Tech stampede as investors hunt Latin American unicorns

Oct 21 (Reuters) – When Sebastian Kanovich co-founded Latin American digital funds startup dLocal in Montevideo in 2016, he struggled to get international retailers to take him critically.

“It took us numerous No’s earlier than getting the primary Sure,” he advised Reuters. “We weren’t solely from Latin America, however from Uruguay, not identified for expertise.”

5 years on, it is a completely different story.

dLocal listed on the Nasdaq alternate in New York in June and is now price $16 billion, because of partnerships with the likes of Amazon and Uber in 30 international locations, and different Latino tech companies are driving the wave.

Within the first 9 months of 2021, Latino startups from Brazil’s on-line lender Nubank to Colombian supply agency Rappi raised $14.8 billion in new cash, a soar of 174% since final yr, information supplied to Reuters by CBInsights confirmed.

The Latino growth has caught the attention of among the largest names in personal fairness and enterprise capital equivalent to SoftBank Group Corp , Common Atlantic and Sequoia Capital. Now Wall Avenue’s banks need to faucet into the gold rush by taking extra Latino “unicorns” public in the USA.

A minimum of 10 Latin American tech startups together with Brazil’s condominium rental service QuintoAndar in addition to Mexico’s used-car supplier Kavak and fintechs Clip and Creditas are making ready preliminary public choices (IPOs) for subsequent yr, six individuals with data of the offers advised Reuters.

All of the sources requested anonymity because the discussions concerning the deliberate listings are confidential.

Kavak, QuintoAndar and Clip declined to remark. Creditas mentioned it couldn’t share any details about an IPO right now.

Nubank, which counts Warren Buffett’s Berkshire Hathaway Inc as an investor, is aiming for a valuation above $55 billion in a U.S. IPO subsequent yr to turn into the area’s most useful monetary establishment, in August.

GLOBAL ASPIRATIONS

The rise of Latin American unicorns – personal companies price not less than $1 billion – is being pushed by a once-in-a-generation web growth that has accelerated underneath pandemic lockdowns as extra customers transfer on-line, bankers and offers attorneys say.

“Corporations within the area have matured within the final 5 years and now we expect there’ll doubtless be between two and three IPOs by Latam tech corporations per quarter by subsequent yr,” mentioned Rodrigo Maldonado, govt director at Morgan Stanley in Brazil, referring to U.S. listings.

Whereas Latin America nonetheless lags Asia, Europe and the USA when it comes to volumes of tech startups, the widespread and growing use of smartphones, wi-fi networks and funds playing cards has created a prepared demand for brand new digital companies.

Smartphone-savvy shoppers within the area have turn into more and more snug with digital wallets and even beginning to make digital physician appointments with smartphone apps.

That is why enterprise capitalists are nonetheless minting tech unicorns in Latin America, and a few extra established startups are pushing forward with U.S. itemizing plans regardless of the current market sell-off that hit expertise shares.

“For those who have a look at the pipeline from Latam now, it’s fairly superb what might come from the area – not solely from Brazil, but additionally from international locations like Mexico, Colombia, and Peru,” mentioned Alex Ibrahim, head of Worldwide Capital Markets on the New York Inventory Change.

“And a lot of these high-growth startups from these international locations are betting on huge international markets like the USA,” he mentioned.

Many inventory markets in Latin America are dominated by extra conventional corporations equivalent to banks and commodities gamers, which is pushing startups to look north for listings. Tech companies account for lower than 10% of Brazil’s benchmark Ibovespa index, for instance, whereas they make up practically a 3rd of the S&P 500.

Gone are the times, although, when Latino startups have been seen as a less expensive entry level for buyers than U.S. ones. Most financing is now at valuations on a par with Silicon Valley rivals, funding bankers and enterprise capitalists advised Reuters.

“I see multiples for startups in Brazil and Mexico as similar to these elsewhere, (particularly) if the corporate has international progress aspirations,” mentioned Martin Escobari, co-president at U.S. progress investor Common Atlantic, which has a dozen Latin American startups in its portfolio.

There are nonetheless challenges for tech corporations to beat within the area, together with a paucity of engineering expertise.

Common Atlantic estimates Latin America’s universities prepare 40,000 software program builders a yr, far beneath the 100,000 it estimates the fast-growing tech sector wants yearly.

Different components such political and financial instability are additionally making buyers extra cautious when searching for companies they imagine will likely be resilient.

The area has a historical past of going from growth to bust too, equivalent to in 2014-15 when a lot of giant buyers pulled again following an financial downturn that doomed the prospects of a number of fledgling tech ventures.

However deep-pocketed buyers, equivalent to SoftBank and Sequoia, are betting this time is completely different, and are poised to rake in huge returns from some early bets. Eye-popping positive factors are, in flip, inspiring a brand new era of tech founders and buyers.

“Tech corporations first emerged within the area roughly 20 years in the past, however solely now all of the constructing blocks are in place: infrastructure, entrepreneurs, enterprise capital buyers and capital markets,” mentioned Common Atlantic’s Escobari.

FINTECH FAVORED

Startups targeted on monetary expertise, or fintech, are mopping up a lot of the funding with a 40% share of the general pot in 2020, in keeping with LAVCA, the affiliation for personal fairness in Latin America.

A lot of them promote monetary companies to the “unbanked”, or these unable to entry conventional banking, and Brazil’s Nubank, C6Bank, which is backed by JPMorgan , and SoftBank’s Creditas have benefited most from the investor curiosity.

With fintech in vogue, non-financial startups equivalent to Kavak and QuintoAndar have began providing monetary companies to shoppers together with automotive loans and insurance coverage.

Sequoia solely has two Latin American investments now – Nubank and Rappi – however Sonya Huang, a accomplice on the enterprise capital agency, mentioned it deliberate to again one or two corporations a yr, in sectors equivalent to finance, e-commerce, well being and training.

“The area could be very completely different from the U.S. or Europe, however there are some huge theses which have proved proper globally – like digital or mobile-first banking – and they are often utilized within the area,” Huang advised Reuters.

Japan’s SoftBank renewed its bets on Latin America with a final month, lower than three years after launching its first regional fund. Since 2019, it has invested in roughly 50 Latino startups, mentioned Alex Szapiro, SoftBank’s head of Brazil and working accomplice.

“Now, capital is mainly a commodity for the area.”

Reporting by Carolina Mandl in Sao Paulo and Anirban Sen in Bengaluru; Enhancing by David Clarke

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