#035: Top 10 stories of 2022
A recap of the biggest developments in LatAm tech and venture capital
Holá technopolists,
The end of the year is a natural time for reflection. What follows is a pithy digest of this year’s top stories in LatAm tech and VC, curated, summarised, and contextualised.
The newsletter will be on break until the new year. Thanks for joining so far. Next year is going be a blast.
1/ Unicorns bear the brunt of a funding market correction
VC funding in LatAm declined sharply from its 2021 peak as investor sentiment soured on the back of rising interest rates, soaring inflation, and stalling growth forecasts. In LatAm through Q3, VC funds invested $6.4bn in 2022, a 45% drop compared to $11.5bn from the same period the prior year. Nobody felt the pain worse than the unicorns and ‘soonicorns’, as late-stage funding and valuations plummeted +50% (a trend that chimes with most economic downturns). Mega-rounds became scarce, and only 8 new unicorns were minted compared to 18 last year. Layoffs came in floods as funding dried up, with deep cuts happening at the biggest brands: Kavak, Loft, Dock, Bitso, Konfio, 2TM (parent of Mercado Bitcoin), Facily, Clara, Addi, Olist, SoftBank. (Read more →)
2/ Early-stage activity sustains investor optimism
Despite the market downturn, 2022 is already LatAm’s second-largest year for venture capital investment. This is largely down to strength in early-stage fundraising, as investors took advantage of lower valuations to spread their bets across a higher number of deals. November’s data encapsulates the trend: average investment size dropped to $4.8mn from its usual $12mn while a record number of deals were completed (137). The prevailing thesis is that companies spawned amidst downturns drive the highest returns – something the market witnessed coming out of 2008. (Read more →)
3/ Debt is the new black
Late-stage companies faced a common dilemma this year: they needed fresh capital, but typical equity fundraises were unattractive with the threat of a down-round. Venture debt filled the gap. LatAm startups raised $1bn in credit facilities this year, blasting the 2021 record of $823mn before the year has ended. The biggest names raised hefty facilities: Kavak ($810mn), Nubank ($650mn), Mercado Libre ($233mn), Clara ($150mn), and Xepelin ($140mn). Most of the credit facilities are asset-backed vehicles that allow their borrowers to lend to their end users or fund capital-intensive expansion projects, such as M&A. (Read more →)
4/ Crypto booms, busts, and carries on
Crypto exploded in LatAm in 2021, minting unicorns and earning hype as the second-fastest growing crypto region in the world. The worsening macroeconomic climate in 2022 actually proved a boon, as users flocked to crypto as a hedge against inflation and exchange rate volatility (see: Argentina). But crypto’s hotstreak lost most of its steam in the second half of the year. The one-two punch of layoffs (e.g., 2TM/Mercado Bitcoin, Bitso, Buenbit) and the Terra/Luna stablecoin collapse shocked global confidence and triggered a knock-on collapse in bitcoin’s price that hit Latin America. As if that weren’t enough, FTX’s November collapse contaminated LatAm, led by layoffs at Bitso. The future, while heavily subdued, is still one for crypto-optimists, with Brazil recently passing its landmark crypto regulation and proceeding with the development of its central bank digital currency. (Read more →)
5/ Nubank roars back after a post-IPO slide
Nubank looked an Icarus: after IPO’ing on the NYSE in December at a market cap close to $50bn, its share price had shed 70% by June. In the doldrums, it decided to de-list its depository receipts on the Brazilian stock exchange while making some leadership changes, with CEO David Velez taking a backseat from operations while promoting two of his Brazilian lieutenants, Cristina Junqueira and Youssef Lahrech. Since its share price nadir, Nubank churned out a series of record-topping quarters, consistently outperforming analyst expectations and reaching major milestones: launching banking products abroad (such as debit cards in Mexico), reaching 70mn users globally, and turning a profit for the first time. Its share price has only recovered ~10%, but aggressive growth portends a strong 2023. (Read more →)
6/ MercadoLibre dominates, thanks largely to Pago
The Argentine-born e-commerce platform went from strength to strength. It posted back-to-back earnings records in Q2 and Q3, beating analyst EPS estimates by 26% and 5%, respectively. Its fintech, MercadoPago, is the real winner. Launched as a payments processor before expanding into lending and BNPL, Pago doubled in revenue and 3.5x’d its payments volume in a single year. The fintech now boasts 35mn users — already half that of Nubank — and has higher penetration in Mexico than most traditional banks. Not to mention that it’s retail e-commerce platform still has greater market share than Amazon in sectors like grocery delivery. (Read more →)
