LatAm Tech Weekly: The Backlog for Tech IPOs

This article is part of the LatAm Tech Weekly Series, written by Julia De Luca and powered by Nasdaq. Through Nasdaq’s global network, we partner with Latin American companies to support their entire business lifecycle to elevate their brand and access the global markets. Learn more about Latin American Listings here.

This week I had the honor of participating in an event called Identity Day, hosted by Caf, provider of identity tech solutions. It was the biggest gathering of identity, digital, fraud and compliance professionals in Brazil with +600 people and +250 companies participating – including Itau, Google, PicPay, Mastercad – and others. Great discussions and panels. Did you miss it? Registrations for next years are already open here.

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Opinions expressed here are solely my own and does not represent those of people, institutions, organizations that I may or may not be associated with in any capacity, unless explicitly stated.

On to the usual market update: Of course there were several developments in the SVB case during the week. HSBC UK acquired SVB U.K. for £1 ($1.21), in a deal that excludes the assets and liabilities of SVB U.K.’s parent company. In the U.S., as of the writing of this newsletter, no buyer has emerged yet. There was indeed spillover effects, the most important being Credit Suisse, which was also bought by UBS to avoid further crisis. Several news outlets released good reports on the theme. The “What Did I learn from readers” section this week will be focused on some of these pieces, as I received them from you! Also take a look at the SXSW highlights as the event comes to an end.

Now, moving on to the tech focused world and VC landscape. The timeline we all know: 2020 the pandemic hit, the Fed responded by lowering rates and injecting money in the economy thus leading to an atmosphere of irrational exuberance with sky high valuations. This, in place, encouraged companies to expand their operations because money was easy. Several tech companies went public at very high valuations. In 2021, inflation started to appear. The Fed then raised rates in 2022 and the party was over. Now, in 2023 – it seems like stability is appearing in the horizon. What to expect going forward? Pitchbook’s most recent Q1 2023 Quantitative Perspectives was the best read of my week as it shows how the pieces might be put back together after such wild ride.

Looking at price to sales multiple of VC backed companies that went public, valuations have come down significantly from their peak in 2021 (21x). However, over the last few months, they appear to have stabilized around the 4x. Naturally, what happens is that valuation multiples influence how open or closed the IPO window is for companies looking to enter the public markets. Currently, these low multiples have been keeping the IPO window and exists below historical levels. If you look sector by sector, most segments are below their short-term trend. Energy and transportation are bright spots in the VC ecosystem, and software is experiencing the worst short-term slowdown in activity. Even though the graph below shows exits in the U.S., the latter is true for Latin America too. With that, the backlog for IPOs to come is increasing significantly.

As the optimist you all know I am, there is indeed good news. The difference between the estimate and the number of actual IPOs, tells us potentially the size of this backlog. And, currently, the number of pent-up public listings has likely peaked. When public listings start to pick up again, it may take many months or years to clear this backlog!!! The graph below shows what has happened historically and how we are now. All we need, is for the window to open:

Naturally, startups and founders are extending their runways, cutting costs, and as mentioned last week – the environment is indeed more investor friendly. Late stage / Growth were the most affected, even more considering that all startups are experiencing a pullback by nontraditional investors, which have supported the market in recent years. If we look at capital demand to supply by industry, late-stage software is struggling the most, while early stage healthcare and pharma are relatively better capitalized.

Tough times – but it will pass. Of course note that these are generalizations & assumptions are based on the published report by Pitchbook. As I always say, good companies, will be good companies and micro fundamentals speak louder every time despite the macro enviornment.

p.s. – I changed a bit the format this week. Feedback is very welcome!

Monday

General news:

• Numbers show that Brazilians were the biggest nationality present in the SXSW event – after the U.S.

• General Atlantic increased their investment in Locaweb (LWSA3). Slowly, the PE/Growth firm is establishing a sizeable position. It started at 4.9%, then increased to 11%. Now, it owns a 15.10% stake in the Brazilian company and a board seat.

