LatAm Tech Weekly
#128- Powered by Nasdaq: Shift in VC landscape, median valuations, deals of the week, and much more!
Happy Sunday!
Can you believe it's already March? Time is flying by. This week, a global news story caught my eye: Elon Musk has filed a lawsuit against OpenAI. He's claiming a breach of the company’s original agreement, asserting that OpenAI's highly advanced technology should be made publicly available rather than being exclusively partnered with Microsoft.
On the Latin American front, an intriguing statistic emerged: U.S. companies have increased their hiring in LatAm by 50% in 2023 compared to last year. This significant uptick is a testament to the burgeoning tech ecosystem in the region. According to Forbes, Mexico and Brazil alone are producing nearly 605,000 software engineering graduates annually, highlighting the region's immense potential in technology and innovation. Go LatAm!
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Moving on, I read a very interesting analyst note by Pitchbook this past week called Estimating US VC First-Time Manager Dropouts. The detailed paper shows that the venture capital landscape, particularly for first-time fund managers, has seen significant shifts in recent years. Since 2017, an impressive $58.5 billion was committed to 1,381 first-time funds, marking a substantial increase in both capital and fund count compared to the decade prior. This growth has played a crucial role in decentralizing VC dealmaking away from traditional hubs and enriching the diversity of the U.S. market.
However, the current climate has proven challenging for these new managers. In 2023, the gap between first-time and sophomore funds extended to around 2.6 years, a near-record duration. This increase reflects the tough fundraising environment and a decreased LP appetite for venture investments. By the end of 2023, only 474 VC funds had successfully closed, with a significant 75.3% of the capital going to established managers. This trend underscores the difficulties faced by new managers in attracting LP capital due to their limited track records and the broader market's volatility.
Many VC funds follow a typical investment cycle of deploying capital over three to five years and managing their portfolios over a decade. However, the recent lack of liquidity in the venture market has led many LPs to rethink their venture allocations, even within existing relationships. This cautious approach by LPs is especially impactful for first-time managers, who may find it increasingly difficult to raise a second fund in a market leaning towards more established players.
Historically, about 63.0% of first-time managers were successful in raising a second fund. However, given the recent influx of new managers, the rapid valuation fluctuations, and the challenging fundraising environment, this success rate is likely to be under pressure. Even if recent managers achieve second funds at historical rates, the sheer volume of first-time funds in recent years suggests a significant number of managers could struggle.
PitchBook's analysis provides a sobering view of the current state of the U.S. VC market, highlighting the potential fallout for first-time fund managers and the implications for local ecosystems, particularly those that have grown reliant on venture capital during the pandemic. As we look ahead, the venture landscape seems poised for a period of readjustment, with emerging managers and smaller markets possibly facing the brunt of these challenges.
General news:
Sankhya, Brazilian ERP, plans new acquisitions in 2024 with a focus on IPO. With five companies in its ecosystem, Sankhya plans to double its revenue in two years with the help of M&A.
With the assistance of Albright Capital, Oriz Partners is raising R$ 200 million for its first special situations fund, which identifies undervalued assets that, through restructuring, can realize value correction. The Brazilian asset manager, founded in 2022, currently oversees approximately R$ 3 billion in assets.
The personal loan fintech Juvo is raising its first Credit Rights Investment Fund (FIDC) in search of financing for its expansion. By focusing on debt growth rather than just equity, the startup aims to raise R$ 100 million to double the origination of its loans in three years, as well as expand its product lineup beyond personal credit.
Daniela Spinardi takes on the role of Small and Medium Enterprises (SMEs) Director at Nuvemshop. A member of the company's leadership team since 2021, previously, the executive served as Director of Indirect Channels for Latin America.
Deals:
Gera Capital sold 32% of Salta to Atmos Capital, an equity management firm with R$ 15 billion under management, Mission Co., a newly created management firm by three former partners of Gávea, and to Warburg Pincus, which was already an investor in the company.
General news:
Brazilian fintechs Cerc, Omie, Stark Bank, and QI Tech are candidates to become "unicorns" in 2024. Alongside them, another 96 companies are on the list of 100, with 20 being the "most promising." Among these, 12 are Brazilian. This year, the "Unicorn Race," organized by the consulting firm Distrito, included for the first time the above mentioned startups.
Bitcoin scorches past $57,000 as big buyers flock in. Bitcoin hit a two-year high on Tuesday, on track for its biggest two-day rally this year, on signs large players were buying the cryptocurrency, while smaller rival ether topped $3,200 for the first time since 2022.
Deals:
Neowrk, a startup that combines hardware, software, and artificial intelligence to optimize workspace management, is the latest investment by Indicator Capital. The investment firm led a R$ 10 million seed round in the startup, contributing R$ 8 million — the remaining amount was provided by current partners and Real Estate investor Daniel Cherman.
Cromai, a startup specializing in artificial intelligence for agribusiness, has just closed a funding round of R$ 17 million. The investment, an extension of the Series A round from December 2022, was led by iDEXO, the corporate venture capital fund of Totvs.
