(Corrects the number of Sequoia investments in paragraph 30)
(Reuters) – When Sebastian Kanovich co-founded Latin American digital payments startup dLocal in Montevideo in 2016, he struggled to convince global retailers to take him seriously.
“It took a lot of no before we got the first yes,” he told Reuters. “We weren’t just from Latin America, but from Uruguay, not known for the technology.”
Five years later, that’s another story.
dLocal is listed on the Nasdaq Stock Exchange in New York in June and is now worth $ 16 billion, thanks to partnerships with Amazon and Uber in 30 countries, and other Latin American tech companies are riding the wave.
In the first nine months of 2021, Latin American startups from Brazilian online lender Nubank to Colombian delivery company Rappi raised $ 14.8 billion in new money, a jump of 174% since the year. last, according to data provided to Reuters by CBInsights.
The Latin 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. Today, Wall Street banks are looking to profit from the gold rush by bringing more Latino âunicornsâ into the United States.
At least 10 Latin American tech startups, including Brazilian apartment rental service QuintoAndar, along with Mexican used car dealer Kavak and fintechs Clip and Creditas are preparing initial public offerings (IPOs) for the year next, six people with knowledge of the agreements told Reuters.
All sources requested anonymity as discussions of planned registrations are confidential.
Kavak, QuintoAndar and Clip declined to comment. Creditas said he could not share any information about an IPO at this time.
Nubank, which counts Warren Buffett’s Berkshire Hathaway Inc as an investor, is targeting a valuation of over $ 55 billion in a U.S. IPO next year to become the region’s most valuable financial institution, Reuters reported in August.
Boom in transactions in Latin America
The rise of Latin American unicorns – private businesses worth at least $ 1 billion – is driven by an internet boom unique in a generation that has accelerated under pandemic lockdowns as more and more people buyers are moving online, according to bankers and specialist lawyers.
âCompanies in the region have matured over the past five years and now we think there will likely be between two and three IPOs by Latam tech companies per quarter by next year,â Rodrigo said. Maldonado, executive director of Morgan Stanley in Brazil, referring to American Lists.
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 mobile cards. payment created an immediate demand for new digital services.
Smartphone savvy consumers across the region have become increasingly comfortable with digital wallets and are even starting to make virtual doctor appointments with smartphone apps.
This is why venture capitalists keep hitting tech unicorns in Latin America, and some more established startups are pushing forward with the US listing plans despite the recent market selloff that has hit stocks. technological.
âIf you look at the Latam pipeline now, it’s pretty amazing what could come from the region – not only from Brazil, but also from countries like Mexico, Colombia and Peru,â said Alex Ibrahim, head of international capital markets at the New York Stock Exchange.
âAnd a number of these high growth startups from these countries are betting on big global markets like the United States,â he said.
Many stock markets in Latin America are dominated by more traditional companies such as banks and commodities players, leading startups to look north for listings. Technology companies, for example, represent less than 10% of the Brazilian benchmark Ibovespa, while they represent almost a third of the S&P 500.
Gone are the days, however, when Latin American startups were seen as a cheaper entry point for investors than Americans. Most financings now have valuations on par with rivals in Silicon Valley, investment bankers and venture capitalists told Reuters.
“I consider the multiples for startups in Brazil and Mexico to be very similar to those elsewhere, (especially) if the company has global growth aspirations,” said Martin Escobari, co-chairman of the investor at American growth General Atlantic, which has a dozen Latin American startups. in his wallet.
There are still challenges for tech companies in the region, including a shortage of engineering talent.
General Atlantic estimates that universities in Latin America train 40,000 software developers per year, well below the 100,000 it estimates the rapidly growing technology sector needs each year.
Other factors such as political and economic instability also make investors more cautious when looking for companies they believe will be resilient.
The region also experienced a period of boom-busting boom, such as in 2014-2015 when a number of large investors pulled out following an economic downturn that doomed the prospects for several nascent tech companies.
But deep-pocketed investors like SoftBank and Sequoia are betting this time around is different and are ready to reap big returns on some early bets. Staggering gains in turn inspire a new generation of founders and technology investors.
“Tech companies first appeared in the region about 20 years ago, but only now are all the building blocks in place: infrastructure, entrepreneurs, venture capitalists and capital markets.” , said General Atlantic’s Escobari.
FinTech or fintech-focused startups are mopping up much of the funding with a 40% share of the overall pot in 2020, according to LAVCA, the association for private equity in Latin America.
Many of them sell financial services to the ‘unbanked’, or to those without access to traditional banking services, and Brazilian Nubank, C6Bank, which is backed by JPMorgan, and SoftBank’s Creditas have the more benefited from investor interest.
With fintech in vogue, non-financial startups such as Kavak and QuintoAndar have started offering financial services to consumers, including auto loans and insurance.
Sequoia has only made half a dozen investments in Latin America – including Nubank and Rappi – but Sonya Huang, a partner of the venture capital firm, said it plans to support one or two companies per year. , in sectors such as finance, e-commerce, health and education.
“The region is very different from the United States or Europe, but there are big theses that have been proven to be correct on a global scale – like digital or mobile banking first – and they can be applied in the region, âHuang told Reuters.
Japan’s SoftBank renewed its bets on Latin America last month with a $ 3 billion fund, less than three years after launching its first regional fund. Since 2019, it has invested in around 50 Latin American startups, said Alex Szapiro, director of SoftBank in Brazil and operating partner.
âNow, capital is basically a commodity for the region. “
Reporting by Carolina Mandl in Sao Paulo and Anirban Sen in Bengaluru; Editing by David Clarke