#040: What’s next for fintechs in digital credit

Credit trends — and where they’re heading next.

Feb 07, 2023

Hola technopolists,

A new consensus is emerging.

Last week, I wrote about the market getting worse before it gets better. A few hours later, a viral Twitter thread upped the ante, predicting a “mass extinction event among startups that will make the Great Financial Crisis of ‘08 look quaint”. This isn’t contingent on interest rates or macro growth; it’s all about startups not gaining enough traction to justify the insane revenue multiples they did in 2021.

The timing of the ‘extinction event’ boils down to one thing: runway. Conventional wisdom states that 18-24 months between rounds is sufficient. That’s no longer enough. According to new analysis from Carta, the average startup is floating 26 months between rounds. In other words, that’s the same as last week’s newsletter – the old average (20 months) plus 6 months from cost cuts.

As a result, startups like Jokr have adopted the survival tactic of raising a flat or slightly down round now to kick a bigger fundraise into the long grass.

Walking wounded is better than dying proud.

What’s Hot

🛍️ Shein names ex-SoftBank exec to lead LatAm. Marcelo Claure, the former head of SoftBank’s Latin America fund and one of Masayoshi Son’s top lieutenants, is set to make a personal $100mn investment into the China-based fast-fashion behemoth as he takes over its Latin American business. Through Claure’s appointment, Shein hopes to grow its manufacturing footprint in Mexico and Brazil, which reportedly already make up ~5% of the company’s gross merchandise value — some $1.5bn today. Insiders tell me it’s always tough to bet against Claure. (Wall Street Journal)

🛵 Rappi brings in ex-DoorDash execs and kills acquisition rumours. In the past year, Rappi has quietly brought in a slew of ex-DoorDashers (see: its COO, Board Member, SVP Growth & Marketing, VP Product, VP Marketplace, Global Head of Experimentation) while keeping a low profile to deflect attention from its heavy dilution, delayed IPO, and internal comms quibbles. Now, Rappi’s Colombia Director, Matias Laks, has come out publicly to refute all rumours of a sale to DoorDash – or any buyout, for that matter – while reminding the public that Rappi is focused on profitability. Rappi will be betting that, while DoorDash hasn’t figured out the profitability part of its equation, its leaders at least know how to IPO. (Bloomberg Linea)

🥑 Jokr bags a big flat(ish) round. The Brazil-based rapid grocery delivery company raised a modest $50mn equity round led by G Squared with participation from Tiger Global, GGV Capital, and HV Capital. The round (which Jokr is calling a Series C but smells a lot like a B extension) landed a $1.3bn valuation, virtually flat from the $1.2bn they achieved during their $260mn Series B in November 2021. The company boasts that it achieved gross margin profitability last April and claims it is on track for full profitability by Q1 2024. (TechCrunch)

What’s Not

🏦 Nubank cuts its investment advisory arm. The renowned neobank is shuttering advisory operations and terminating the team’s 40 employees as part of “small and one-off adjustments” under Brazil CEO Cristina Junqueira. Customer investment accounts will continue uninterrupted, though the company seems to be implicitly admitting that the advisory wing never found true fit. Nubank’s Reserva Imedieta fund, which was billed as a low-risk investment under the advisory team, has come under fire recently after it was revealed to contain Americanas shares that lost big in the recent bankruptcy. (Valor)

🚘 Uber Chile dodges responsibility for gig workers. Last week, Chile’s Senate passed the ‘Uber Law’, a follow-up bill to its 2022 legislation that strengthens gig worker protections. The new bill deems Uber and its rivals not only ‘digital service platforms’, but also ‘transportation apps’, adding new requirements like the provision of helmets, gloves, and backpacks to drivers. Uber has responded by dismissing old driver complaints while changing gig contracts, with new clauses stating that drivers are providing a “marketing and brand positioning service for the company”, attempting to circumvent the transportation angle in the new bill. Both laws are currently not under enforcement under a transitional grace period that lasts until 2025. (Rest of World)

Stat of the Week

LAVCA’s latest data confirms that, yes, fintech is still very much dominant in Latin America, making up 53% of VC investment in 2022. Within fintech, lending of all sorts – from classic credit cards to vehicle financing – is seeing a sort of Cambrian explosion, with a new flavour coming out each month.

