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.
Today, we’re delving into a range of pressing topics that are reshaping the landscape of the VC market. From secondary deals to the valuation of enterprise SaaS companies, and from fintech investments to the leading contenders for U.S. IPOs this year – these compelling themes have captured my attention and deserve a closer look. While I’ll be providing a brief overview of each, I encourage you to explore the original articles for a deeper understanding of these critical developments.
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Secondary Deals in the VC Arena
As we kick things off with the secondary market, Pitchbook recently released an intriguing insight on this subject. In the face of a challenging market, venture capitalists are increasingly drawn to secondary deals, birthing novel strategies for acquiring stakes in startups at discounted rates. Launchbay Capital, known for its investments in prominent B2B software firms such as Klarna and Monday.com, both based in the UK, has launched a fund specifically tailored to this approach. The fund is geared towards providing liquidity to General Partners by purchasing shares in growth-stage companies, and it has successfully secured over 25% of its $100 million target in its initial phase.
The secondary market has seen a surge in activity, driven by early-stage investors and family offices looking to liquefy assets and deliver returns to Limited Partners. Over the past 18 months, a diverse array of investors has flocked to this market to bolster liquidity levels.
Furthermore, despite several recent IPOs, the backlog for VC-backed companies remains substantial, and navigating the market continues to be a tough feat. In an effort to combat overinvestment in the venture capital domain, Limited Partners are offloading stakes in entire VC funds through the secondary market.
Enterprise SaaS Valuations in Focus
Shifting focus to the valuations of Enterprise SaaS, according to the recent Clouded Judgment by Jamin Ball and another note by Pitchbook, the Enterprise Value (EV)/Revenue multiples in the enterprise SaaS sector have undergone a significant decline and are anticipated to remain low. The median EV/ (TTM) revenue multiple stood at 5.6x at the close of Q4, registering a 67% drop from the 2021 median of 16.8x. This figure marks the lowest point since 2016, even falling below the 7.3x and 9.3x medians recorded in 2017 and 2018, respectively. The subdued multiples are ascribed to the prevailing cost-of-capital conditions and
Unpredictable Times for SaaS and Fintech Industries
Declining Revenue Growth in SaaS Sector
The growth prospects for the software as a service (SaaS) sector are shrouded in uncertainty as recent figures paint a grim picture. Prior to the pandemic, the median revenue growth rates were soaring at 34% in 2018 and 27% in 2019. However, the scenario took a sharp nosedive with figures plummeting to 24% in 2022 and further to an all-time low of 16% in 2023.
This downswing in revenue growth has been particularly prominent in public enterprise SaaS companies, with a deceleration to a meager 11% in 2023. The global SaaS market’s revenue is anticipated to dip to the low teens in 2023, a stark contrast to the mid- to high teens it had been enjoying in recent years. This downward trajectory can largely be attributed to market conditions and reduced enterprise spending. Notably, the decline in revenue growth has been most striking in customer relationship management (CRM) and marketing/advertising, whereas segments such as human resources (HR), enterprise resource planning (ERP), and business intelligence have exhibited more resilience.
Shifting Landscape in Fintech
Meanwhile, the fintech realm, after experiencing two years of rapid expansion, seems to be readjusting to a more normal pace. In 2023, fintech companies garnered $34.6 billion in venture capital (VC) funding across 2,055 deals, marking a year-over-year decline of -43.8% and -32.4%, respectively. Valuations have largely taken a hit, with the median plunging by -13% from the 2022 figures.
A whirlwind of rapid changes in global monetary and fiscal policy has posed formidable challenges for fintech companies of late. Nonetheless, many have proven adaptable and are now preparing for initial public offerings (IPOs). Demonstrating profitability has assumed pivotal importance for companies gearing up for IPOs as the market has shown a clear preference for public enterprises with a proven track record on this front over the past year.
The VC Exit Predictor, a machine learning model that draws on historical and real-time data on private company exits, has identified the ten US venture-backed enterprise fintech unicorns with a high likelihood of going public. Notable names that top this list include Stripe, Rippling, and Tradeshift.
Industry Developments
Amidst the ever-evolving financial landscape, several notable industry developments have marked the second half of the week. Itaú’s foray into the cryptocurrency market with a newly developed Bitcoin (BTC) and Ether (ETH) trading platform using Liqi’s solution signifies a significant milestone. OpenAI’s endeavor to raise funds for creating a network of AI-specific semiconductor factories heralds a new era for AI technology.