• After the SVB case, Brazilian fintech Trace Finance has reportedly added an estimated $1.5 billion in new customer accounts to their waitlist. According to TechCrunch, startups such as Rocket.chat, MercadBitcoin and Rentbrella have all signed up for the new banking service.

• Nubank, Inter and Meli reported that they had no exposure in SVB.

Deals:

• Brazilian Jungle, a web3 mobile gaming company, raised a $6mn seed co-led by Bitkraft and Framework Ventures. The company develops and publishes hybrid games that are mobile first and blockchain-enabled.

• Toku, a payments platform from Chile, raised a $7mn round led by F-Prime Capital. The company provides recurring payment solutions to automate collections and facilitate payment processes.

• Lizi, marketplace that digitalizes and centralizes good and service rental businesses from Colombia, raised a USD100k seed round from Techstars Miami.

• Mercately, messaging application that offers customer relationship management (CRM) with omnichannel communications that help small and medium enterprises (SMEs) increase their sales based in Ecuador, raised USD100k seed round from Techstarts Atlanta.

Tuesday

General news:

• Zippi, Brazilian fintech focused on the self-employed population, grows 9x and plans to double its credit volume this year. In 2022, the company released BRL 275m in credit in 500k transactions.

• Stark Bank, Brazilian neobank announced that they obtained a net profit 12x higher in 2022 when compared to the previous year, to US$ 6.6 million. Q4 2022 saw a 3.6x growth in net income, with US$ 2.02 million in the period. In addition, the ROE (return on equity) — an indicator that measures the company’s ability to generate value on the capital invested initially — increased by 157% YoY.

• Straight from SXSW: Brazilian Educbank wins the People’s Choice award.

• Stone reported good, above-expectation 4Q22 results today after the close. Adjusted net income came in at BRL 235 million (vs. BRL 163 million in 3Q22), beating estimates on higher revenues and a sequential reduction of financial expenses. 

Wednesday

General news:

• Alterdata Software, Brazilian ERP based in Rio, ended 2022 with USD338 million in revenue, a 44.5% growth compared to the previous year.

• HR Gupy announced the opening of its new office space in São Paulo. The hub will also be available as co-working space for partners of the startup, as it continues with its trajectory of becoming a full HR platform.

• Traditional real-estate company Lopes announced a partnership with Quinto Andar. With the partnership, the companies will share registration data of ready-made properties available for sale and purchase and for lease on the respective platforms. Together, the companies have more than 400,000 properties advertised for sale and for lease. Combined their websites receive more than 30 million hits per month.

• PagSeguro received the authorization from the Brazilian Central Bank to create PagInvest Corretora de Títulos e Valores Mobiliários.

• Latitud announced the launch of Meridian, fintech that has business account focused on venture-backed startups in Latin America with an offshore holding company structure — specifically a Cayman Sandwich or a Delaware Tostada (Delaware LLC holding company). The product is currently available to founders in Brazil, soon to be available for Mexican and Colombian founders.

• BHub — the first backoffice as a service company in Latin America — announced a new business line based on a partnership with accounting firms. The startup will start out with its first strategic alliance with WellsCo., one of the largest accounting firms in the country with a strong presence in SMEs. BHub plans to quadruple its customer base by the end of the year.

Deals:

• Stripe announced a $6.5 billion+ round of funding at a $50 billion valuation – marking this Series I fundraise the largest-ever US equity private placement. It was backed by Andreessen Horowitz, Baillie Gifford, Founders Fund, General Catalyst, MSD Partners and Thrive Capital. They also announced a partnership with generative AI startup OpenAI to integrate each other’s products into their respective platforms.

• Climate Box, company that offers farmers and agricultural companies a toolkit for frost risk management, including a software that predicts frosts and educational tools based in Uruguay, raised a pre-seed round of USD300k with Label Investments, The Yield Lab, and Undisclosed Angel Investors.

• Ahgora, Brazilian company that develops equipment for time attendance integrated into a SaaS management application specially designed for the regulated Brazilian market, announced a transaction with Spectra.

