#86 - Powered by Nasdaq: Ratio of capital demand to supply, Bessemer's State of the Cloud 2023, cool stats for LatAm fintechs, deals of the week... and much more!
This week I have a couple of announcements. If you work with tech, you know that the next couple of weeks will be intense on the events front: Brazil at Silicon Valley (BSV), Riverwood’s Latin American Forum (LTF), Web Summit Rio, Itau BBA Tech Summit… and the list goes on. I will indeed attend a couple of them, and in some cases I am a speaker. The agenda will be hectic, and I have to be honest with my readers. I don’t think I will able to keep up the standard weekly newsletter during this period. And, if you don’t know by now - there is no AI or personal assistant - it’s 100% Julia De Luca producing texts every week. I’ll try and publish at least special editions… let’s see if I can keep it up.
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.
On to the usual market update – On the past two weeks I mentioned Q1 numbers for the venture world, both globally and in Latin America. Even though there was a general decrease in deal volume, it’s not that bad when we take a deeper look at the stats. It seems that dealmaking decline is leveling off from 2022, and seed valuations are ticking up.
Late stage deals were the ones that suffered the most, and a recent article by Pitchbook analyzed the ratio of capital demand to supply in all stages. PitchBook estimates that for every $3.20 demanded by late-stage startups, there's just $1 available in the market. On the early stage, the ratio is 1.6x while in venture-growth is 1.3x. The conclusion is that despite the levels of dry powder in the industry, capital is tight across the board.
Another interesting read during the week was one on equity risk premiums and its implications to the venture world by TechCrunch +. Simply put, the ERP is the difference between returns on equity/individual stock and the risk-free rate of return. In the case discussed, it calculates the projected S&P returns versus the returns of 10-year treasury bills. Recently, ERPs have broken down well below the ranges that were established since 2008. There has been an aggressive shift in assumed equity returns compared to fixed income returns.
The above chart explains why fundraising is extremely challenging right now and why valuations are coming down. As capital becomes more expensive, cost-cutting becomes extremely important. Conserving cash is a simple way for startups to postpone fundraising, giving them more time to both increase their revenue and potentially wait for tech valuations to recover.
This leads to the best piece of my week: Bessemer’s State of the Cloud 2023. While I do recommend the full read, one of the most interesting parts for me was the section where it compares the relative value of 1% of revenue growth with a 1% improvement in free cash flow.
It basically highlights the changing relationship between revenue growth and free-cash-flow to startups’ valuations. In late 2021, a 1% improvement in revenue growth had the same impact on public cloud valuations as a ~6% improvement in FCF margin. At the time, money was cheap, meaning that investors were less interested in low-yielding investments like bonds and more interested in other sources of growth. This scenario favored startups as they prioritized rapid growth over short-term profitability.
However, by late 2022, the ratio shifted to a more balanced 1:1, leading to belt-tightening measures and layoffs in the tech industry. The current trend, however, shows a 2:1 ratio in favor of growth, indicating a more favorable environment for startups to raise capital and generate value through accelerated growth. Although this ratio isn't as extreme as the previous 6:1, it still signals a positive shift for startups focusing on revenue expansion. That is, things are getting better for the general startup model as we see more macro stability across markets.
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General news:
Kapital, Mexican data-driven neobank for SMBs and entrepreneurs in Latam, launched a corporate digital dollar card secured by blockchain technology in order to help protect users against the devaluation of the Colombian peso.
Brazilian bank BS2 launches a BaaS platform.
The Brazilian Central Bank explained to market participants how would the buying / selling of tokenized government bonds work: an investor who wants to buy a government bond sends the tokenized amount to their financial institution "A." This institution then converts the tokenized amount into digital currency and sends it to the selling investor's financial institution "B." Institution "B" converts the digital currency back into tokenized form and deposits it into the selling investor's wallet. The government bonds are then transferred to the buying investor's wallet.
A recent study Serasa Experian showed that 35mn Brazilians are “thin files” (do not have a single financial record and are blocked from credit sources). This represents 22% of the adult population. Almost 20% of the country’s thin files have 21-30 years old.
