#012: What happened to VC funding in June?
Creditas and Kavak seek “defensive” growth, while El Salvador is getting creative with crypto
Hey technopolists,
With layoffs persisting, we’re now entering a new phase where the big dogs are looking for M&A and expansion. Be greedy when others are fearful, right?
Plus, the June VC funding numbers are in: less money, decent deal volume, and smaller cheques.
What’s hot
🏦 Buying growth. Creditas, the $4.8bn Brazilian consumer lending unicorn, has raised $200mn aimed at cheaply acquiring its way into new financial products in Brazil, rebounding from its Q1 layoffs. The first $50mn comes from Andbank, a global private bank and asset manager, in hopes of buying an existing Brazilian banking license from Andbank themselves; Creditas now gets a fast track to new lending products in a country known for challenging, incumbent-friendly licensing bureaucracy. The next $150mn is earmarked to buy Kzas, the home loan marketplace that connects developers to home buyers for financing. (Reuters)
🚗 Playing both sides. Kavak, the Mexican auto marketplace, has announced a two-pronged attack of offence and defence. The offence: expanding into Colombia, Chile, Peru, and Turkey — the first country outside of LatAm (see here for why Turkey). The defence: cost-cutting in core geographies like Mexico, Argentina, and Brazil. This announcement is incremental to the 150 Brazilian employees that Kavak laid off one month ago. (Bloomberg Linea)
⛓️ Crypto hype cluster. In the latest installment of the Central American crypto saga, El Salvador is launching a “Blockchain & Bitcoin Cluster”, a public-private initiative aimed at fostering blockchain innovation and investment. The programme is a partnership between the government, academia, and the private sector. While specific details in the first cluster haven’t been launched, current press releases hint at an incubator-style programme with the government’s press machine behind it. Bukele’s administration is keen to leverage the 2021 Bitcoin law as far as possible to attract investment, despite the controversy of his planned Bitcoin city and the perceived failings of his Bitcoin treasury bets. This initiative, of all the cryptocurrency pushes, seems the least risky and most familiar programme, though it will be years before any success could be assessed. (Bloomberg Linea)
What’s not
🥊 Double-dip pink slips. Loft, the Brazilian proptech unicorn, has laid off 380 employees (12% of its workforce) in its second round of layoffs this year. In April, Loft cut 159 employees, and the new cuts bring their total terminations to 540. Loft, whose platform aims to simplify homebuying and selling, faces rising interest rates and inflation that threaten transaction volumes in the housing market. (TechCrunch)
📉 New high-lows. June’s inflation figures came out, and they ain’t pretty. Mexico’s annual inflation rose to 8%, a 21-year high. Brazil rose to nearly 12%, and Colombia leapt to 9.7%, the fastest increase in 22 years. Chile surged to 12.5%, the highest level in 28 years. Yet no country is suffering as bad as Argentina: inflation rose to 61%, a 30-year high, prompting economists to revise their year-end forecast from 72% to 76%. The latest figures underscore the lack of impact that initial interest rate hikes have had on the macroeconomy, teeing up further rate hikes later this year. (Bloomberg Linea)
Stat of the week
So far in 2022, LatAm VC funding has been trending down (with an exception in May). June dropped to the lowest levels we’ve seen since the beginning of 2021.
Investment sizes have been getting smaller on average, but deal volumes are moving in the opposite direction. More fundraises were closed in June than any month in the past 12.
So what? As I’ve previously written, we’re seeing that investors are moving towards smaller, earlier stage investments. The mega-rounds (though still happening), are getting less mega and less frequent. The late pre-IPO stages, though, are thinning out. Recent inflation figures, growth forecasts, and interest rate expectations mean we should expect this to continue.
Smart links
The Pix Revolution: what’s next for the Brazilian instant payment app? (LABS)
Draft Chile constitution puts environment and indigenous rights at its core (FT)
Head of Vision Fund, which Handles SoftBank’s LatAm Funds, Steps Down (Bloomberg Linea)
Mexico & IDB launch $200mn programme to incentivise nearshoring (Bloomberg Linea)
How Latin American minimum wages changed in the first half of 2022 (Bloomberg Linea)
Argentina’s economy minister resigns because of political infighting (The Economist)
El Salvador’s risk rating is the worst in LatAm (Bloomberg Linea)
Latin America’s vicious circle is a warning to the West(The Economist)