Additionally, the collaboration between registrars, financial institutions, and the Brazilian Central Bank to develop a feature enhancing the efficiency and security of credit operations represents a commendable step towards modernizing financial systems. The establishment of a new asset management firm specializing in Environmental, Social, and Governance (ESG) investments by JGP and BB Asset further reflects the industry’s commitment to sustainable and responsible investment practices.
BrandLovrs’ strategic initiatives to accelerate its go-to-market strategy as well as Nubank’s appointment of Livia Chanes as its new CEO in Brazil underscore a collective effort to foster growth and innovation within the financial sector.
Strategic Acquisitions
During the week, Canadian Constellation’s arm completed its twelfth acquisition in Brazil, further consolidating its foothold in the region. The strategic acquisition of Servcom, a family-owned company specializing in software development and technological solutions tailored for notaries, bolsters Canadian Constellation’s diverse portfolio without significantly disrupting the acquired businesses’ operations.
These recent developments underscore the dynamic nature of the SaaS and fintech industries, grappling with tumultuous macroeconomic conditions while striving to usher in a new era of innovation and technological advancements.
The Latest in Latin American Financial Technology
Creditas Delays IPO to Focus on Growth
Creditas CEO, Sergio Furio, announced that the company will not proceed with its IPO in 2024, in favor of prioritizing growth and maintaining breakeven throughout the year.
Honor and Oppo Make Waves in Latin America
Honor, a spin-off of Huawei, is poised to debut in Brazil in April, while Oppo, the world’s fourth-largest smartphone manufacturer, is establishing a network of regional distributors. However, local manufacturers are expressing concerns about the potential “Shein effect” on the market.
Artificial Intelligence Dominates in Financial Technology
A significant surge in AI spending was reported by Itaú Unibanco, with a remarkable 205% growth in expenditures on paid versions of major AI tools in 2023. Additionally, a 642% increase in the number of transactions involving these tools and an average transaction value of R$175 was observed.
Hi Ventures Launches AI Fund in Mexico
Formerly known as ALLVP, Hi Ventures announced the launch of an AI fund at the Bolsa Institucional de Valores (BIVA) in Mexico City, showcasing the firm’s renewed focus on leveraging Artificial Intelligence for regional technological advancement.
Edtech Companies Flourish in Latin America
According to a report by HolonIQ, 60% of the top 100 most promising edtech companies in Latin America are based in Brazil and Mexico. The report also highlights a strong presence of early-stage edtech companies, comprising 30% of the list, and asserts that Mexico, Brazil, Argentina, and Colombia lead the region in this sector.
Stark Bank Bolsters Leadership Team
Brazilian startup Stark Bank has announced the appointment of three new female executives to lead its marketing, product, and commercial teams. Founded in 2018, the bank processes over R$100 billion annually and boasts clients such as Localiza, Grupo Ultra, and Quinto Andar.
Daki Raises $5.11M in Early Stage VC Funding
Daki, an operator of a grocery delivery application platform, secured $5.11M in Early Stage VC funding led by 4Equity, marking a significant milestone for the company in its quest to provide multi-category grocery supplies to customers.
Ebanx Predicts Future of Online Payments in Brazil
The “Beyond Borders” report by Ebanx forecasts that by 2026, Pix, Brazil’s instant payment system, is expected to account for 40% of online payments in the country, nearly equalling credit card payments, which are projected to make up 42% of the volume, based on data from Payments and Commerce Market Intelligence (PCMI).
Santander Mexico Set to Launch Openbank
Santander’s Mexican unit is gearing up to debut its digital banking service, Openbank, in the coming months, marking a pivotal moment for digital banking innovation in the region.
Convex Secures Funding for Proptech Expansion
Colombian company, Convex, which specializes in real estate technology with a digital emphasis, has secured $700K to fuel its expansion endeavors, with plans to exceed annual sales of one million dollars and expand into at least 10 new markets.
Ozone API Raises £8.5 Million in Series A Funding
Ozone API, a leading Open Banking API platform, has successfully raised £8.5 million in its Series A funding round led by Gresham House Ventures, propelling the fintech’s mission to spearhead the development of open ecosystem standards.
Insights into Fintech Trends
In 2023, key trends in fintech laid the foundation for the rise of developers as key decision-makers in financial services, the integration of software into financial professional services, and the push for AI to digitize Latin American SMBs. Moving into 2024, significant developments include increasing consumer interest in AI solutions for financial needs as well as improvements in the macroeconomy, and new regulatory proposals such as the Consumer Financial Protection Bureau’s initiative to limit overdraft fees.
Quote of the Week
“We are free to choose our paths, but we can’t choose the consequences that come with them.” — Sean Covey
This article was 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.
