The comeback king of the tech winter
#049: Investment levels and valuations keep getting axed. Who is bucking the trend?
Hola technopolists,
The first quarter of the year is behind us, and there’s one thing on everyone’s mind: valuations.
For a generous view of market trends, you can take a leaf out of SoftBank’s bullish book. LatAm Fund managing partner Juan Franck said last week in an interview that the fund’s $7.6bn of investments have been marked down a mere -15%. Franck is even optimistic about IPO markets, hoping for exits as soon as the latter half of 2023.
But the public market view on the worth of Latam tech is highly pessimistic. Across the board, stocks are down over 50% from their 2022 highs with hardly a trickle of optimism. Investment data from Q1 paints a harsh picture of global VC and an even harsher view from Latin America. More on both of these topics below.
What’s Hot
🚚 Rappi announced its acquisition of Box Delivery, a Brazilian last-mile delivery service, for an undisclosed amount. Box provides B2B delivery service for a variety of restaurants and retailers around the country, drawing in $40mn of revenue last year from its 150k customers. Through the deal, Rappi is taking on iFood head-to-head. The company touts the acquisition as its largest ever — a slightly overblown truth, since the company itself admits that M&A activity is not a core part of its playbook. (Bloomberg)
🏪 The identity of Walmart Mexico’s acquisition target has finally been revealed. Per reports from Forbes, Walmart has purchased Trafalgar, a licensed electronic payment entity (IFPE) under Mexico’s Fintech Law. The acquisition was originally announced weeks ago as part of Walmart’s expansion into financial services, though the name and value of the target were not diclosed. Now, Walmart has regulatory freedom to expand its consumer payments offerings, from digital wallets to P2P payments. This isn’t the Americans’ first fintech rodeo in Mexico: the company grew and sold a bank to Carlos Slim’s Inbursa in 2015 before re-launching bill payment services and credit cards in 2018. Now, the company plans to intensify competition with FEMSA and Oxxo, hoping to replicate the latter’s breakout fintech success through Spin. (Forbes)
🏦 A new study shows that Brazilian neobanks and fintechs have made significant inroads against traditional institutions in the past two years. The study, conducted by Distrito, estimates that 70% of Brazilians have accounts in both a traditional bank and a neobank, up from 37% in 2020. Now, only 21% of Brazilians only have an account in a traditional bank, down from 57% two years ago. Yet digitalisation is still in its very infancy: only 8% of Brazilians interact with an open finance integration, and 81% of consumer loans are still made by traditional banks. (Startupi)
What’s Not
🔻 Latin American venture investment plummeted further in March, with investment levels at historic lows for the past 5 years. According to data from Sling Hub, regional investment volume in March reached $245mn, an -83% decline from the prior year; deal count slid -48% as round sizes shrank. Brazil’s picture is even less rosy: investment volume collapsed -92% YoY, with Brazil slipping from half to one-third of regional deal activity. Compared to the world average, Latin America is lagging: per data from Crunchbase, global investment levels in Q1 2023 declined -53% over the prior year, with drops of 40-50% at each investment stage. (Sling Hub)
😥 dLocal posted disappointing Q4 results, with share price down -25% on the back of cooling revenue growth (+6% QoQ) and slipping profits (-18% QoQ). Despite strong growth in total payments volume (+21% YoY), revenue missed consensus estimates and profit was under pressure from a number of factors: unfavourable mix shift to lower-revenue products, $5.6mn lost from FTX exposure, team expansion, and $2mn in legal fees related to a shortselling report. While 2022 was a strong year overall and the company gave good guidance for 2023, investors are less confident that dLocal can bounce back to justify its P/E ratio of 36. Let’s not forget the company hasn’t yet dispelled Muddy Waters’ looming fraud allegations. (Reuters)
Stat of the Week
dLocal’s earnings report puts focus back on public markets. They’ve had a rough go, but how do other regional tech unicorns stack up amidst the tech winter?
So what? In general, LatAm tech darlings fell faster and further than their US counterpart: over the course of 2022, this group of LatAm darlings lost an average of 55% in market cap; meanwhile, the US tech ETF had (only) lost 35%.
dLocal has experienced one of the most tumultuous rides, yet is not the worst performer among its peers. The Muddy Waters report sent share price down -40% in a single day, but a two-pronged attack in December clawed back some terrain: its tepid rebuttal of Muddy Waters’ claims and a $100mn share buyback programme combined to lift shares 15% on the announcement. But that lift was shortlived, with its latest earnings report dampening spirits.
Mercado Libre is in a league of its own. The company has outperformed analyst estimates consistently since the back half of 2022, thanks largely to the lightning growth of its fintech division. Yet its share price really hit overdrive early this year, surging 50% since January – for comparison, that’s twice as fast as US tech ETF (25%). Consensus analyst outlook has been hugely positive, especially on the back of massive investments (see also: last month’s $1.5bn Mexican expansion announcement).
The Rundown
🤑 A small-scale survey of Brazilian entrepreneurs shows that reputation and brand are the two most important factors in selecting a VC; Kaszek, Monashees, and Astella had the most respected brands →
⛓️ Latin America’s largest investment bank, BTG Pactual, is launching its own dollar-pegged stablecoin →
🌐 Brazil’s securities exchange commission says that most fixed-income tokens are securities, prompting surprise and backlash from the crypto world →
🚴🏽 Uber and Tembici are partnering to launch bicycle and e-bike services around Latin America →
🇧🇷 Brazilian startups discuss their focus on achieving profitability ahead of any IPO ambitions later this year and into 2024 →
🏍️ CEO of Vammo (formerly Leoparda) discusses why Brazil is the first stop in the Latin American electric motorcycle market →
👮🏽 Prisoners in Argentina are learning how to develop video games as a path back into the workforce after incarceration →
Deals (April 4-10, 2023)
M&A
🇨🇴 Rappi, the delivery platform, acquired 🇧🇷 Box Delivery, a last-mile delivery company, for an undisclosed amount. It is Rappi’s largest acquisition to date.
🇺🇸 Walmart, the retail juggernaut, acquired 🇲🇽 Trafalgar, a licensed electronic payment entity (IFPE), for an undisclosed amount.
🇧🇷 Grupo Exame, the media conglomerate, acquired 🇧🇷 Witseed, a B2B educational platform, for an undisclosed amount.
🇧🇷 Edevo, a corporate edtech focused on developing soft skills for professionals, merged with 🇧🇷 Weird Garage, an edtech consultancy for corporate culture.
Fundraises
🇧🇷 Z1, a digital wallet for teenagers, raised a $10.6mn round co-led by Homebrew, Parade Ventures and Kindred Ventures with participation from Y Combinator, MAYA Capital, Clocktower, Gaingels, Costanoa, Newtopia, SquareOne and The Fund.
🇧🇷 Assis, a virtual assistant for the self-employed, raised a $5.4mn seed from Costanoa, MAYA, Canaan, Norte Ventures, Latitud, FJ Labs, K50, 1616, BFF, and angel investors.
🇧🇷 IZA Seguros, a digital insurer, raised a $3.6mn round from a consortium of undisclosed investors.
VC Funds
🇧🇷 XP launched a $40mn holding company that will purchase and consolidate networks of medical clinics.
🇬🇧 Diversity VC, a mission-driven organisation that promotes diversity and inclusion in VC, is launching its first LatAm chapter.