LatAm Tech Weekly - Special Edition
#62 - Powered by Nasdaq: AWS & Itau BBA, Insights by investors, Lavca week, selected news... and much more!
Happy Sunday!
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This edition will be a bit different. I had the opportunity of travelling to New York this past week and met multiple investors, attended different events, and was able to grasp industry insights and a general sentiment for the LatAm tech sector looking ahead. I will share all of this with you today. As always, feedbacks and questions are welcome! Hope you like it!
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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.
Starting with the usual market overview, this week I read a very interesting piece on the Wall Street Journal: Venture-Capital Firms Buy Up Public Tech Stocks as Startup Market Stalls. Basically, firms who would usually focus on private opportunities are now looking to increase their exposure to publicly listed companies due to the decrease in their valuation. Looking at LatAm, for example, General Atlantic acquired a considerable stake in Brazilian listed tech company Locaweb this past May. The article goes ahead mentioning that VC firms are increasingly jumping into the stock market and buying up undervalued shares in publicly traded tech companies. For example, major firms such as Accel and Lightspeed have purchased more stocks of companies they first backed as startups this year, defying the usual industry norm of selling those shares soon after public listings. As one journalist puts it: “Silicon Valley VCs are looking for love in Wall Street”.
With investors taking on more public exposure, they are becoming increasingly selective and even more careful on the private side, which connects to another article I read by Pitchbook, which stated that as markets have suffered and interest rates have risen, structured equity has become more common in the startup funding world, frequently used by investors and cash-strapped companies as an alternative to a traditional equity raise. Many deals are being structured with restrictive terms that have not been in use for years. For example, liquidation preferences and conversion discounts that grant noteholders the right to convert the loan at a 25% to 30% markdown from the purchase price in the next financing round is a clear example. If you are a startup raising in this market - it is important to be careful with such grants as using structured financing in new fundraising rounds could come at the expense of common shareholders, including employees, and investors in earlier rounds.
Now on to this week’s events!
Itau BBA & AWS hosted a LatAm VCs & LPs Lunch. The companies brought together +50 LPs from around the world and outstanding VC partners from Latin America in an exclusive lunch in NYC.
It was an unique opportunity to connect and learn about Tech Trends and Investment outlook for LatAm with Itau BBA and Web3, Blockchain and Machine Learning overview with AWS.
Key Takeaways on LatAm Tech Scenario:
The cautious optimism in the tech scenario: GDP growth in LatAm is actually higher than expected, with inflation starting to show signs of stabilization and interest rates on a clear downtrend for the coming year.
With that, despite the decrease in VC deals in the first half of the year (532) compared to 2021, the total volume seen (USD 5.3bn) is still greater than what was seen in full 2020 (USD 5.4bn). So, things are actually not that bad - especially when you look at early stage. Three out of every 4 LatAm deals go to early stage companies.
Fundamentals in the region remain intact as digitalization continues to accelerate being closer to the rate seen in developed economies (i.e Brazil has 81% vs. 92% in the U.S.) and smartphone adoption is 40% higher over the last five years.
Funds continue to be active, and funding should continue. Tech M&A is becoming more relevant (29% of the total M&As in 2022YTD versus a 11% take in 2011).
Key Takeaways from Web3, Blockchain and Machine Learning:
New Embedded Finance use cases: Allowing businesses to better offer credit-related services to their clients; Access to taxpayer data, disparate
income/employment sources in one place.
Web3 Trends: Build Web3 dapps easily and connect to blockchain networks saving development time; A new generation of Layer-1s have emerged,
built with innovations that address the Blockchain Trilemma (decentralized, scalable, and secure).
ML Trends: Descentralization and Growth of individually-owned data; and the new generation of massive transformer language models.
LAVCA WEEK 2022
Top notch event with the main figures from the venture capital and growth equity ecosystem. Names such as Nigel Morris Founder & Managing Partner of QED Investors, Nicolás Szekasy, Co-Founder & Managing Partner at KASZEK, Francisco Demalde Co-Founder and Managing Partner at Riverwood, Martin Escobarí Co-President at General Atlantic, Rodrigo Baer Co-Founder and Managing Partner at Upload Ventures, Hans Tung Managing Partner of GGV, and Eric Acher Founding partner at Monashees were all on stage!
Key Takeaways from selected panels:
Latin America is not only a good source of skilled talent, but also a place where innovative companies are built. LatAm companies offer valuable examples to global peers on how to create value while also delivering social impact and sustainability.
The region has been a leader in private investment in power and also in deployment of renewables. Further regulatory changes are needed to accommodate new solutions like battery storage. Reform has been a driver of opportunity in water and sanitation in Brazil.
Opportunities in the current environment include distressed lending & non-performing loan acquisition, citing the role of private investors in bringing businesses out of bankruptcy/distressed situations, saving jobs, and freeing up bank balance sheets to continue lending in local markets.
FT Partners research showed that FinTech deal activity slowed in Q3 2022 to the lowest volume in the last two years amidst persistent high inflation, interest rate hikes, fears of a pending recession and overall continued global economic uncertainty. Total dollar volume of global FinTech deal activity across private company financings, IPOs, and M&A transactions in Q3 2022 declined 73% from the peak of activity a year prior in Q3 2021.
A New Unicorn: Spain’s Factorial wants to double down in Brazil - The startup secured a $120 million Series C led by Atomico with GIC, Tiger, CRV, K-Fund and Creadum.
Itau BBA’s dedicated comercial team for daily banking needs for startups has reached the mark of extending BRL 7 bn (USD 1.35 bn) in loans to these companies - which are now close to 1500 tech clients.
Franq, Brazilian Open Banking startup that offers a digital financial platform for distributing products from different market players, between traditional banks and fintechs raised USD 12mm from Quona.
Elenas, social commerce platform for consumer products in Latin America founded in Colombia raised a Series B of USD 20mm with funds such as Mercado Libre and FJ Labs.
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Quote of the week:
“People don’t buy what you do; they buy why you do it.” Simon Sinek