The major news in tech this week was Sam Bankman-Fried’s trial - he was finally sentenced to 25 years in jail. The former CEO of collapsed crypto exchange FTX apologized in a meandering statement to the court, saying his decisions "haunt" him every day… Prosecutors were angling for 40-50 years. Lawyers for Bankman-Fried have pushed back, saying a sentence of no more than six and a half years is appropriate for a non-violent first-time offender. The result was 25 years. I guess what goes around, comes around… right?
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Moving on to the interesting read of the week, Pitchbook’s Surfing Turbulent Cash Flow Waves analyst note had great intel. The research explores liquidity from the perspective of Limited Partners (LPs) in private equity and venture capital, focusing on aspects beyond the often-discussed low distribution rates. In 2023, the industry's distribution rates relative to Net Asset Value (NAV) were generally below historical averages, particularly in VC funds, where less than 5% of NAVs were distributed by Q3 2023. In contrast, private debt funds maintained healthier distribution rates at about 20%.
Regarding capital call activity, another vital liquidity metric, it remained in line with historical averages. PE, private debt, and real assets funds called down over 30% of their uncalled capital by Q3 2023. However, investment paces in VC and real estate slowed due to dealmaking challenges, diverging from their usual trends.
A key measure used in the study is the equal-weighted net cash flow metric, combining distribution rates and capital call activities. This metric shows that PE and real assets are nearing their lowest post-Global Financial Crisis (GFC) levels, although their trajectories have diverged since 2022. For VC, private debt, and real estate, net cash flows have remained relatively neutral, indicating a balance between distributions and capital calls.
Let’s now narrow down the focus to VC, which is an asset class with its unique characteristics and the focus of this newsletter. Firstly, the lifespan of VC funds tends to be longer compared to other asset classes, often taking more than 10 years to achieve net positive cash flows. Secondly, the returns from VC funds are typically irregular, marked by sporadic distributions, in contrast to the more consistent returns seen in income-driven strategies. These characteristics are partly influenced by technology-focused investors who manage these funds and by the dynamics of the industry itself.
A notable period for VC was in 2021, where there was a significant increase in deal value, reaching $745.4 billion, and a 152.9% year-over-year growth in exits, totaling approximately $1.5 trillion. This surge in activity led to an unusually high rate of capital calls at 56.6% and record-high distributions as a percentage of Net Asset Value (NAV).
However, despite these high valuations, net cash flow rates did not significantly exceed the average. In fact, they remained below VC’s historical net cash flow rate, challenging the assumption that higher distributions would naturally lead to higher net cash flow rates.
The situation shifted rapidly towards the end of 2021 and early 2022. Although venture capitalists continued to invest heavily, the rate of distributions declined sharply. The net cash flow difference during this period was notably significant, and with public markets declining and most NAVs remaining unrealized, discussions among Limited Partners (LPs) were dominated by the "denominator effect."
Despite a rebound in public markets in 2023, the VC sector experienced a substantial decrease in deal and exit values, with capital call rates normalizing and distributions dropping to an all-time low of 4.9% of reported NAV for the year ending Q3 2023.
Interestingly, even with historically low distributions, VC was one of the only asset classes, alongside real estate, to achieve above-average net cash flow in 2023. The fall in capital call rates and the low distribution yield resulted in VC funds being less cash flow negative compared to the previous year. The current net cash flows in VC are closer to the historical average for the asset class, even more so than during the high-distribution period of 2021. Which means that in essence, this could be an indicator of the industry starting to stabilize and rebound this year.
General news:
Brazil’s fintech sector is facing a surge in loan defaults, with some portfolios experiencing delinquency rates over 60%. High delinquency rates challenge startups like Open Co, Nexoos, Gyra+.The spike in defaults, particularly in the unsecured loan category, is affecting the fintech-focused FIDC market, where delinquency rates have escalated to 9.5%, as reported by Bloomberg.
Conta Simples is launching a new hybrid credit model, designed to meet the needs of companies such as startups. The innovation follows the raising of over R$ 200 million by the fintech in its series B announced in January. With the product, the company's expectation is to increase its customer base by tenfold.
