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Latin America’s search for unicorns unleashes a tech stampede

When Sebastián Kanovich co-founded the Latin American startup of digital payments Local in Montevideo in 2016, it cost him foreign investors to take him seriously.

“We had a lot of ‘no’ before we got the first ‘yes’. We were not only from Latin America, but from Uruguay, little known by the technology industry ”, he explained.

Five years later, the story is different. Local has been listed on the Nasdaq index in New York since June and is currently worth US $ 16 billion, thanks to alliances with companies like Amazon and Uber in 30 countries, while other Latin technology firms are joining the wave.

In the first nine months of 2021, Latino startups, from the Brazilian online lender Nubank to the Colombian courier company Rappi, raised $ 14.8 billion in new money, a 174% increase from last year, the researchers showed. data provided to Reuters by CBInsights.

The Latin American boom has caught the attention of some of the biggest names in private equity and venture capital, such as SoftBank Group Corp, General Atlantic and Sequoia Capital. Now Wall Street banks are looking to take advantage of the gold rush by listing more Latino “unicorns” in the United States.

At least ten Latin American tech startups, including Brazil’s apartment rental service QuintoAndar, as well as Mexico’s used car dealer Kavak and fintechs Clip and Creditas, are preparing initial public offerings (IPOs) for next year, they said. six sources with knowledge of the agreements told Reuters.

All sources requested anonymity as discussions about the planned debuts are confidential.

Kavak, QuintoAndar and Clip declined to comment. Creditas said it could not share any information about an IPO at this time.

Nubank, which has Warren Buffett’s Berkshire Hathaway Inc as an investor, is aiming for a valuation of more than $ 55 billion in an initial public offering in the United States in 2022, to become the most valuable financial institution in the region. Reuters in August.

Aspirations in the global market

The rise of Latin American unicorns, private firms worth at least $ 1 billion, is being fueled by an electronic services boom that accelerated during quarantines due to the pandemic, bank executives and settlement lawyers said.

“Companies in the region have matured in the last five years and now we believe that there will probably be between two and three Latin American technology IPOs per quarter by next year,” said Rodrigo Maldonado, executive director of Morgan Stanley in Brazil, referring to debuts. stock exchanges in New York.

While Latin America still lags behind Asia, Europe, and the United States in terms of volumes of tech startups, the widespread and growing use of smartphones, wireless networks, and payment cards has created immediate demand for new digital services.

Savvy smartphone consumers in the region have become increasingly comfortable with digital wallets and have even started making virtual doctor appointments using mobile apps.

That’s why venture capitalists are still minting tech unicorns in Latin America, and some more established startups are pushing US listing plans, despite the recent market sell-off that hit tech firms.

“If you look at the market from Latam now, it is quite surprising what could come from the region, not only from Brazil, but also from countries like Mexico, Colombia and Peru,” said Alex Ibrahim, director of International Capital Markets at the Stock Exchange. New York Stock Exchange.

“And several of those high-growth startups in those countries are betting on large global markets like the United States,” he said.

Many equity markets in Latin America are dominated by more traditional companies, such as banks and commodities firms, which is prompting startups to seek listing in the Northern Hemisphere. Tech companies account for less than 10% of the benchmark Bovespa index in Brazil, for example, while they make up almost a third of the S&P 500 index in the United States.

However, the days when Latino startups were seen as a cheaper entry point for investors than American ones are long gone. Most of the funding is now at valuations similar to those of its Silicon Valley rivals, investment bankers and venture capitalists told Reuters.

“I see multiples for startups in Brazil and Mexico as very similar to elsewhere, (especially) if the company has global growth aspirations,” said Martin Escobari, co-chair of US growth investor General Atlantic, which has a dozen startups. Latin America in your portfolio.

There are still challenges for tech companies to overcome in the region, including the engineering talent shortage.

General Atlantic estimates that Latin American universities train 40,000 software developers a year, well below the 100,000 it estimates the fast-growing tech sector needs annually. Other factors, such as political and economic instability, also make investors more cautious when looking for businesses that they believe will be resilient.

The region also has a history of boom-bust, as in 2014-2015, when several large investors pulled out after an economic downturn that doomed the prospects for several tech startups.

But investors with a lot of money, like SoftBank and Sequoia, are betting that this time is different and looking to make big profits with some initiatives. The staggering earnings are, in turn, inspiring a new generation of funders and tech investors.

“Tech companies first emerged in the region about 20 years ago, but only now are all the basic components in place: infrastructure, entrepreneurs, venture capital investors and capital markets,” General Atlantic’s Escobari said.

“Fintech” favored

Startups focused on financial technology, or fintech, are absorbing much of the financing with a share of 40% of the total composition in 2020, according to LAVCA, a private equity association in Latin America.

Many of them sell financial services to the “unbanked,” or those who cannot access traditional banking, and firms such as Brazil’s Nubank, C6Bank -which has the backing of JPMorgan- and SoftBank Creditas have benefited the most from it. investor interest.

With fintech technology in vogue, startups from other sectors such as Kavak and QuintoAndar have started offering financial services to consumers, including auto loans and insurance.

Sequoia only has two Latin American investments now, Nubank and Rappi, but Sonya Huang, a partner at the venture capital firm, said she planned to support one or two companies a year, in sectors such as finance, e-commerce, healthcare and education.

“The region is very different from the United States or Europe, but there are some great theses that have proven to be correct globally, such as digital banking or mobile banking, and they can be applied in the region,” Huang said.

The Japanese group SoftBank renewed its bets in Latin America with a Fund of US $ 3 billion last month, less than three years after launching its first regional fund. Since 2019, it has invested in approximately 50 Latina startups, said Alex Szapiro, SoftBank director for Brazil and operating partner. “Now, capital is basically a commodity for the region,” he declared.


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