SPECIAL #005: VC funding drops in April - plus, a Salvadoran debt default?
The global slowdown is hitting LATAM tech, but that hasn't stopped mega-rounds from minting new unicorns
Hey technopolists,
Welcome back. This has been an extreme week in tech, with two new unicorns getting announced amidst the backdrop of crypto craziness and declining VC funding.
Since crypto markets convulsed last week, I’ve put together a special update on the aftershocks being felt in LATAM, from El Salvador’s Bitcoin woes to Coinbase’s Brazilian retreat and Chile’s cautiousness. Scroll on for more.
What’s hot
🦄 New unicorns on the block. Two companies have been minted unicorns in LATAM last week. Habi, the Colombian proptech platform, raked in a $200mn Series C to become Colombia’s second unicorn after Rappi. Further south, the Brazilian banking-as-a-service platform Dock raised $110mn and secured a $1.5bn valuation. (Bloomberg Linea, 1,081 words)
👭 Microfinance for women founders. Sicredi, a Brazilian financial cooperative, has announced a $100mn credit line to fund small- and medium-sized enterprises with at least 50% female ownership. The funding comes from a global banking consortium, including the World Bank’s investment arm, who hopes to serve 15-20k entrepreneurs with the debt facility. (LABS News, 423 words)
☀️ Brazilian solar power. Solfácil, the Brazilian environmental fintech, has bagged $100mn in a Series C fundraise led by QED. The company aims to increase solar power popularity amongst Brazilians by providing a marketplace for solartech hardware alongside lines of credit to businesses that want to deploy it. According to a third party consultant, Solfácil (translating to “easy sun”) is the third largest solar energy financier in Brazil, only behind big banks Banco Votorantim (BV) and Santander — with the funding, they hope to become the largest. (LABS News, 773 words)
What’s not
💰 Venture funding cools. Total VC funding in LATAM dropped -35% in April compared to a year ago. What’s more, April’s figures were a -12% decline over March — normally, funding increases from Q1 to Q2 before peaking around the summer holidays in Q3, so the April drop shows that investors are highly cautious. Even Sergio Furio, founder of unicorn fintech Creditas, has piped up to warn founders that LATAM valuations are being slashed. (LABS News, 614 words)
👭 Underinvestment in women founders. A recent report by Harlem Capital demonstrated that all-women teams comprised 4% of companies and received 0.2% of venture funding in 2021. Mixed gender teams comprised 12% of the sample and received 23% of funding, with the remaining going to all-men teams. (Harlem Capital, 1,226 words)
📊 Rattled Nubank investors. On the back of global uncertainty and inflationary concerns, the stock price of the Brazilian bank has slid to its lowest point since IPO last December. Investors are concerned that 90% of the company’s stock (worth $26bn) is held by employees who currently can’t sell because of their IPO lockup; however, those shares hit the market this week when the lockup ends on May 17th. Nubank’s market cap has lost a third of its value since their IPO. (Bloomberg, 773 words)
Stat of the week
The OECD has released their latest Better Life report, which includes a work-life balance index that scores each country from worst (0) to best (10) based on citizen responses in those countries.
Within LATAM, Brazil and Chile rank the best for work-life balance. Mexico, Costa Rica, and Colombia rank the worst — not only in LATAM, but amongst all the countries surveyed.
For context, Italy ranked the highest, scoring a 9.4.
Source: OECD via Bloomberg Linea
For the culture
Rest of World launched their inaugural list of the Top 100 Global Tech Changemakers, a who’s-who of founders and investors who have shaped emerging markets. The list covers unicorn-makers like Cristina Junqueira (Nubank), Sergio Fogel (dLocal), Simon Borrero (Rappi), Pierpaolo Barbieri (Ualá), and Maria Paula Arregui (Mercado Pago). (Rest of World)
A handful of Mexican fintechs are on the back foot after the bureau in charge of financial fairness received customer complaints of intimidation, abuse, and death threats. The complaints relate to the rogue tactics employed collections agents who have gone outside the law to recoup unpaid debts on behalf of startup lenders like Stori. The evidence turned over to the bureau read like the script from a crime drama: “everyone gets a bullet”. (El Universal, 752 words - Spanish)
SPECIAL: Bitcoin blunders, bullish Bukele, and crypto-cautiousness
Crypto markets were shooketh last week.
It’s no surprise that Bitcoin has been sliding since Christmastime, but the world’s most popular cryptocurrency hit a new low last week when it dropped below $27k, less than half of the $65k peak it reached back in November 2021.
What happened next shook markets further: TerraUSD, a stablecoin pegged to the US dollar, did the unthinkable and became unpegged. The ensuing crash saw it lose 98% of its value in a matter of hours due to an algorithmic issue.
Days later, Coinbase’s deal to acquire Mercado Bitcoin, Brazil’s largest crypto exchange, got scrapped. Coinbase’s revenue dropped -27% in Q1 compared to last year and missed analysts’ consensus estimates by $330mn, and the ensuing stock price slide brought their market cap down to ~$12bn, a steep drop from their peak at $75bn.
Terra’s implosion, Bitcoin’s devaluation, and Coinbase’s backslide have been a gut check to the crypto-curious. Central banks around the world are reconsidering a lingering question: is the lack of regulation and volatility of digital currencies a threat to traditional institutions and the real economy?
El Salvador, led by President Nayib “Bitcoin” Bukele, has provided one early answer: yes, it can. Last September, the Salvadoran president began converting the country’s capital reserves into Bitcoin in the lead up to Bitcoin’s adoption as legal tender. Bitcoin bulls cheered both decisions as prices surged to their peak in November.
But since then, Bitcoin has caused more headaches for hodlers. When it reached its $27k low last week, Bukele’s Bitcoin position amounted to a -28% net loss for El Salvador.
With the price slide, Bukele is facing increasingly dire straits. El Salvador is due to repay $800mn in loans to the IMF next January, and on the back of the Bitcoin slide, credit rating agencies Fitch’s and Moody’s have downgraded Salvadoran debt to junk status with a high likelihood of default. While Bitcoin isn’t the sole reason for El Salvador’s debt struggles, it is certainly a key driver that the IMF has consistently criticised; today, total Bitcoin losses are roughly equivalent to the $800mn debt payment.
Bukele’s response? Double down on Bitcoin.
But Bukele’s brazen bullishness isn’t shared as zealously around the continent.
The recent DeFi debacle has spooked Chile’s central bank enough to delay their decision to issue a “digital peso”, a project they had began scoping last September and hoped to decide on early this year. They have previously acknowledged that a digital currency could improve payments systems, mitigate risks like theft and fraud, and increase ease of use. While big banks like Nubank and Banco Galicia are speeding up their crypto offerings, Chile is taking the slow lane.