• Quality software, firm that specializes in IT solutions from Brazil, also announced a transaction with Spectra.

• Sky.one, company that develops a suite of solutions for cloud computing and migration as well as an IT consultancy firm, also announced a transaction with Spectra.

Thursday 

General news:

• Web Summit Rio should lead to a capital injection of BRL1.2bn in Rio de Janeiro.

• Mercado Livre has announced a record investment of BRL 19 billion in their Brazilian operations – despite the difficult moment for retail. The areas of technology, logistics, advertising and Mercado Pago will be the main beneficiaries.

• E-commerce sales hiked 43% during the “Dia do Consumidor” or “Consumers Day” in Brazil. The greatest hikes YoY were seen on travel (178%) and entertainment (111%).

• Life after SoftBank: Claure, Passoni, Nyatta team up to build a new fund called Bicycle Capital focused on Latin America. The three are expected to meet and start operations as soon as respective non-compete agreements end.

Deals:

Friday

General news:

• Microsoft held an online presentation to unveil a revolutionary offering: Microsoft 365 Copilot, a natural language interface that will be integrated with the company’s Office 365 suite of popular applications, which includes Word, Excel, PowerPoint, Outlook and Teams. See link below on the what am I watching section.

Deals:

What did I learn from readers?

Amidst the SVB case, I received from a colleague from work the notes from CB Insights on the SVB aftermath:

According to the reports, SVB was more than a bank to the tech sector. Below information all from CB Insights reports mentioned above.

”Over 40 years, it had developed a product suite tailored for the industry—mortgages to executives, credit lines for VC funds to keep capital flowing, and venture debt to startups. It also wasn’t limited to US startups, with offices around the world. In its Q4 earnings, SVB noted that it was a banker for 50% of the tech and life sciences startups in the US.

The event will likely lead to a quicker bifurcation between the winners and the rest, as equity and debt are increasingly reserved for companies built on strong fundamentals, rather than the high CAC models of the past few years.”

• SVB was one of the most active venture debt lenders.

• With over 2,600 fintech clients, Silicon Valley Bank is a lender, banking partner, and payments technology provider. 

Implication 1: Valuations have much further to fall and down rounds will become more common:

Implication 2: Startup mortality will increase

Implication 3: Layoffs at startups will intensify

What am I reading?

What am I watching ?

• Release of Copilot – The Future of Work with AI: Quite Impressive

  Leveraging the latest tech from OpenAI, including GPT-4, Microsoft launched new AI-powered features across its suite of productivity tools under the brand Copilot. Copilot handles different tasks depending on the app in which it’s used. For example, in Word, Copilot writes, edits, summarizes and generates text; in PowerPoint and Excel, Copilot turns natural language commands into designed presentations and data visualizations; and in Power Apps, Copilot helps refine ideas for low-code software. Source: TechCrunch

SXSW Insights (sources: ItauBBA & The Drum)

• AI, psychedelics and web3 shine bright at SXSW 2023

• Web3: backburnered, but not forgotten:

  In 2022, web3 – commonly described as the next evolutionary phase of the internet, in which information is stored and shared via blockchain technology – was to a very large degree the center of attention across adland.

• Psychedelics are on the tips of everyone’s tongues (metaphorically speaking)

  Psychedelics like psilocybin and MDMA have become a media darling over the past couple of years, as the research surrounding this class of drugs has continued to demonstrate their enormous therapeutic potential.

• Creating a happy and healthy marriage between humans and AI:

  Given how steeped popular culture has been in films, TV shows and novels that envision apocalyptic AI scenarios, people can be forgiven for being a bit nervous about how new and remarkably impressive AI models like ChatGPT are going to evolve. Are these really just benign tools? Or are we creating a technology that – as Elon Musk has famously warned – could be more dangerous than nuclear weapons?

Quote of the week:

“The age of AI is upon us, and Microsoft is powering it. We are witnessing nonlinear improvements in the capability of foundation models, which we are making available as platforms.” Satya Nadella, Microsoft CEO

Originally published on my Substack.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.