LatAm Tech Weekly
#122- Powered by Nasdaq: Davos, SaaS, AI & Fintech, Deals of the week and much more!
Happy Sunday!
The recent World Economic Forum in Davos was all about "rebuilding trust," a theme that hit home considering how AI became such a buzzword last year. The event, which wrapped up on the 19th, had a big focus on the safe use of AI, especially in healthcare and business. Alongside, Davos turned into a hotspot for global leaders, with 60 heads of state, numerous finance ministers, and about 1,600 business leaders discussing everything from geopolitical tensions to energy transitions and global trade. It was a dynamic convergence of ideas and strategies addressing today's most pressing challenges.
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Moving to tech, a recent report by Pitchbook on the Vertical Opportunities in a Reopened IPO Window shed light on three segments—SaaS, AI and machine learning, and fintech—poised to benefit from a reopened IPO window.
As mentioned last week, in 2023, the U.S. economy remained strong with a 5.2% GDP growth and solid labor and corporate earnings. Despite multiple rate hikes by the Federal Reserve, there's optimism about a possible rate cut by mid-2024. However, the IPO market has been slow for 18 months due to high interest rates and market volatility, especially affecting tech sector valuations. This resulted in a significant decrease in public listings of VC-backed companies, with only 60 listings totaling $28.2 billion in 2023, a steep drop from the much higher values seen in 2020 and 2021.
The current slowdown in the IPO market significantly impacts startups and investors, creating a liquidity crunch. IPOs are crucial for startups, particularly in sectors like SaaS, AI & ML, and fintech, as they provide an exit for private backers and access to public investment, fueling growth and innovation. With fewer IPOs, early investors struggle to get returns, affecting the venture capital cycle. The impact is pronounced in tech sectors where long development cycles require sustained funding. The reopening of the IPO market, particularly beneficial for SaaS startups with a cumulative valuation of $532.4 billion in Q3 2023, could provide the necessary capital influx. SaaS startups, leading in aggregate fundraising with $140.5 billion, have seen a decline in exit values since 2021, indicating a pressing need for public listing opportunities. This reopening could alleviate the extended fundraising periods and capital shortages faced by startups, offering a critical avenue for growth and financial stability.
The AI & ML sector, similar to the SaaS industry, holds a significant amount of untapped value. As of Q3 2023, the combined post-money valuation of active U.S. VC-backed AI & ML startups in the venture-growth stage is estimated at $240.7 billion, with an average startup valuation of $337.5 million. This high aggregate value, along with considerable media and investor interest, suggests a strong potential for returns when the IPO market reopens.
Moving into fintech, as of Q3 2023, the average time since the last VC raise for late-stage and venture-growth-stage fintech startups stands at 22.0 months, with a median of 18.4 months. This duration is relatively consistent with previous years. To extend their financial runway, some startups are implementing cost-saving strategies and considering non-dilutive financing options like venture debt. This approach provides a temporary financial buffer but comes with significant costs, such as regular interest payments and potential constraints from covenants and restrictions in the debt agreements. Startups face risks like default, which can lead to serious consequences, including legal actions or bankruptcy. Additionally, some agreements include equity kickers, posing a risk of ownership dilution. For those unable to afford venture debt or facing challenges in raising future venture equity, exploring exit opportunities such as an IPO, particularly if the IPO market reopens in 2024, becomes a viable strategy.
As I've mentioned before, trends in the U.S. market often mirror what happens in Latin America, albeit with some delay. Therefore, analyzing U.S. market data is vital for local players in Latin America to anticipate and prepare for future developments in their own market. Understanding these patterns and shifts in the U.S. provides crucial insights for what's likely to unfold in the Latin American market soon.
General news:
In Brazil, e-commerce is increasingly rewarding customers who use Pix, with perks like discounts and free shipping. A study released this week highlights that nearly half of the major online stores incentivize Pix payments as of early January. This trend is driven by Pix's lower costs for retailers and immediate cash flow benefits, leading to a higher shopping cart conversion rate of over 90% with Pix, compared to lower rates for credit cards, “boletos”, and debit cards. This shift towards Pix also coincides with a reduction in interest-free installment options for credit card payments.
British fintech Ebury, owned by Santander, is launching Ebury Bank in Brazil, focusing on international payments for businesses. Ebury, which entered Brazil in 2021, aims to double its foreign exchange operations by 2024 and offer services to both SMEs and large companies. The company, also expanding to South Africa, Chile, and planning to enter Mexico, is preparing for a stock market debut within the next two years.
According to a study shared by IMF Director Kristalina Georgieva, around 40% of global jobs, especially in developed countries, will be impacted by artificial intelligence (AI). Emerging markets and low-income countries, like Brazil, which has struggled with a lack of qualified tech labor, are expected to face less immediate disruption from AI, with exposure rates of 40% and 26%, respectively.
