This week’s Federal Reserve meeting had the financial world on edge. The Fed opted to maintain current interest rates, keeping them steady at 5.25%-5.50%. While largely expected, the decision holds far-reaching implications for various markets, including the tech sector.
Fed Chair Jerome Powell underscored that inflation remains a significant concern, indicating that a rate decrease in March is unlikely. This has led to the pivotal question – how does this affect the Latin American Tech scene? Essentially, changes in U.S. interest rates have a tangible impact on global markets, rippling through investment landscapes in every sphere.
The U.S. interest rates tipping the scales could redirect investment flows from traditional fixed income to more dynamic arenas such as equities and alternative investments, notably venture capital. Consequently, investor confidence is likely to receive a boost, making them more amenable to dabbling in riskier ventures, including tech startups in Latin America.
These economic shifts make it vital for market participants to stay attuned to developments on a global scale, recognizing the interconnected nature of financial markets.
Diversifying Solutions in the Secondary Market
The tech industry, in particular, is currently focused on exploring secondary markets. A recent note from analyst at Pitchbook emphasized the challenging scenario for M&A and IPOs, the most arduous faced in over a decade. This predicament has instigated inventive thinking among VC firms, especially concerning capital returns to their Limited Partners (LPs).
With traditional exit routes of M&A and IPOs losing appeal, VCs are turning to inventive secondary market solutions. One emerging trend is the rise of continuation funds, providing existing LPs with the flexibility to either offload older investments to new parties or migrate them into a fresh fund.
Although there is considerable caution among VCs, as they edge warily towards these novel deals, the market adjustments and more pragmatic valuations are predicted to drive an uptick in such transactions.
This situation mirrors a valuation tug-of-war, akin to the dynamics of M&A or IPOs. New investors seek lower pricing, while existing investors cling to a higher value for their assets, engendering a negotiation dance.
Presently, secondary buyers are eyeing larger discounts than most VCs are comfortable with. However, as the market gravitates towards balanced valuations, a surge in these innovative deals seems imminent, underscoring the industry’s resilience to adapt and flourish in unconventional times.
Struggles in the M&A Landscape
Delving deeper into the M&A realm, PitchBook’s 2023 Annual Global M&A Report revealed that the total value of M&A deals in the previous year neared a nadir last witnessed in 2013. Tallying an estimated $3 billion, it barely surpassed the 2020 levels, which were marred by the global lockdown.
Analysts have attributed the 35.5% decline in global M&A activity to several factors including mounting interest rates and the uncertain economic backdrop. These shifts underscore the turbulence gripping the M&A sphere, necessitating stakeholders to brace themselves for a protracted period of upheaval.
Merger and Acquisition Market: A Tale of Resilience and Challenges
The Mergers and Acquisitions (M&A) market has showcased notable resilience and adaptability in the face of varying economic landscapes. Recent market trends reveal a fluctuation in deal values and a disparity in valuation expectations between buyers and sellers, portraying an intriguing narrative of dynamic adjustments and strategic opportunities.
M&A Trends: An Era of Fluctuations
Comparing the M&A figures of the past year with the pre-pandemic era, a slight dip is observed. Throughout 2015-2019, the average deal value rested at approximately $3.4 billion, a figure surpassing the 2023 numbers by $400 million. Notably, specific sectors, including B2C businesses, healthcare, and financial services, have witnessed a slowdown in M&A activity. The financial services sector, for instance, experienced a significant 51.4% decline from its peak in Q3 2021, reflecting a notable shift in deal values. Similarly, the healthcare M&A activity also exhibited a decline, dropping below the levels observed in 2020.
These figures, albeit sobering, indicate the ever-evolving nature of the M&A market. It is a cyclical domain that adjusts to global economic trends and sector-specific challenges, presenting new opportunities for strategic growth and innovation across various sectors.
Weekly M&A Highlights
Monday
General News:
A study by Itaú Unibanco revealed a 99% increase in the volume of transfers using PIX for the purchase of products and services, compared to 2022.
Sling Hub, a startup specializing in data intelligence services, introduced Startup Copilot, an offering tailored to meet the needs of startups. The first release, Investor List, harnesses extensive data within the startup ecosystem to generate a unique list of up to 40 investor recommendations.
Deals:
Wihom, a developer of financial operations automation platforms for online retailers in Colombia, secured $0.7M in Seed Round funding, with participation from investors such as 500 Startups LatAm.
BRLA, an operator of a financial infrastructure platform in Brazil focused on cryptocurrency, raised $0.2M in Seed Round funding led by 99 Capital.
