The stampede of Latin American unicorn companies comes to the United States

It seems that the region has its own Silicon Valley.

According to Reuters, several companies from the region are preparing their IPOs on the U.S. stock market.

Data from CBInsights showed that in the first nine months of 2021, Latin American unicorn companies (including Mexico’s Kavak, Clip, Konfío and Bitso) raised $14.8 billion dollars in new investments, an increase of 174% from last year.

In fact, this 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 taking more Latino unicorns public in the United States.

Six sources with knowledge of the deals told Reuters that Latin American tech startups, including Brazil’s apartment rental service QuintoAndar, as well as fintechs Clip and Creditas, are preparing initial public offerings (IPOs) for next year.

According to Reuters, all sources requested anonymity as discussions about the planned listings are confidential.

However, the company Kavak clarified for Tec Review that they are “ruling out preparing an IPO for 2022. It’s a matter that doesn’t concern us at the moment and one that we don’t see in the short or medium term.”

In August, Reuters reported that Nubank, which counts Warren Buffett’s Berkshire Hathaway Inc. as an investor, is aiming for a valuation above 55 billion dollars in a U.S. IPO in 2022, to become the region’s most valuable financial institution.

A global market for Latin American unicorn companies

Bankers and deals said that the rise of Latin American unicorn companies – private firms worth at least 1 billion dollars – is being fueled by an electronic services boom that has accelerated during the quarantines caused by the pandemic.

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

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

New habits

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

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

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

So far, stock markets in Latin America are dominated by more traditional companies such as banks and commodity firms, which is prompting startups to seek a listing in the United States.

Tech companies account for less than 10% of the Brazil’s benchmark Bovespa index, for example, while they make up almost a third of the S&P 500 index in the United States.

A Latin American Silicon Valley

So, long gone are the days when Latino startups were seen as cheaper entry points for investors than American ones.

Most of the funding is now at valuations similar to Silicon Valley rivals, investment bankers and venture capitalists told Reuters.

“I see multiples for startups in Brazil and Mexico as being very similar to other places, (especially) if the company has global growth aspirations,” explained Martin Escobari, co-president of U.S. growth investor General Atlantic, which has a dozen Latin American startups as part of its portfolio.

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

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 going from boom to bust, such as in 2014-2015, when several large investors pulled out after an economic downturn that doomed the prospects of several tech startups.

But investors with a lot of money, like SoftBank and Sequoia, are betting that this time is different, and they are looking to make big profits with some initiatives.

The staggering earnings are, in turn, inspiring a new generation of tech funders and 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,” said General Atlantic’s Escobari.

The big winners

According to LAVCA, the association for private equity in Latin America, startups focused on financial technology, or fintech, are attracting many investors, with a total of 40% in 2020.

Many are for financial services to the “unbanked,” for those who can’t access traditional banking, and firms such as Brazil’s Nubank, C6Bank −which has the backing of JPMorgan− and SoftBank’s Creditas have benefited most from the interest of investors.

With fintech in vogue, startups from other sectors such as Kavak and QuintoAndar have started offering financial services to consumers, including car 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 it planned to back one or two companies a 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 some great theses that have proven to be right globally, such as digital banking or mobile banking, and they can be applied in the region,” Huang said.

Also, Japanese group SoftBank renewed its bets on Latin America with a fund of 3 billion dollars last month, less than three years after launching its first regional fund. (Carolina Mandl and Anirban Sen / Reuters)

SOURCE: tecreview.tec.mx

BY: tecreview.tec.mx

ILLUSTRATION: (Art: TecReview)

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