Deals:
Primatec Fund announced the complete sale of its shares in Vidya Technology to Ocyan, a company providing solutions for the offshore upstream oil and gas industry in Brazil and abroad. The transaction amount was not disclosed. The fund has a committed capital of R$100 million for seed investments, with investors including Finep, BNDES, Bandes, BDMG, and Fapemig.
General news:
Itaú Unibanco (ITUB4) will enable the contracting of payroll loans for retirees and pensioners of the INSS (National Social Security Institute) through WhatsApp. According to the bank, the process is entirely online and more convenient for customers.
Darwin Seguros has received authorization from the Superintendency of Private Insurance (Susep) to operate as an insurance company in Brazil. With this, it becomes the second "insurtech" that participated in the regulator's "sandbox" to obtain a definitive license.
Brazilian asset managers are increasing investments in the trillion-dollar climate change market. Positive Ventures, Kamaroopin, GK Partners, and KPTL have joined the race to invest in climatechs, startups that focus on climate solutions, in a market that could surpass $8 trillion.
Alura launches a free Front-end Developer course. The course consists of five online, immersive classes with practical challenges, aiming to strengthen the knowledge of those who already have a basic understanding of HTML, CSS, and JS.
Brazilian startup Vertical Connect aims to launch a line of flying cars in 2024. The company operates in the aviation sector and plans to release various models starting in the second half of 2024.
General news:
Bitcoin exchange-traded funds (ETFs) received just under $900 million in inflows during the first three days of trading, as highlighted by the "Financial Times". The new funds, including products from BlackRock, Franklin Templeton, and Invesco, saw net inflows of $871 million, according to data from CoinShares, a digital asset management company.
Deals:
Visa has announced the completion of the acquisition of Pismo, for $1 billion. With the transaction finalized, the combination of Visa and Pismo will offer customers core banking processing and card issuance across all types of products through native cloud-based APIs.
Pomelo, startup from Argentina that acts as a developer of a digital processing platform intended to redefine the possibilities in payment services, raises $40m in a Series B round led by Kaszek with participation from Monashees, Index Ventures, S32, TQ Ventures, and Endeavor Catalyst.
General News:
Pinegrove Capital Partners, Lexington Partners, and StepStone are currently raising capital for new investment funds in the secondary market. Their focus is on acquiring startup shares at discounted prices, signaling a renewed interest and optimism in the startup landscape.
Brazilian NSTech launches dedicated logistics vertical for Agriculture. In its first strategic move to provide specialized logistic solutions, NSTech has introduced a vertical dedicated to agriculture. The company aims to enhance logistics services tailored to the agricultural sector, anticipating a 30% revenue growth from its agro clients.
X8 Seeks New Investments for 2024 and 2025. Venture capital firm X8 is actively pursuing new investment opportunities in 2024 and 2025. The VC manager is on the lookout for companies with the potential for significant impact and internationalization to complement its portfolio.
Nubox unveils an AI Tool for simplifying tax operations in Chile. The bot guides users through the 2024 tax operation, offering free access to vital information.
Deals:
Hotmart, the platform focused on digital product sales, especially online courses, has recently acquired Reshape, a startup specializing in artificial intelligence-driven video transcription and captioning. This strategic move signifies Hotmart's heightened commitment to the transformative potential of AI within the creators' economy.
General News:
C-level executives want to invest in AI in 2024. For 86% of leadership in South America, artificial intelligence is seen as an opportunity, and 75% intend to invest in the technology in 2024.
Known for its subscription-based iPhone offerings, the Brazil-based startup Allu has entered into an agreement with Nestlé. In a groundbreaking move, the food giant is adopting the rental model as one of the ways to offer a product from its portfolio. In this instance, the Nescafé Dolce Gusto Neo machines are the focus of this innovative partnership.
Deals:
Genial Care, a startup specializing in the treatment of children with autism, has just raised R$ 35 million in a funding round led by General Catalyst, the American venture capital firm specialized in healthtechs.
What did I learn from readers?
Secondaries, Secondaries, Secondaries:
The buzz about the secondary market has signaled that 2024 is poised to be another boom year for secondary transactions, as GPs and LPs frantically search for liquidity solutions that allow them to recapitalize existing assets when the path for traditional exits remains bumpy.
The capital raised by global secondary funds in the first three quarters of 2023 reached $68.1 billion, surpassing the total capital raised for every year except 2020, according to PitchBook's Q3 2023 Global Private Market Fundraising report.
There are 134 secondary funds currently looking for capital, PitchBook data shows. The largest one to watch is Ardian Secondary Fund IX, which has a target of $25 billion and has reportedly raised more than $20 billion.
What am I reading?
What am I listening to? What am I watching?
Two & A Half Men - can’t get enough of this TV Series, and the jokes never get old :)
Quote of the week:
Alan: "We judge a person by what's inside and not by what they wear."
Jake: "Lucky for you, huh?"
Jake Harper - Season 1 Episode 11