Olá technopolists,
Founders and investors may be muscling their way through the startup ‘winter’, but shoppers seem buoyant. Two titans of retail — Mercado Libre and Shein — are putting large-scale initiatives into action swiftly, with large-scale expansion efforts bolstered by sector-beating growth numbers.
Yet all that spending might just bely a creeping threat: the looming spectre of consumer credit card debt. We take a look to see if the Ghost of Christmas Future is a credit crunch. Who ya gonna call?
What’s Hot
👷🏽♀️ Mercado Libre announced a 13,000 person hiring spree across Latin America as the next phase in its regional expansion efforts. The plan reveals MELI’s ambitions of becoming a logistical powerhouse: the vast majority of hires will be on-the-ground logistics (85%), with some reinforcements in tech roles (13%) and internal operations (2%). Most of the hires are concentrated in Mexico and Brazil — what we’d expect since its major expansionary investment announcements in each country ($3.6bn in Brazil and $1.6bn in Mexico). While international ecommerce platforms and logistics businesses saw slowdowns following the pandemic, MELI’s revenues increased 50%. (Bloomberg Linea)
🛍️ Shein will start manufacturing clothes in Brazil in the first major change for the retail giant since ex-SoftBanker Marcelo Claure stepped in as LatAm chairman and announced a $150mn investment into the country. Today, 70% of items purchased on the platform in Brazil are imported from China; Claure hopes to flip the ratio, aiming for 80% of Brazilian sales to also be manufactured in the country by 2026. The move marks the first time Shein’s famously low-cost production would occur outside of China in the company’s 15-year history. Claure stated that localised production in Shein’s second-largest market will be cheaper than Chinese importation — a gamble that’s far from guaranteed, according to some analysts. (Brazil Journal)
🏠 Habi, the Colombia-based property marketplace, raised a $100mn credit facility from Victory Park Capital. The company — Colombia’s second unicorn — will use to funds to continue expanding operations around Latin America. Liquidity is essential to the company’s capital-intensive business model: Habi purchases homes from sellers in 10 days or less, re-selling them to buyers 45-60 days later. At scale, debt is virtually the only vehicle it can use to grow its business at viable unit economics. This facility follows the modest $6.3mn credit facility Habi raised from Bancoldex in January. (Newswire)
What’s Not
💰 Brazilian fintechs face looming threats from ballooning credit card debt as defaults and delinquencies grow. Data from Brazil’s central bank tells an unnerving story of consumer financial distress: Brazilian household debt in Brazil hit 49% of annualised household income in February, while defaults rose to the highest levels since late 2016 (4.1%). What’s been perceived as positive, disruptive growth for fintechs in recent years now puts them in the greatest danger: credit card origination grew 72% in the last three years largely thanks to fintechs, which grew from 10% to 16% of credit card market share. They’ve often done that by lending to customers shut out of bank loans; as a result, half of fintech credit card debt belongs to riskier, lower income customers — twice the rate of traditional banks. The government is considering creating a working group of public and private sector leaders to address the threat. (Bloomberg)
🏷️ Mexico’s M&A activity registered a major decline as disclosed deal volume slid -80% YoY in Q1 and totalled $832mn. Deal count dropped -34%, with 71 deals completed in the quarter, as average deal size shrank. Geographically, Mexican companies seemingly preferred to invest abroad as they completed more deals in the US and Colombia than at home; by contrast, American and Spanish companies were most active in Mexican M&A, with 12 and 6 deals completed, respectively. The M&A trend follows similar venture capital activity declines across the region. (Forbes)
Stat of the Week
Brazil’s cautionary debt data certainly isn’t the only warning signal about the credit cycle.
In many countries, pandemic-era trends — both from public policies and private sector expansion — drove an increase in debt levels.
A huge question is what will become of consumer credit as the system feels increasing stress. What’s happening to household debt in Latin America’s largest economies?
So what? While Chile claims the highest household debt-to-GDP ratio, Brazil’s households have seen the fastest growth in recent years.
By itself, these debt levels are neither good nor bad. For comparison, healthy Western nations have vastly higher benchmarks: the UK, US, and Germany clocked in at 86%, 78%, and 57% in 2021, respectively.
Factually, the debt merely signals a rise in both supply and demand. The key questions are twofold: On the supply side, which lenders bear the most risk – and is it systemic? On the demand side, is the debt held out of bill-paying desperation or growth-oriented optimism?