Spectra Investimentos, a secondary market-focused asset manager, invested R$156 million in two companies: Xmobots, a drone manufacturer with Embraer as a shareholder, and Unicoba, a lithium battery company.
Tuesday
General News:
Warren launched a new brand, Asset Management Warren, aiming to attract external funds and double its assets under management by the end of 2024.
Visa announced a new payment method in Brazil, leveraging smartphones as terminals using physical cards with proximity for purchases. This technology will initially be implemented in events of the Ingresse platform.
Deals:
Upload Ventures’ growth pocket finalized an investment in the startup Topsort, along with other institutional investors, contributing approximately $25 million to Topsort.
Latitud merged with the Ballard & Associates office to launch Latitud Compliance, a product designed to assist startups in managing their offshore structures.
Edrone, a Polish startup specializing in CRM and marketing automation, announced a R$25 million investment round, marking the opening of its first office in Latin America.
Wednesday
General News:
Liga Ventures revealed that Latin America boasts 977 active startups in the agribusiness sector, with Brazil hosting 83% of the region’s companies in this domain.
Deals:
Incognia, an identity authentication startup, raised $31 million in a Series B funding round, with leading participation from Bessemer Venture Partners and FJ Labs, among others.
Tenchi secured R$35 million in a Series A round led by Bradesco, with participation from L4 Venture, marking an atypical investment by the technology consulting giant, Accenture, in the Brazilian market.
Price Lab, a Peruvian startup specializing in electronic price tag platforms, raised $0.36M in Seed Round funding led by IthinkVC.
Thursday
General News:
Itaú account holders can now apply for INSS payroll loans directly through WhatsApp.
Saque e Pague is investing R$200 million over the next three years to expand its services beyond a traditional ATM, introducing a digital account and a marketplace.
Exciting Developments in the World of Finance
Securities have successfully launched in El Salvador, marking a pioneering moment as the first tokenized securities platform in the country. Under the watchful eyes of the National Commission of Digital Assets (NCDA), the digital asset ecosystem is now under regulated supervision. Bitfinex Securities is lauded for its exemplary regulatory standards and deep compliance knowledge.
New Investment and Market Activity
Amid this groundbreaking development, notable deals have been observed across various sectors. 3dar, an operator of a virtual reality animation studio from Argentina, has successfully raised $4.25M in a Seed Round. Meanwhile, Fuse Capital is gearing up to launch its second fund, focusing on blockchain startups in the initial months of the year. The managing partner, Dan Yamamura, reflects on the shifting investment landscape, expressing optimism about investors’ rekindled appetite for risk, albeit with caution.
Strategic Acquisitions and Investments
With a resurgence in market activity, Dimensa, a joint venture formed by Totvs with B3, has reignited its M&A engine following a subdued 2023. The company has acquired Quiver, a traditional software firm specializing in the insurance sector, for a substantial sum of R$115 million. Additionally, Copel has initiated its corporate venture capital fund, Copel Ventures I, marking its inaugural investment of R$3.5 million in Move, a startup specializing in software for managing intelligent electric vehicle chargers.
Insightful Entrepreneurial Dynamics
Reflecting on the evolving landscape of venture capitalism, the interplay between founders and entrepreneurs has come to the fore. Key insights from a blog post by Bessemer Venture Partners highlight the nuanced differences between the two. It underscores that while founders initiate a company and receive shares at inception, entrepreneurs are distinguished by their pioneering spirit, innovative mindset, and high tolerance for risk.
Entrepreneurs are depicted as proactive and adaptive, thriving in uncertainty, and demonstrating a remarkable ability to innovate. Venture capitalists are increasingly drawn to entrepreneurs for their agility in navigating inevitable changes and embracing new opportunities. It’s evident that authentic entrepreneurs possess an insatiable curiosity and prioritize success over financial gains. They actively seek feedback, exhibit leadership across diverse contexts, and maintain a hands-on approach to problem-solving.
The qualities of resilience, perseverance, and an innovative mindset are seen as critical for long-term success, especially in challenging market conditions. Genuine entrepreneurs are recognized for their capacity to reinvigorate growth and make tough decisions, ensuring the sustainability and success of their ventures.
Cultural Engagement and Personal Reflection
Amidst these momentous developments, personal growth and cultural engagement have also been in the spotlight. Noteworthy podcasts reflecting on various aspects of the financial ecosystem have been released, offering an opportunity for wider engagement and knowledge-sharing. As readers navigate this dynamic landscape, a poignant quote by Bernard M. Maruch resonates, emphasizing the significance of staying true to oneself despite external opinions or influences.
This insightful perspective is originally published on a Substack, offering a valuable platform for discussion and reflection, engaging with a wider audience to share knowledge and experiences.