Cryptocurrency payments via Binance Pay surged by 71% in 2023. With over 12 million users worldwide, the payment method accumulated $77 billion in global transactions last year.
Takenos, the fintech startup providing financial solutions for workers receiving money from abroad, has announced its expansion into the Mexican market with ambitions to acquire at least 80,000 users there by year-end.
Deals:
Leasy, provider of car subscription services intended to help customer own their dream car from Peru, raised a $28M, led by Magma Partners.
Colombian startup WeKall, a cloud call center for businesses, acquired Mexican startup Sirenna AI, which monitors, analyses, and summarizes video and phone calls with AI. With this acquisition, WeKall strengthens its presence in Mexico and diversifies its offerings by adding transcription services and analysis of calls.
IZI, a startup that was founded in 2019 with the aim of developing a SaaS BI solution for the retail market, has received a new investment of R$ 4 million from DOMO.VC. The funds will be used to drive the growth and evolution of the business through key hires for sales and product positions
General news:
Mercado Livre is set to invest R$23 billion in Brazil, solely for this year. This marks the largest investment in Mercado Livre's history in the country. Financial services, technology, and logistics are the priority areas for this investment.
Argentine startup Rebill has launched its 1-Click Checkout feature, allowing customers to complete payments in less than 15 seconds across ten Latin American countries. Rebill is a payment platform designed for startups in Latin America. With Rebill’s software and API, startups can easily integrate over 100 payment methods to increase their acceptance rates.
Mbochip, which operates trading screens for the financial market and gained B3 as an investor at the end of last year, is taking its first steps abroad. With the support of the R$10 million investment it received from L4 Venture Builder, the venture capital fund of the Brazilian exchange, the startup has just entered India. In India, it has already secured five contracts for the use of chips that will enhance the speed of processing quotations for the NSE (the Indian stock exchange).
Sankhya, a developer of enterprise management software (ERP/EIP), has been directing efforts to fuel its growth this year and achieve the ambitious goal of reaching R$1 billion in revenue by 2025. To support this objective, the company has created a new position, Chief Strategy Officer (CSO), which will be filled by co-founder Fábio Túlio, who previously served as the group's Director of Business and Innovation.
Linio’s is closing operations in Mexico - leaving behind a decade of influence and legacy in Mexico’s startup ecosystem.
Adam Neumann is making a $500 million offer to repurchase WeWork. Last November, the company filed for bankruptcy in the United States and is now assessing its options.
PicPay enters the advertising market with PicPay Ads. The new venture has been in testing phase over the past few months and has already run campaigns for companies such as Samsung and Swift.
Agtech Cromai emerges as the winner of the startup competition at South Summit Brazil 2024. The Brazilian startup utilizes artificial intelligence to identify weeds in crop fields.
Deals:
Brazilian climatech UmGrauEmeio, which has developed an AI and Internet of Things (IoT) platform to monitor forest fires and reduce CO² emissions, has just closed its first funding round, raising R$ 18.7 million. The investment was co-led by Indicator Capital, which contributed R$ 7 million, along with Baraúna Investimentos, which invested R$ 9 million in the startup. Also participating in the round were funds The Yield Lab Latam and Rural Ventures.
The Brazilian interior design startup Arquiteto de Bolso has received a R$15 million investment from Headline XP to fuel its growth. Currently, the company's flagship offering is a consultancy service that promises to deliver a fully personalized planned environment project within two hours. With the funding, the startup aims to invest in launching new products and expanding partnerships with retailers.
Koin, a fintech within the Decolar Group specializing in Buy Now Pay Later (BNPL) solutions, has raised R$36.6 million through a Credit Rights Investment Fund (FIDC). The announcement comes at a crucial moment for the startup, which, after reaching breakeven in 2023, is gearing up for a new phase of expansion in Latin America.
FCamara has just completed its fifth acquisition in two years by taking control of Dojo, a data strategy company. The transaction was a cash-in deal, signifying an investment from FCamara to foster growth and the development of new technologies at Dojo.
General news:
Clara hits over $2 Billion in digital transactions in Mexico. CEO Gerry Giacomán Colyer highlights the transition from startup to a major player, emphasizing agility and a strong business model.
