LatAm Weekly Tech Update
#42 - The crucible moment, cash is still king in Mexico, deals of the week - and more!
Happy Sunday!
Back to the usual format but starting on a negative tone: Another week, another message to startups that the good times are dead….
“This is not a time to panic. It is a time to pause and reassess,” advises Sequoia.
By now, I am sure all of you are aware of the 52 slide presentation released by the firm that famously issued its “R.I.P Good Times” memo in 2008. Sources say that Sequoia sent the slides to 250 founders among its portfolio on May 16, with its partners Roelof Botha, Doug Leone, Alfred Lin and Carl Eschenbach taking founders through various sections and leading a Q&A. In the memo, Sequoia touches on factors such as inflation, geopolitical crises in Europe, the upheaval in stock markets and private investments that have contributed to the current downtown. Additionally, it added that today’s monetary and fiscal policy tools have made capital and fundraising costlier and will force cuts among its portfolio and measures for cash conservation thus, “money is no longer free”.
The VC firm expects the downturn to impact consumer behaviour, labor markets, supply chains and more. It also warned founders that this will be a longer recovery than the early days of Covid, and there’s no way to predict how long the slowdown might last.
The message is loud and clear: we are in a “crucible moment” of uncertainty for the venture market world. Growth at all costs is no longer being rewarded. The focus has shifted from near-term momentum towards current profitability.
Like Sequoia, other VCs such as Lightspeed and Y Combinator (mentioned here last week) have also sent similar messages to their portfolio companies. Everyone is scared – but, how bad will it be? My take is that the downturn will probably last from 12-24 months. However, I think we might all be overreacting. Time will tell….
As mentioned in this newsletter, in 2021 we had ~US$15bn in VC funding in Latam – half of that Brazil. Consensus is that in 2022 we are going back to 2020 level (that is, half of 2021) but with at least half of this capital focused on follow-ons. Nevertheless, we continue to see late stage rounds (US$100m +) in the region in the last weeks - Dock, Solfacil, Xepelin. But, note that deal announcements are more of a trailing indicator because price is usually set 3-4 months prior to the announcement.
People are saying that valuations are probably going to be adjusted to 30-50% down vs. peak. Investors are spending more time understanding unit economics, compared to a few months ago when gross margins were overlooked and a product/market fit was enough to justify a high valuation. We are going back to the EBITDA/Cash Flow multiples discussions as opposed to GMV/TAM/Revenue multiples discussion
Notably, several well established unicorns tried to raise equity in the beginning of the year but they unplugged as they saw possible down rounds. M&A activity will increase. Liquidity is limited and a way out for companies will be to look out for buyers. In Brazil, tech companies that IPOed last year may be targets. Several of them can be complementary for bigger companies/ ecosystems to add to their product or service offerings.
Looking at the private vs public markets, Public equities are now cheaper –therefore there is a higher opportunity cost for investing in the private market. Private investors will build positions in public equities – we should see more deals similar to the recently announced General Atlantic & Locaweb.
Looking at investors, this moment is being perceived differently by traditional venture firms. As opposed to growth equity firms, VCs might consider now to be a time to invest, provided they have the funds at their disposal. Given the lower valuations, it could be their best vintage ever. Crossover investors are definitely hitting the breaks, and full cycle funds are focusing on earlier stages.
The fact is that good companies with solid fundamentals will continue to thrive and raise money – but we will see less of what was rather common last year: a pitch deck with no proven track record being valued at several millions of dollars, which is acutally very rational. So, I ask you: can this “crucible moment” in tech be considered good?
On a different note: I have decided to add another new section to the newsletter (besides the Job Posts). I have been receiving lots of information and articles from readers – some of which are not necessarily current events of the week – but still very interesting. So, I created a section called: “What did I learn from readers?” – which I will include the piece of information sent by you which I think is most relevant (and that I did not know before). Let me know your thoughts on the new section and please continue sending reading tips!!!
Finally, this week I wrote a piece for Brazil Journal on Eric Schmidt’s presentation at the Brazil@Silicon Valley event. Special thanks to Geraldo Samor for publishing. Click here if you want to read it!
Please note that the views expressed in this newsletter belongs to me, and not to any organization, affiliates, or employees.
