#027: Where are the new millionaires coming from?
How Latin America’s wealth creation stacks up on the global stage
Olá technopolists,
LatAm keeps loving venture debt — even in sectors that have earned a few sceptical looks in the past several months. Plus, Netflix makes a rebound while Nubank hopes to make nu money.
What’s hot
⚙️ Leverage. Venture debt continues to be extraordinarily hot for fintech startups seeking non-dilutive growth, with three lenders announcing hefty new facilities. Covalto (formerly known as Credijusto) announced $200mn in new debt facilities, largely from Mexico’s development bank, FIRA. Elsewhere, Nelo, a Mexican consumer BNPL platform also announced a $100mn line from private debt provider Victory Park Capital. Brazil’s peer-to-peer lending platform Tutu Digital also announced a $20mn facility from SRM. Per analysis from Reuters, the recent collapse of several major Mexican non-bank lenders (Credito Real, Alpha Credit, Unifin) has raised a very real question: will more non-bank lenders become banks (like Covalto) to survive? (Forbes)
📺 Streaming spice. Netflix added 300,000 Latin American subscribers in Q3, making LatAm the fastest growing region for the streaming giant this year. LatAm’s growth was a significant contributor to net subscriber growth in the quarter, which was a welcome sign for investors after Netflix saw a net decline in subscribers for the first time ever in Q2 of this year. Netflix also announced the end of its controversial “add a household” experiment, where it tried to crack down on password sharing by forcing users in different locations on the same login to pay more, trialled in El Salvador, Guatemala, Honduras, and the Dominican Republic. The scheme was widely criticised by users, yet analysts believe that the experiment was ended to be replaced by other, more effective methods to increase revenue per customer, like limiting the number of users per account – an ongoing experiment in Peru, Costa Rica, and Chile. (Rest of World)
⛓️ Crypto-loyalty. Nubank has announced plans to launch its own cryptocurrency, NuCoin, to its 70mn users in the first half of 2023. Following in the footsteps of Mercado Libre’s MercadoCoin, the coin is planned to be used for customer loyalty, discounts, and intra-bank transfers. To create the coin, Nubank has partnered with US-based infrastructure provider Paxos, and will build the chain on the Polygon network. Despite the announced launch, not everyone is convinced: asset manager Empiricus has reaffirmed its position to short Nubank while going long on Banco do Brasil, betting that the neobank’s share price still has a while to fall because of a comparatively high price-earnings ratio. (Bloomberg Linea)
What’s not
🥑 Delivery defeat. iFood, the Brazilian food delivery unicorn and LatAm’s second most valuable private company, announced that it will close its Colombian operations and cut 210 employees in November after failing to win significant share in the country. Statista estimates that iFood captured 9% of food delivery market share in Colombia, compared to 87% held by Rappi and its sister company. The retreat — mirroring the logic of Uber’s recent decision to exit Brazil — follows iFood’s withdrawal from Mexico. After the closure, iFood will only operate in its home country of Brazil, where it commands a safe 85% market share. But its home-field advantage is under threat, as a Rappi-led industry watchdog has launched regulatory complaints regarding its use of exclusivity contracts with restaurants. It’s worth noting that iFood clung to its presence in Colombia largely through an exclusivity deal with McDonald’s; when the deal expired, iFood’s retreat followed soon after. (Startups Brasil)
💸 Remittances. El Salvador’s crypto experiment seems to have received yet another data point acting as a death knell. While total remittance inflows have increased 3.7% year-to-date in the country, Bitcoin remittances have plateaued at $32mn — a 6% decline over Q2 and a 24% decline over their peak at $42mn in Q4-21. Remittances make up nearly 25% of El Salvador’s GDP, and while President Bukele’s legalisation of Bitcoin has been touted as an antidote to high remittance fees, the data speaks to the contrary; on average, 1.5% of remittances are received in Bitcoin since the policy began in September of last year, and that proportion has been flat for most of 2022. According to the most recent polls, two-thirds of Salvadorans view the Bitcoin policy as a failure, with 75% stating they have not used a cryptocurrency in 2022. (Bloomberg Linea)
Stat of the week
Major startup exits can bring massive new wealth creation that trickles down into entrepreneurial “mafias” and broader socioeconomic equality.