Ebanx announces new VPs to strengthen product and performance. Juliana Borges de Campos and Eduardo de Abreu will lead fintech's payment service offerings in Latin America.
Nu México trims savings account yield to 14.75%. Following Banco de México’s rate cut, Nu México adjusts savings yield, impacting fintech sector strategies and possibly setting a trend.
BEE4 completes its fourth listing and partners with XP to accelerate the company. As a market for tokenized stock offerings focused on SMEs, the platform initiates trading for Eletron Energia, appoints XP as a listing consultant, and aims to raise R$500 million in funding in 2024.
In 2023, PicPay reported a net profit of R$37 million, reversing a loss of R$693 million in 2022 and marking its first annual positive result. With 35 million active customers, the company expects its results to continue growing this year, with the credit vertical being one of its main focuses, following the integration with the retail segment of Banco Original.
Enjoei has recently hired Igor Puga, former CMO of Santander Brasil, as its Executive Vice President, a broad role tasked with seeking new revenue sources for the company. This hiring comes at a transformative moment for Enjoei, which began as a marketplace for used products but now operates as a holding company following the acquisitions of Elo7 and Cresci e Perdi, a network of children's clothing thrift store franchises.
Deals:
YoFio secures $10M investment to support Mexican microbusinesses.
This round, led by Oikocredit and joined by 500 Global, Innogen Capital, G2 Fintech Fund, Cauris Finance
Techome, a smart homes startup, raises R$35 million in Series A funding with Astella. The majority of the capital will be used to establish its own factory in Americana, São Paulo's countryside.
General News:
Sam Bankman-Fried was sentenced to 25 years in prison for his role in defrauding users of the collapsed cryptocurrency exchange FTX. In a Lower Manhattan federal courtroom, U.S. District Judge Lewis Kaplan called the defense's argument misleading, logically flawed, and speculative.
Brazil’s B3 stock exchange has officially received the green light from the country’s securities regulator to launch Bitcoin futures trading on April 17.
The futures will be financially settled, negating the need for direct Bitcoin transactions, and pegged to the Nasdaq Bitcoin Reference Price, with each contract valuing 10% of Bitcoin’s price in Brazilian reais.
Globo Comunicação e Participações (GCP), the largest media company in the country, recorded a net profit of R$ 838.7 million in 2023. This result is entirely operational, stemming from all of Globo's business areas. The figure is 33% lower than the R$ 1.25 billion from 2022. However, the previous year's performance had been influenced by non-recurring gains, such as the sale of the record label Som Livre. The company concluded 2023 with a net revenue from sales, advertising, and services amounting to R$ 15.1 billion, remaining stable in comparison to 2022. However, costs decreased by approximately 11%, a result of the discipline that has been implemented in recent years.
EVEO aims for R$100M in revenue with the arrival of a CRO (Chief Revenue Officer). José Henrique Bermejo's mission is to unify the sales, marketing, and quality departments to drive growth in results.
TRON advances educational robotics and establishes a Research and Development arm for spin-offs. Supported by Whindersson Nunes, a startup from Piauí is gearing up to expand in Brazil and, soon, internationalize its operations.
Deals:
Shopper ventures into the "market" for media and secures a funding round with 4Equity. Having raised over R$290 million, Shopper now aims to increase brand exposure and brings on board a marketing-specialized management firm to its shareholder base.
General News:
Visa has broadened its service portfolio with the introduction of three AI-powered solutions aimed at bolstering fraud prevention in digital transactions. These additions to the Visa Protect suite are designed to enhance security for immediate account-to-account and card-not-present payments, extending beyond Visa’s own network. This initiative is part of Visa’s broader effort, which encompasses nearly 200 value-added services across acceptance, advisory, issuing, open banking, and protection, fueled by a significant $10 billion investment in technology and innovation.
In order to enhance its organizational structure and sustain its growth in both the public and private markets, GetConnect, a digital healthcare management company, has just appointed a new CEO. Luiz Camargo, who has been serving as the company's Director of New Business since 2021, will now assume the position.
Cromai, a startup that won an award at the South Summit Brazil, forecasts a revenue of R$ 50 million. The startup has developed a platform powered by AI that can quickly identify the location of weeds in crop fields.
