD 300 bn.
Also on the postive side, PitchBook analysts have estimated the total market cap of companies backed by private equity and venture capital. Research show that private markets are larger than the figure typical metrics indicate. In fact, VC backed companies have a combined market cap of between USD2.9 trillion- USD $3.7 trillion— which is about the same as that of companies backed by PE and growth funds. I know this assessment might seem counterintuitive, given that PE firms raise bigger funds and do larger deals than VC funds. However, VC investors take much smaller stakes in companies. So, after adjusting for this smaller equity ownership, the market cap of VC-backed companies is quite substantial.
Apart from this, there are two additional factors that also lead to VC's high market cap: the number of companies and some high valuation multiples. To exemplify, around 36,000 companies in the US are VC-backed, vis-à-vis nearly 16,000 PE buyout- and growth-backed organizations and 4,805 publicly listed companies.
Talking about funding alternatives given this growing market, as startups have grown, so has their borrowing needs. A decade ago, debt deal sizes topped out at around USD 10 mm, but today, they can reach into the hundreds of millions. Indeed, many of the biggest players in the world of alternative finance have seen that in recent years lending to unprofitable startups can be lucrative—with a relatively lower risk than what the industry assumed. As a consequence, in recent years, firms like Bain Capital, Vista Equity Partners and BlackRock began offering venture debt products. The move is also seen in Latin America, as firms such as Itau BBA also offer such option. Talking about the numbers, venture debt deal flow, has already reached over 1,900 deals totaling USD22 bn+ through September end.
Women’s Update: A survey released last month by global executive search firm Jensen Partners showed that private credit firms are making "material improvement" when it comes to hiring women, a shift in the industry's long track record of failing to promote gender diversity. The number of women hired and promoted in the industry rose by five percentage points in the past year, the survey showed. Go girls!!!!!!!
Tembici, Brazilian bikesharing company, announced its entry in Colombia.
Iti, digital account of Itau Unibanco, launches the first 100% recyclable plastic credit card in Latin America.
New “startup exchange”, BEE4, a regulated securities exchange for Brazilian SMEs, opened its first session of trading. The new exchange hopes to support Brazilian SMEs by providing alternatives to venture capital and venture debt for companies that are not ready for a traditional IPO.
Matt Mazzeo, NY based general partner at Coatue since 2018, left the firm to start his own investment fund focused in early stage startups.
Tipspace, Brazilian platform that monetizes games by players betting an amount before playing, and the winner taking the amount, raised a USD 3mm seed round led by Upload Ventures.
Another major exit: John Curtius, Tiger Global senior partner who has been at the center of some of the firm’s biggest deals in the last several years, is leaving the firm. He will start his own firm, which will concentrate investments from Series A to Series C.
Igah Ventures, prominent Brazil VC fund, is starting to raise its fourth fund of USD 150mm - aimed to invest in ~20 startups in the region on the second half of 2023.
Solvento, Mexican startup that provides a digital platform for carriers with an immediate collection solution, allowing them to immediately collect their invoices, raised a seed VC round with investors such as Dynamo VC, Quona Capital and 9yards capital.
Banks and digital wallets registered +16mm downloads in September. The leaders of the month were: Picpay, Inter and Nubank. It was the smallest download number since november 2020.
Mubadala Capital LLC, Abu Dhabi's state investor, led a funding round of BRL 550mm in Brazilian receivables exchange CERC.
Atman Capital, a year-old early-stage venture firm partially backed by about 20 founders, investing in startups in the U.S. and Latin America, closed on $9 million for a fund targeting $30 million.
ArcoEducação, Nasdaq listed company, bought 75% of fintech Isaac in a deal worth USD 125 mm.
What did I learn from readers?
A reader, and also a newsletter writer which a recommend A LOT if you are Portuguese speaking (Guilherme Lima from Dealflow BR) mentioned a report in his newsletter which I will highlight today. Iconiq released a report on Topline Growth & Operational Efficiency.
What do they address in the report - themes such as:
How quickly and consistently is ARR growing and what are the drivers of new ARR?
How well is ARR being retained and how is the quality and size of customers changing?
What is the burn associated with this growth and the path to profitability?
What is the composition of spend and how efficiently is it being used?
How efficiently is the team scaling to support and further drive growth?
What am I reading?
Sustainable Investment Survey from Pitchbook
Takeaways include:
73% of European asset managers use an ESG risk-factor framework and 70% offer impact investing strategies, compared to 56% and 61%, respectively, for North Americans.
78% of VCs have either fully or partially integrated sustainable principles into their investments, with social impact among the most important drivers.
As ESG investment grows, so does opposition to it; the percentage of respondents who have no plans to incorporate sustainable investment practices nearly doubled over 2021, mainly driven by North American LPs.
What did I listen/watch?
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Quote of the week:
“When the going gets tough, the tough get going” - Billy Ocean
your news is very good Julia, tks so much for that!!