But just how big is that explosion, and where are the new trends? PwC asked that question to Brazilian fintechs:

So what? In general, fintechs have seriously beefed up their credit offerings. Every lender is offering a much wider variety of lending – just see how the average of 2021’s red bars is much higher than 2019. In particular:

Secured credit and payroll loans are the new ‘thing’, as lenders look to find new ways to lend with a lower risk profile.
Certain niches have exploded: see vehicle finance, refinancing, credit cards, and student loans.
Unsecured credit is one to watch. Central bank data has shown that Brazilian household debt levels are reaching new peaks of up to one-third of household income. Unsecured credit is the most common and riskiest – not the mixture you’d want as the global economy stares down inflationary recession.

Smart Links

Inside the pitch deck that bagged climatetech Lemu an $8mn round (Business Insider)

If Mercado Libre were a country, it would be the 3rd largest in LatAm (Latinometrics)

Brazilian online grocery deliverer Diferente secures $3M to increase customers’ access to healthier food (TechCrunch)

All-time high 24mn Americans travelled to Mexico in 2022, 135% growth since 2019 (Whitepaper)

How the $3.9bn Americanas scandal has shaken corporate Brazil (Financial Times)

Deals (January 31 - February 6 , 2023)

M&A

🇧🇷 CRM&Bonus, a whitelabel customer loyalty platform, acquired 🇧🇷 Giver, another customer loyalty intelligence platform, for $6.4mn.

🇧🇷 HostGator, a web hosting platform, acquired 🇧🇷 DLoja Virtual, an e-commerce platform for micro online retailers. Financial details were not disclosed.

🇧🇷 Exact Sales, a CRM software, acquired 🇧🇷 Magic Write, an artificial intelligence-powered copywriting company. Financial details were not disclosed.

Funding

🇧🇷 Jokr, a rapid grocery delivery company, raised a $50mn Series C led by G Squared with participation from GGV, Tiger Global, and HV Capital.

🇲🇽 Minu, an employee wellness platform, raised a $30mn bridge round, comprised of $10mn in equity from Coppel Capital, Besant Capital, Enea Capital, FinTech Collective, QED, and Salkantay, and $20mn in debt from Accial Capital.

🇧🇷 Capitual, a crypto fintech that provides fiat currency onramps, raised a $16mn round from Azimut Capital.

🇲🇽 Beek, a Spanish-language audiobook platform, raised a $13mn Series A led by Lightspeed with participation from Greylock, Accel, and angels including Sam Altman (OpenAI), Dylan Field (Figma), Jorge Mazal (Duolingo), Sebastián Mejía (Rappi), and Alfonso de los Ríos (Nowports).

🇨🇱 Lemu, a climate conservation platform, raised an $8mn round from Arauco Ventures.

🇺🇸 Viva Translate, a LatAm-focused translation software focused, raised a $4mn seed led by General Catalyst.

🇧🇷 Diferente, an online grocery delivery company for “rescued” foods, raised a $3mn post-seed led by Caravela Capital with participation from Collaborative Fund, South Ventures, and Valor Siren Ventures.

🇧🇷 Newtail, an e-commerce data provider, raised a $1.7mn seed led by Big Bets with participation from Verve Capital, Prodigio Capital, and Norte Ventures.

🇦🇷 Nippy, a benefits platform for independent workers, raised a $1mn pre-seed co-led by IDB and the Córdoba Innovar y Aprender Agency with participation from Enlace, Boost, Venture Do, and Sandbox.

Ad hoc

🇧🇷 Tembici, a bike-sharing mobility company, raised a $31mn credit facility from Brazil’s Development Bank (BNDES). The company plans to expand manufacturing capacity.

🇨🇴 Tuhabi, a subsidiary of proptech Habi, raised a $21mn credit facility from BBVA Spark. The company plans to use the funds to expand its presence in Mexico.

Did I miss any deals? Let me know!