The profit of Núclea increases by 43% with the expansion of its business portfolio. With new solutions in anti-fraud and data intelligence, the technology infrastructure company records a 52% increase in EBITDA and R$ 18 trillion in transaction operations in 2023.
Established in January 2023, BonifiQ is a startup aimed at transforming occasional consumers into loyal customers through personalized loyalty programs or cashback. The company, which offers a gamified experience, has caught the attention of major players by acquiring approximately 430 active programs, 450 clients, and impacting over 1.4 million consumers. In just over a year of operation, they have distributed over 4.3 billion points and generated R$ 19 million in revenue for the companies that use the platform and customize rewards.
Fernando Wosniak merged his startup with Zenvia in 2021, later exiting through the company's IPO on Nasdaq. Lício Carvalho had previously sold his company Tarkena to B2W in 2013. Now, the two entrepreneurs are combining their expertise in a new venture: credit solutions in the digital receivables market with Delend, investing R$ 30 million of their own funds and raising R$ 20 million from investors.
What did I learn from readers?
My readers and also great venture capitalists from Parallax sent over their new report on perspectives for the crypto industry for 2023 and beyond. You can see the full pdf clicking below but of course I’ll share with my readers the TL;DR version :)
2023 - A Pivotal Year for Crypto: Significant growth, regulatory advances, market maturation, and convictions of fraudulent players.
Market Maturity:
Crypto market cap exceeded $2 trillion.
Bitcoin returned to the top 10 most valuable assets globally.
Fidelity recommends crypto allocation in all its ETF portfolios, indicating mainstream adoption.
Stablecoins: Surpassed two-thirds of Visa's payment volumes and recognized by the US Central Bank as a tool for strengthening the dollar.
US Cryptocurrency Adoption: Increased significantly with considerable room for growth based on retail trends.
Robust Growth:
Increase of 150 million crypto users to 580 million.
Trading volume soared, and the market cap doubled to $2 trillion since March 2023.
Bitcoin's Performance: Regained status as the best performing asset class, with 156% year-over-year growth.
Coinbase: Focused on compliance and operations, emerging as the best stock of the year amidst market rebound and Binance's turmoil.
Market Cleanup: 2023 witnessed key resolutions for players involved in the 2022 crisis, with regulators closing in on fraudsters.
SEC vs. Binance Ruling: Positive for the industry, representing major regulatory enforcement and significant penalties for fraud.
Binance Regulatory Issues: Faced a global regulatory crackdown, withdrawal from multiple jurisdictions, over $4 billion in fines, and a decline in market share.
Grayscale vs. US SEC: Landmark victory enhancing investor confidence and Bitcoin accessibility.
ETFs and Bitcoin: ETFs significantly contributed to Bitcoin's growth potential through consistent inflows.
Bitcoin Halving and Cycles: Discusses the concept, its impact, and the start of a new bullish cycle for Bitcoin.
2024 BTC Price Forecasts: Predictions of prices reaching up to $500,000.
Long-term Case for Bitcoin:
Despite fewer use cases than the internet, cryptocurrencies have a faster relative adoption rate.
Bitcoin shows low correlation with traditional assets, making it an effective portfolio diversifier.
Bitcoin's unique properties (decentralization, encryption, divisibility, programmability, scarcity) set it apart from other asset classes.
Brazil's Crypto Market in 2023:
Central Bank assigned as the crypto regulator.
Major regulatory developments and mainstreaming of Bitcoin.
Brazil ranks 3rd globally in crypto readiness and has a high cryptocurrency ownership penetration.
The Money 3.0 Revolution: Advancements in DREX, enhancing payments to be faster, programmable, traceable, cheaper, safer, and facilitating cross-border transactions.
Parallax Ventures: Recognized as the pioneer and only fintech-focused VC in Latin America.
“You need two things. The first is you need to have something to say with the craftsmanship. We only choose products that we believe in, where we can add something and do something different. The second thing is style. That is something unique, and that's why we never did any licensing, which other brands would do for perfume and other accessories.” Axel Dumas, CEO Hermes
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