Brazilian unicorn Facily is facing tough times: according to an article by Neofeed, it has undertaken a big down-round and is likely a write-off to current investors. The social commerce startup has received a capital injection at a 80% valuation cut to its 2021 fundraise. The company also cut 80% of its 1,000+ workforce, and shut operations everywhere but São Paulo. The reports show that monthly cashburn went from USD30mn to USD2.5mn.
Apple announced that it is now offering its Apple Card holders a 4.15% high-yield savings account with Goldman Sachs.
Deals:
Eyecare Health, startup that provides ophthalmology solutions for individuals, businesses, hospitals, and clinics, raised BRL 13mm with VOX capital and Einstein Hospital’s fund.
Sensix, Brazilian agtech that uses AI to reduce costs for the farmer, raised BRL 4mm led by SLC Agricola and Domo Invest. The company claims to reduce costs by up to 70% and increase productivity by 20% at most. The round was conducted using crowdfunding platform Captable.
Scalable, startup focused on credit offers to help SaaS startups grow, raised a USD 4mm seed round with SRM Ventures.
Brazilian accelerator Sai do Papel invested USD 200k in Plano (fintech) and USD300k in E-lastic (healthtech)
General news:
Retailers in Chile, Colombia, Argentina, Mexico, Peru, and Brazil will have access to Mercado Pago payments thanks to a collaboration between Mercado Pago and Salesforce to integrate new e-commerce solutions. The partnership aims to enhance shopping experiences and boost sales conversion rates by offering consumers comprehensive payment solutions. Salesforce now provides its partners with a complete portfolio of solutions, including Mercado Pago's payment methods, gateway, multi-acquisition, and anti-fraud systems.
Registrations are now open for startups and companies to participate in the AgroFoodTech challenge by CIVLAC. CIVLAC is an initiative promoted by the IDB Group through its innovation laboratory, BID Lab, and Wayra Hispam, Movistar's open innovation area. The AgroFoodTech challenge aims to address issues in the agricultural and food industry by collaborating with major companies in the Latin American and Caribbean region and impact startups.
Marcelo Abritta, founder of mobility startup Buser, joined the Brazilian government’s “conselhão” (group of notable businessmen that will advice in economic measures).
Alive Ventures, the Colombia-based VC firm focused on supporting tech-based startups addressing social inequality and climate issues, raised USD20mm in funding for a second fund of USD80mm. Investors include the Dutch Good Growth Fund, Latam Impact Fund, Acumen, and the WWB Foundation.
Musk is planning a “TruthGPT” AI initiative to rival OpenAI and Google's DeepMind, he said. The centi-billionaire CEO also talked about his Twitter ambitions and said he expects the social platform to significantly impact future domestic and international elections.
NG. Cash announced a new CTO, Lucas Alves, former Hubla, Edmondo and Firework.
Banco Santander Brazil announced its new CVC fund focused on fintechs led by Nathalia Britto, head of Open Innovation.
Deals:
QI Tech, Brazilian fintech that offers banking products as a service, announced its second acquisition, Builders Bank, startup that develops banking apps. QI Tech is a BaaS provider and the first SCD approved by the Central Bank. SCD stands for “Direct Credit Society” in free translation, in practice it is a type of licensed financial institution in Brazil that can offer banking and lending solutions to end customers. Builders Bank is a white label platform which enables the customer to fully customize its own experience and launch its own digital bank in a matter of days. Through the acquisition, QI Tech aims to help any company launch its own financial services products.
General news:
Student financing company Pravaler is set to launch a new service aimed at helping students find jobs. The company recently announced the integration of Jobis, a startup that operates like a Tinder for job-matching.
dLocal launched an all-in-one payment solution to manage all global platform payments in one place: dLocal for Platforms. It is an end-to-end payment solution for marketplaces, on-demand services, and any other platform business models.
Credit card debt defaults pose a major challenge to Brazil’s fintechs. In 2022, half of the credit card debt in non-bank financial institutions was from lower-income clients, compared to 24% for incumbent banks.
Lemon, the crypto wallet with more than 1.8M users in Latin America closed a deal with Polygon, the popular blockchain for its scalability, so that users can access DeFi, NFT and gaming solutions from the network easily and at low cost through the Lemon app.
