#026: Will LatAm grow in 2023?
Major expansion and investment announcements despite gloomy VC numbers for Q3. Plus, a preview of next year’s growth predictions
Hola technopolists,
Sometimes the macro and the micro diverge – and this is one of those weeks. The macro picture is looking bad (and getting worse), while the micro view for some companies is looking bananas — or, more aptly, it’s looking lulos. Plus, the Gulf is becoming more relevant in LatAm tech — the Persian Gulf, that is.
What’s hot
🏦 From zero to hero. Lulo, a Colombian neobank, has bagged $200mn from International Holding Company, an Abu Dhabi-based investment company, in return for a 49.9% stake in the company. Lulo was founded in 2019 by Colombia’s second richest man, Jamie Galinski (a member of the prominent Galinski family behind the eponymous Grupo Galinski) and became the first regulated digital bank in Colombia. The investment is off-piste by startup norms. First, IHC is not our typical investor: they’re a publicly listed holding company that has little venture exposure and no LatAm exposure outside of Lulo. Second, despite being founded 3 years ago, Lulo only launched in June 2022 and boasts 120k users — making the company super young for a $200mn deal at a $400mn valuation. For comparison: Nubank serves 70mn users and trades at a $20.6bn valuation, making each user worth ~$293 in market cap; for Lulo, each user is worth $3,333 in market cap — 11x that of the Brazilian giants. We would have blinked twice even if a deal of this size came from Tiger or SoftBank at the top of the market. (Gulf Business)
🚗 Gulf guzzler. Kavak, the Mexican used car dealership, announced last week it was pushing into the Middle East. CEO Carlos Garcia explained that the company will invest $130mn in the next two years as it enters Oman, the UAE, and Saudi Arabia. Combined, Garcia estimates the Gulf Markets will make up 7-10% of Kavak’s business at full potential. The company will be merging with Omani used-car dealer Carzaty to enter Oman and the UAE, while it will enter Saudi Arabia through its own operations. The announcement follows hot on the heels of Kavak’s July expansion into Colombia, Chile, Peru, and Turkey, which gave it its first footprint outside of LatAm. Kavak is now operating in 10 countries, 4 outside of Latin America. While it’s far too early to gauge success, Kavak is putting significant weight behind its thesis that non-Latin expansion is a key to success – one of the few pre-IPO tech companies to do so. (Bloomberg)
🇪🇸 Cross-sea currents. Two Spanish tech firms announced large-scale expansions into Latin America this past week. Cabify, the mobility provider, announced $300mn of investment into the region over the next 2 years to solidify its position against the likes of Uber and DiDi. The company plans to reinforce its share in Spanish-speaking countries such as Mexico and Ecuador, where it claims to already be profit-positive — a smart, cash-flow-generating move for a company with an unclear path to IPO in a challenging market (NB: Cabify is also launching a B2B2C logistics business as part of the move, its first foray outside of its consumer proposition). Then there’s Factorial, an HR-tech for SMEs, that announced a $120mn Series C to fund a deep expansion into LatAm. While Latin cultural connections between Iberia and the Americas are longstanding, startup connections only now seem to be picking up much steam — so much so that K Fund, a Spanish VC backing Factorial, has put bridging LatAm and southern Europe at the core of its investment thesis. (TechCrunch)
What’s not
🔻 Funding’s down. According to the latest data from CB Insights, LatAm startups received $1.1bn in VC funding during Q3, a 52% slide from Q2 and an 83% year-on-year drop. In fact, funding in Q3 was even lower than same period in 2020 ($1.8bn) — the first time that quarterly funding has dropped into 2020 territory. This marks the 5th consecutive quarter of decline since the market’s peak in Q2 of 2021, and for those who have been tracking the long slide, the main themes are the same: late-stage is hurting, big foreign names are retreating, and early-stage is a saving grace. Megarounds are scarce, with no unicorns minted in LatAm in Q3. The roster of most active VCs (barring tax-haven Bahamanian funds) is made up of local Brazilian funds: BossaNova Investimentos, Monashees, Canary, and DOMO Invest. Early-stage activity, though, is stable: there were 226 deals completed in Q3, flat on the prior quarter, while early-stage deals increased to 75% of activity; average deal size declined from $11mn to $5mn as mix shifts to smaller, earlier cheques. Mexico is a case-in-point: while total funding halved from Q2 to Q3, deal count doubled. Taking the long view, 2022 is still shaping up to be the second-best year for VC funding in LatAm’s history, but investment levels are now looking a lot more like they did during 2020. (Bloomberg Linea)
🏴☠️ Cook’s contraband. Apple is running into new issues rolling out the latest iPhone in two of LatAm’s largest economies. In Colombia, the iPhone 14 has been banned for months since Ericsson, a provider of 5G infrastructure that Apple uses in its phones, sued the American phonemaker for not paying anything to use its 5G technology. Though the lawsuit covers many countries globally, Colombia was the only country to stop iPhone 14 sales until the case is resolved. Apple has since appealed the ruling, but in a recent press release for the iPhone 14 Pro, Apple stated that the new model would be available in Colombia by the end of this month — seeming to directly flout the ban. Further south in Brazil, the Brazilian Ministry of Justice slapped Apple with a $2.3mn fine in September for selling iPhones without a charger, claiming it violated consumer protections. Last week, the Brazilian Consumer Organisation won a separate civil lawsuit against Apple for the same charger issue, but this time with a bigger scope. Apple has now been ordered to pay $19mn in damages for failing to include chargers and adapters for its iPhone 12 models and later. Apple has previously claimed it does not include chargers for environmental reasons but has not yet commented on the new fine. (Rest of World)
Stat of the week
LatAm has emerged from 2022’s choppy economic waters looking stronger than most would have expected. Within the tech scene, optimists like Shu Nyatta point out how experience with high inflation, political regime change, and global supply chain turmoil have positioned LatAm for resilience in times like these.