Ebanx announced a partnership with Citi – it will offer its payment solutions to institutional clients of the Bank based out in Latin America. Citi’s clients will be able to accept over 100 different methods of payments in 11 different regions such as Argentina, Costa Rica, Equador, Dominican Republic and Uruguai. Brazil and Mexico are not on the list due to the fact that Citi uses its own payment solutions platform in these countries, called Spring.
Anima Educação, Brazilian publicly listed education company, just announced its new corporate venture capital arm of BRL 150mm to invest in seed stage companies. The average check size will range from USD 250k to USD 1mm – in minority stakes from 10% to 30%
Brazilian CVC Fever: Anima is the 4th announcement of CVC plans by publicly traded companies in the last 6 months – namely, Locaweb, Totvs, B3 and now Anima.
ClicOH, Argentinian startup that offers logistics solutions and a comprehensive shipping solution for companies that sell through marketplaces and apps raised a USD 25.1mm Series A with the participation of funds such as Tiger Global and Vast Ventures.
The rules for interoperability in Open Finance were released by the Brazilian Central Bank. The proposed interoperability will allow the standardized sharing of data, after explicit customer consent, “in a safe, agile, and precise way between banks, payment institutions, credit cooperatives, insurance companies, open supplementary pension entities, capitalization companies and other institutions authorized to operate.”
Brazilian CVC fever again: Renner announces its plans to invest BRL 155mm in fashion & lifestyle startups. The plan is to invest in 10 companies in a 4 year time frame with BRL 10-20mm checks representing a 10%-20% stake.
Bornlogic, Brazilian startup that develops an ad tech marketing software as a Google and Facebook marketing partner raised a USD 10.8mm Series A with Astella, HiPartners and others.
Nowports, Mexican startup that offers digital freight forwarder shipping ocean containers to and from Latin America facilitating the import and export processes of Latin American companies raised a Series C of USD 150mm with funds such as Tiger and Softbank.
Marvin, Brazilian card receivables financing platform, raised a $15 million Series A led by Canaan with participation from Canary and Mauá Capital. The company offers businesses and retailers working capital and short-term loans by using card transactions generated via payment terminals as collateral. It was the first deal led by Canaan in the region. I was super happy in being invited by by Marvin to announce the deal. I chatted with Brendan Dickinson, General partner of the firm and responsible for this investment about the transaction and growth prospects for the company. You can watch the video here. I am close to Marvin since its inception - and I am sure that Bernardo Vale and team are just getting started!!
Vórtx, the Brazilian fintech infrastructure firm for fund managers, announced the acquisition of 51% of Basement, a platform that helps public and private companies manage stock options and cap tables. The amount of the transaction was not disclosed.
Anitta, Brazlian singer, invests in Fazenda do Futuro, Brazilian foodtech that is worth USD 2.2bn and present in 30 countries. Anitta will overlook marketing and innovation efforts.
VTEX fired around 10% of its employees – 193 people.
Brazilian fintech Noh, focused on collective finance, is preparing to launch next month a shared card that will allow users to split payments automatically, including choosing how much will be paid for each one. It is the first time that a startup offers a shared payment method. Each person will have their individual card and password and, when making the payment, the amount will be debited from both accounts, in the proportion chosen by the users.
What did I learn from readers?
Financial inclusion levels in Mexico have worsened since 2018, official statistics show, despite a burst of financial startups hoping to 'bank the unbanked'. Cash is still king.
Mexicans with at least one financial product last year fell 0.5% to 67.8% compared with 2018, the National Inclusion Report (ENIF) concluded this month. Meanwhile, cash still drives 90% of transactions under 500 Mexican pesos ($25), as well as 78.7% of payments or bills over 500 pesos.
What am I reading?
World Economic Forum: Brazilians are adopting digital payments faster than anyone else — what lessons can we learn?
What did I listen/watch?
Open Revolution: Documentary on Open Banking which I had the honor of participating. It will be out in streaming platforms soon.
JOB POSTS
Here is what top tech companies are looking for…
Head of Sales - Marvin
FP&A - Conexa Saúde
Corp Dev/ Head of M&A - Arquivei
Head of Branding - Beep
Growth Marketing leader - CapTable
*respond to this newsletter if you want to post a job or if you have interest on the openings above*
Quote of the week:
“An entire generation of entrepreneurs & tech investors built their entire perspectives on valuation during the second half of a 13-year amazing bull market run. The “unlearning” process could be painful, surprising and unsettling to many. I anticipate denial.” Bill Gurley (Twitter Post)
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