General news:
Stripe joins the trend of startups enabling employees to sell shares ahead of its IPO. The company's value now stands at $65 billion, up from $50 billion almost a year ago but lower than its $95 billion valuation in 2021. This move, amid a lukewarm IPO environment, offers liquidity to Stripe's current and former employees, underscoring the secondary market's influence on valuation.
Sólides enters the private payroll loan market in partnership with BV. After launching a benefits card, the startup firmly enters the financial market with a loan product.
Four shareholders of Stone, who are currently or have previously been part of the company's management, took advantage of a rally in the company's shares to monetize part of their position. The sale, which occurred close to Warren Buffet's decision to liquidate his shares in the company, amounted to R$ 16.7 million in shares.
Quaddro, Brazilian startups backed by Valor Capital Group, is expanding its services and aiming to achieve scale with an investment and a breakeven goal. The startup aims to provide autonomy to freelancers, professionals, and small businesses.
General News:
The cryptocurrency ETF HASH11 traded over R$ 100 million and was the fourth most traded on the Brazilian stock exchange, even reaching the third position at times during the trading session.
TotalPass announces former Indeed executive as new CEO in Brazil and Mexico. Felipe Calbucci brings 20 years of leadership roles and extensive experience in sales and direct relationship with HR professionals.
Amazon's $1 billion fund will invest in startups that combine AI and robotics. An executive from the company stated that they are targeting companies involved in the final stage of the delivery process, when orders reach customers.
Deals:
Brazilian Edtech Analytica Ensino raised R$ 4 million in an investment round led by Iron Capital to expand its platform into the corporate universe. And the startup's first client is none other than Ambev, which aims to assist delivery partners of the Zé Delivery app in completing their high school education.
StopClub, a platform that supports app-based drivers and delivery workers by providing various tools to assist them in their daily challenges, has secured a capital investment of $1.2 million. The investment round was led by Redpoint eventures and also saw participation from ACE Ventures and Raio Capital.
General News:
WhatsApp has firmly established itself in the Brazilian market as a key tool for consumers to make purchases and hire services, becoming vital for businesses, particularly smaller ones, to boost their online sales. In response to this trend, Itaú Empresas is introducing a new feature for its clients: the ability to issue invoices through WhatsApp.
MercadoLibre Inc., the Latin America e-commerce and payments giant, named Andre Chaves as the new head of its fintech business in Brazil as it looks to further expand its offering of financial products in its largest market.
Vertem and Dilus are joining forces in a joint venture called D+V. The company aims to innovate the points and coupons programs by creating a subscription club called "Familhão" (Big Family).Subscribers will pay a monthly fee of R$ 20, and each BRL spent will earn them one point, which can be redeemed for products on D+V's marketplace. Brands available on the marketplace include Natura, Vivo, Polishop, and ChilliBeans.
The Economic Affairs Committee (CAE) is currently analyzing a bill that creates a new model of contract for investing in startups. Named the Convertible Investment Contract into Social Capital (CICC), the document is inspired by the Simple Agreement for Future Equity (Safe), a standard model used in the international market.
Brazilian fintech Zoop aims for R$ 1 billion in revenue with portfolio expansion of services.
SENSR.IT expands into Latin America. The company is expanding into Argentina, Bolivia, Chile, Colombia, Ecuador, Mexico, Panama, Paraguay, and Peru. TIVIT already operates in these countries with its digital transformation projects and agile software development solutions.
Deals:
Ziff, a financial solutions provider in Mexico, has finalized the acquisition of digital lending company Arrenda, marking a strategic move to enhance its credit offerings. This acquisition is a pivotal moment in Ziff’s mission to alleviate cash flow issues for 4.46 million small and medium-sized enterprises (SMEs) and to support the $9.23 billion commercial real estate market in Mexico.
What did I learn from readers?
I came across a very interesting post on LinkedIn by Paulo Passoni, Managing Partner at Valor Capital Group. He shared the following picture and included an interesting calculation. I thought it was worth sharing with my readers!
“A mental exercise:
- Says that in Q4 2023 companies at Series A raised between 12x and 25x revenue.
- Let’s say a particular company raised at 17x rev while doing $3M of ARR. Or $51M post-money.
- A reasonable assumption for that company is to grow 100% per year at that stage.
- So such company is now at $12M ARR 2 years later.
- Raises a Series B at 11x Rev, the middle of the range.
- Now the post-money is $132M in the Series B, which usually raises $30M, so pre-money of $102M.
- In two years the valuation went from $51M to $102M, a 2x increase.
What is the hit rate a Series A Investor must have to decide to invest in the A and not wait for the B?
Prob of Success x 2x return + Prob of Failure x 0.5x Return = 1.7x (30% IRR compounded by 2 years); Prob of Failure = 1-Prob of Success
The answer is 80%”
What am I reading?
Bain & Company: Global Venture Capital Outlook: The Latest Trends
What am I listening to? What am I watching?
Random music…. no podcasts this week. Work (continues) intense!
Quote of the week:
I have no special talents. I am only passionately curious.” —Albert Einstein