Yet the recent outlook has taken a turn for the worse. The IMF has updated its growth projections for LatAm, and the picture is a mixed bag. While 2022’s forecast has gotten slightly better, they predict that 2023 will significantly decelerate:
So what? The IMF is saying ‘you can run, but you can’t hide’ from global trends. Disappointing inflation numbers in the US and Eurozone have signalled that central banks will need to keep hiking interest rates; that kind of tightening is going to continue constraining financing globally, which it believes will contaminate LatAm. And even though LatAm took some of the earliest action on inflation, the region is still staring down rising costs in areas beyond energy and food that are less influenced by interest rate hikes. For tech in LatAm, this forecast would predict more of the same: fewer foreign funds, more local funds; fewer mega-rounds, more early-stage rounds; fewer IPOs, more M&A.
Smart links
Global State of Venture 2022 (CB Insights)
Emerging markets face ‘flight to safety’, warns IMF official (FT)
Analysis: Why Arco bought fintech Isaac in share exchange (Bloomberg Linea)
Nubank CEO and partner launch philanthropy platform (Bloomberg Linea)
Investors take the reins with structured deals (Pitchbook)
Mexican startup Plerk launches partnership with WeWork (Latam List)
LatAm Tech Quarterly Report (Connect33)
Deals (October 11 - 18 , 2022)
M&A
🇧🇷 B3, the Brazilian stock exchange, acquired Datastock, a Brazilian car inventory management platform, for $15mn
🇧🇷 PipeRun, a Brazilian salestech, acquired 5Hub, a Brazilian omnichannel salestech, for an undisclosed amount
🇲🇽 Aplazo, a Mexican BNPL fintech, acquired Sensai Metrics, a machine learning marketech, for an undisclosed amount
Late stage
🇪🇸 Factorial, a Spanish HR-tech, raised a $120mn Series C led by Atomico with participation from GIC, Tiger Global, CRV, K-Fund and Creandum; the company plans to double down on LatAm expansion
🇨🇴 Elenas, a Colombian social commerce platform, raised a $20mn Series B led by DILA Capital with participation from FJ Labs, Endeavor Catalyst, the Inter-American Development Bank’s IDB Lab, Broadhaven Ventures, Mercado Libre, Grupo Bolivar and Leo Capital
🇲🇽 Tienda Pago, a Mexican lending and payments platform, raised a $12mn Series B co-led by IDC Ventures and Women’s World Banking with participation from Accion, Agrega Partners, Kaszek, Oikocredit, and QED
🇧🇷 Franq, a Brazilian financial advisory platform, raised a $12mn round from undisclosed investors
Early stage
🇧🇷 Obvious Fibra, a Brazilian fibre optic provider, raised a $10mn seed round from undisclosed investors
🇦🇷 CoreZero, an Argentine climatetech, raised a $7mn pre-Series A led by Nazca with participation from FEMSA Ventures and IDB Lab
🇨🇱 Arch, a Chilean crypto asset manager, raised a $5mn seed round co-led by Digital Currency Group and Upload Ventures with participation from Ripio Ventures, TechStars and GBV
🇦🇷 Fidu, an Argentine school management platform, raised a $5mn seed round led by Lightspeed Ventures with participation from NFX, Imaginable Futures, and Broom Ventures
🇨🇴 HoyTrabajas, a Colombian job platform, raised a $5mn seed round from Newtype Ventures Rebel Fund, Starling Ventures, SCM Advisors, AngelHub, New Ventures & Botnar Foundation, Flucas Ventures, Kube Ventures, Magic Fund, Share Capital, Dragon Capital, Centauri Capital, K20 Fund, Solid Ventures, and angels
🇨🇴 Vozy, a Colombian AI-voice platform, raised a $5mn ‘pre-Series A’ led by GoHub Ventures with participation from Starling Ventures, SaxeCap, and angels
🇨🇴 Zulu, a Colombian “digital dollar” fintech, raised a $5mn seed round from Cadenza Ventures, Nexo, CMT Digital, Simplex, Coin CDX, Gaingels, and angels
🇨🇱 ReparaTuAuto, a Chilean automotive fintech, raised a $1.2mn seed round from angels
🇧🇷 CarBigData, a Brazilian car recovery company, raised a $1mn seed round from DOMO Invest
Ad hoc
🇨🇴 Lulo, a Colombian neobank, raised a $200mn investment from Abu Dhabi-based International Holding Company
🇨🇴 Avista, a Colombian pension lending platform, raised a $110mn credit facility from Alianza Fiduciaria
Did I miss any deals? Let me know!