7/ Kavak pursues big growth abroad but stalls out at home
Kavak began this year as LatAm’s most valuable startup, riding in on the $8.7bn valuation it achieved during its $700mn Series E in August ‘21. The car reseller seemed resilient despite market vicissitudes with a series of ambitious expansion announcements around the world. Over the summer, it announced expansion into Colombia, Chile, Peru, and, most surprisingly, Turkey — its first country outside LatAm. Only months later, it raised $810mn in credit facilities before announcing a multi-country expansion into the Middle East. Yet Kavak has been beset by trouble in its core geographies. It has laid off +150 employees in Brazil and completely restructured its Mexican leadership team amidst reports of falling sales. Now, it’s under fire after employees alleged that poor revenue and customer service are a result of nepotism at the very top of the organisation. (Read more →)
8/ Food delivery startups hunker down (with knives out)
Food delivery is notorious for its fierce competition and negative margins, and 2022 was no exception. Uber Eats retreated from Brazil after admitting defeat to iFood, the incumbent with +80% market share. iFood itself, only months after being sold to Prosus by Just Eat, exited Colombia and Mexico to focus on profitability at home in Brazil. Rappi, which has otherwise kept quiet this year, went on the offensive by pushing forward an anti-competition complaint against iFood for its use of restaurant exclusivity contracts. While the delivery platforms fight for razor-thin margins, the ‘dark kitchens’ that supply these platforms are soaring; it leaked that Travis Kalanick’s CloudKitchens raised $850mn from Microsoft in ‘21 to expand deep into LatAm, while Colombia’s Foodology raised one of the largest Series Bs of the year ($50mn) – from Maluma, no less. (Read more →)
9/ Pix sets a new standard for payments
Brazil’s digital payments system, Pix, cemented its position as a case study for successful payments infrastructure. Only two years old, Pix now boasts nearly 120mn users and 500mn accounts, reaching roughly 80% of the country’s adult population. The QR-code based system — which is instant, 24/7, and completely free — shone bright against the relative failures of similar systems in Mexico (CoDi) and El Salvador (Chivo), which failed to reach mainstream adoption. Pix’s protocol is now being released globally, with Colombia and Uruguay investigating its rollout. (Read more →)
10/ Bukele blunders with bitcoin
Salvadoran President Nayib Bukele has put crypto-optimism at the core of his personal and political brand. Last autumn, he authorised bitcoin as legal tender while using government funds to invest in it. One year in, the experiment has flopped. According to recent surveys, 75% of Salvadorans haven’t used bitcoin and 70% view it as a failed policy. The government even gifted each citizen $30 in bitcoin through their digital wallet (Chivo), but the launch was rife with reports of fraud and 80% of adopters have since abandoned it. Analysts estimate that Bukele has purchased +$100mn of bitcoin and currently carries +50% in unrealised losses on the bet. The IMF, which is due to receive an $800mn debt repayment from Salvador in January ‘23, has condemned the policy, while ratings agencies have downgraded Salvadoran debt to CC, partially due to the bitcoin platform. (Read more →)
Honourable mentions
Oxxo Spin became FEMSA’s fintech breakthrough. The Mexican bottling and retail conglomerate dipped its toes into fintech when it launched debit cards through its 20k-store-strong network of convenience stores. Spin’s meteoric success has prompted FEMSA to go deeper into financial products, targeting 10mn customers next year while it re-writes the playbook on how to be a great fintech. (Read more from Reuters →)
SoftBank led LatAm’s rise in 2021, and its retreat in 2022. Marcelo Claure’s exit from the Japanese juggernaut last year was the tipping point for a spinout and an exodus of its top brass from the LatAm fund. This year, it been relatively dormant with mounting pressure Masa Son’s huge losses, and that’s posing a challenge for LatAm’s late-stage darlings. (Read more from Pitchbook →)
The fall of Mexican shadow lending. Credito Real, Unifin, and Alpha Credit have all collapsed this year. The reasons for their collapses are unique and still murky, and foreign investors are feeling $5bn of pain. How much can we extrapolate from their experience? (Read more from Bloomberg →)
Muddy Waters shorted dLocal and wiped 40% off its market cap. Carson Block’s short-selling firm baldly accused the Uruguayan payments unicorn of fraud and misappropriation of customer funds. dLocal has denied the accusations, but its share price is still suffering heavily as it has yet to issue a written refutation of the short position’s claims. (Read more from the FT →)