Credit Suisse analysed wealth creation around the world, so we can take a look at where the new millionaires are coming from.
So what? Latin America stands ahead of many emerging markets for millionaire manting, and is is forecast to be outpacing many other emerging markets in the near future. Separately, Credit Suisse also concluded that the increase in LatAm’s wealth creation seems to be maintaining existing levels of inequality, while inequality is increasing in more developed economies. That’s not bad news, but it’s not great news either.
Smart links
Brazil’s surprising fintech tailwind (a16z)
Mexico's non-bank lenders may now need bank licenses to survive (Reuters)
Argentina dismantles illegal crypto mining operation, arrests 40 (CoinDesk)
Brazilian unicorn Hotmart cuts 12% of staff (Startups Brasil)
Ualá launches Ualá Bis, a low-fee instant payments product in Colombia (iProUp)
Latitud co-founder launches all-female angel collective (LinkedIn)
Uils wants to lend LatAm’s rideshare drivers cash based on their driving record (TechCrunch)
Why Empiricus is long Banco do Brasil and short Nubank (Brazil Journal)
SoftBank creates committee to oversee Vision Fund 2, LatAm funds (Bloomberg)
The Latino Wealth Paradox: Latinos get richer, but still invest less (Bloomberg Linea)
Messi launches US-based fund to invest in tech & sports (Bloomberg Linea)
Latin America’s inflation lessons for the G7 (FT)
Deals (October 18-25 , 2022)
Early stage
🇧🇷 Traive, a Brazilian agricultural supply chain lender, raised a $10mn early-stage round from BASF Ventures
🇲🇽 Pulpo, a Mexican-Spanish mobility fleet management platform, raised an $8mn round led by Nazca with participation from Femsa Ventures, Swanlaab, Mexico Ventures, Cracks Fund and angels
🇦🇷 Menta, an Argentine B2B fintech, raised a $6mn seed round led by Base10 Partners with participation from Pear, MatterScale Ventures, and Gilgamesh Ventures
🇲🇽 Kukun, a Mexican boutique property rental platform, raised a $4.5mn seed round from Antelo Capital, View Capital, FJ Labs, and Bridge Partners
🇲🇽 Reworth, a Mexican cashback fintech, raised a $3.8mn seed round extension from Magma, JAM fund (of Tinder co-founder Justin Mateen), Actyus (of Creditas’s Sergio Furio), K5 Fund, and NOA Capital
🇦🇷 Lara AI, an Argentine HRtech, raised a $1.1mn seed round from Newtopia, 500 LatAm, FJ Labs, Mr Pink VC, Brazil Venture Capital, 99Startups, Tiendanube, Mendel, and Startupeable
🇧🇷 Galaxies Gaming, a Brazilian e-sports platform, raised a $750k early-stage round co-led by Airborne Ventures and OTF Capital with participation from GVAngels
🇺🇸 AleFi, a Miami-based retail investment platform operating in LatAm, raised a $600k early-stage round co-led by RevTech Labs and CEO Investors, with participation from angels
🇧🇷 E-Comprei, a Brazilian cosmetics marketplace, raised a $150k round via crowdfunding
Ad hoc
🇲🇽 Covalto, a Mexican bank, announced the closing of two credit lines totalling $200mn in debt financing: a new $10mn credit line from the Development Finance Corporation and a $190mn credit line expansion from FIRA
🇲🇽 Nelo, a Mexican BNPL platform, raised a $100mn debt facility from Victory Park Capital
🇧🇷 Tutu Digital, a Brazilian peer-to-peer lending platform, raised a $20mn debt facility from SRM
🇲🇽 Kueski, a Mexican microlending platform, raised a $23mn investment from undisclosed investors
Did I miss any deals? Let me know!
Word on the street
In response to Netflix’s changed plans in password crackdown efforts, Alex Gonzalez Ormerud of Rest of World told Technopoly that:
“Big tech companies are incredibly hard to read and rarely communicate beyond the usual platitudes – so we have to read between the lines. Does listening to their customers mean that they screwed up? Some of our experts seem to think so. But maybe it was just part and parcel of what they’ve planned all along.”