Swiss agricultural input multinational Syngenta, backed by Chinese capital, is set to announce the creation of its fintech, Syde. This "digital hub" aims to connect farmers with credit market players and financial service providers, including major banks and agribusiness fintechs. Syde has already allocated BRL 1 billion in 2023. Partners include Itaú, agfintechs Farm, and AL5Bank (owned by Amaggi, one of the country's largest grain and fiber producers).
Nubank customers can now pay for their iFood orders using NuPay, the digital bank's own payment method. With NuPay, users don't need to enter card details and can complete the transaction within the app.
With Pix, Brazil becomes the second country in the world in instant payments, losing only to India. The country saw a 228,9% increase from 2021 to 2022 in the usage of instant payments.
Despite the fact that Brazil has more participating institutions in Open Banking when compared to England, the rate of adoption by the population is low. Currently, two years after its launch, only 15 million Brazilians, or 8% of those with bank accounts, have given consent for data sharing.
Deals:
ZiYou, Brazilian subscription platform for sports equipment and content, raised a seed round of USD 4mm with Grupo Multilaser.
Parkimovil, Mexican startup that provides mobile applications for parking solutions, raised a USD600k angel round with Yellow Hub.
QUByte Interactive, Brazilian independent video game development studio, raised an undisclosed round with BossaNova Investimentos.
Galactic Holdings, startup that develops a digital finance platform that is intended to empower people in LATAM with crypto services, raised USD10mm in a seed round with investors such as: Animoca Brands, BAI Capital, Head & Shoulders Financial Group and others.
General news:
Shein announced that they will start manufacturing their clothes and apparel in Brazil.
Tiger Global has recorded a 20% loss on its $12.7 billion venture fund, The Information reported. The firm has written down its investments in companies including OpenSea, FTX and Helium, according to the report.
Hispanics gain ground within US-Based venture capital firms: Hispanics occupied 5% of investment partner positions in the US last year, up from 4% in 2020 and 3% in 2018 a survey by Venture Forward, the NVCA and Deloitte reveals.
Colombia has 1,327 startups – out of which 15.3% are fintech; retailtech 8.1% and healthtech 7%. The new unicorns – or soonicorns – according to KPMG are: fintech Addi, proptech La Haus and Frubana, B2B marketplace.
Brazilian HRTech Gupy is on the spotlight - in a local magazine cover, Mariana Dias talks about the long term plans for the company. I love seeing women on top! Go Gupy!
BHub, Brazilian back office as a service is navigating well the more challening enviornment: revenue increased 5x from 2021 to 2022 & number of employees went from 46 to 140. Even though the numbers were not disclosed, this year the revenue should increase 6x according to the founder.
Deals:
Habi, Colombian company that develops a technology-driven real estate platform, raised USD100 mm in a credit line from Victory Park Capital.
GOintegro, startup from Argentina that develops a corporate social platform for human resources and offers a SaaS platform to improve corporate employee engagement, raised an undisclosed amount in a Corporate Majority round with Edenred.
PMovil, startup that provides mobile and telecommunications services from Brazil was acquired by Entre Investimentos at a valuation of USD3.5M.
General news:
Nubank’s directors compensation was on average USD2.5mm for the year of 2022.
Deals:
Magroove, a Brazilian startup that developed a platform to facilitate the publication of songs on digital platforms, just raised a round of BRL 8 million with DOMO Invest. With the raise, the musictech's plan is to expand the presence of its solution, focusing on independent artists.
What did I learn from readers?
A reader sent over the newsletter This Week in Fintech (Latin America) sent out every Sunday. In today’s edition, there were several interesting stats worth sharing here:
“In Latin America and the Caribbean, consumers have different ways to save money, only 63% of consumers in Latam are saving, of which only 33% do so regularly and the remaining 67% occasionally. Read full report in Trends of movement of Money in Latin America and the Caribbean.”
“Fintech Annual Report 2023 discloses the trends, projections and analyzes the behavior of the Fintech sector in Mexico, with financial inclusion as its main challenge. Fintechs have generated a revolution in financial inclusion, approximately 45% of their clients did not previously have financial products and only 5% of Fintechs in the country focus on offering services for SMEs.”
But If your company is in a different momentum, expanding the team, do not miss the opportunity to have access to many layoff lists already in your ATS and candidates database. It will provide your Talent Acquisition team a more efficient candidate sourcing!
Done !