The Rundown
📔 IMF Report: The Rise and Impact of Fintech in Latin America →
🔻 Santander gives Nubank a ‘sell’ rating and explains why its return on equity (ROE) is likely one-quarter of what the neobank reported →
🚚 Nubank customers will be able to use ‘NuPay’ as a payment method with iFood, paying directly from their bank accounts →
📺 Netflix lost 450,000 Latin American subscribers in Q1 2023 — the only region in the world to do so and a key driver behind its worse-than-expected Q1 global earnings →
🦄 KPMG’s Tech Report 2022-23 highlights some of the Colombian companies that could achieve a $1bn valuation →
😠 Disagreements between ex-SoftBankers Marcelo Claure and Paolo Passoni cast doubt on the future of their new fund, Bicycle Capital →
🇲🇽 A deeper look into why fintech has failed to make a dent in Mexico’s financial inclusion →
🗣️ An a16z partner discusses why Brazilian founders need to ‘brag more’ in their pitches →
🥑 Mexican grocery deliverer Jüsto launches ready-to-eat meals targeting Millennial office workers →
🔙 After raising $11mn, the ex-iFood founders of Mercê do Bairro are pausing and pivoting operations →
Deals (April 17-23, 2023)
M&A
🇧🇷 Security Ecosystem Knowledge (SEK), a cybersecurity platform, acquired 🇧🇷 CleanCloud, a cloud IT security startup, for an undisclosed amount.
Fundraises
🇧🇷 Take Blip, a cloud-based chatbot and enterprise messaging platform, raised a $70mn Series B from Warburg Pincus.
🇧🇷 Z1, a digital wallet for Gen Z, raised a $10.6mn round led by Homebrew with participation from Parade Ventures, Kindred Ventures, Y Combinator, MAYA Capital, Clocktower, Gaingels, Costanoa, Newtopia, SquareOne, and The Fund.
🇧🇷 Galactic Holdings, an ‘all-in-one’ cryptocurrency platform, raised a $10mn pre-Series A led by BAI Capital with participation from Animoca Brands, Y2Z Ventures, Longling Capital, Head & Shoulders, TKX Digital Group, Perseverance Capital, and Palm Drive Capital.
🇧🇷 Justos, an auto insurer, raised a $5.5mn round led by an undisclosed strategic investor with participation from MSR Capital.
🇧🇷 ZiYou, a subscription-based rental marketplace for sports equipment, raised a $4mn round from Bertha Capital.
🇧🇷 Scalable, a revenue-based finance provider for SaaS businesses, raised a $4mn round from SRM Ventures.
🇧🇷 BrandLovrs, a marketplace that matches influencers with brands, raised a $2mn seed led by Canary with participation from The Ventures City, Endeavor, 4Equity, and musicians will.i.am and J Balvin.
🇧🇷 Magroove, a music distribution platform for independent artists, raised a $1.6mn round from DOMO.
🇧🇷 Infleet, a logistics provider, raised a $1mn round led by Citrino Ventures with participation from DOMO, Bossanova, and angels.
Debt
🇧🇷 Brazil’s National Bank for Social & Economic Development (BNDES) launched a $4.2bn credit fund for microentrepreneurs and MSMEs.
🇨🇴 Habi, the residential real estate marketplace, raised a $100mn credit facility from Victory Park Capital.
VC Funds
🇧🇷 Indicator Capital closed a new $19mn tranche for its second fund, bringing the total size of the fund to $66mn.
🇨🇴 Alive Ventures, a VC fund focused on social inequality and climate initiatives, raised $20mn for its second fund, targeting an $80mn close.
🇧🇷 Santander is launching a corporate venture capital (CVC) fund focusing on fintech.
Technopoly Tip
If you’re a LatAm founder looking to learn more about how venture capital works, check out Natalia Gonzalez Vela’s blog, La Neta del VC. With years of experience as a VC at funds like SoftBank LatAm and Upload Ventures, she’s seen LatAm’s tech scene explode; now, she’s translating her expertise into rich, punchy (and free!) content for entrepreneurs. Each week, founders submit their VC-related questions and Natalia answers them in depth, both in Spanish and English. Subscribe here →
Simon Rodrigues is a consultant, writer, and speaker specialising in strategic storytelling for early-stage startups. Find more information about his services here.