EC Latin America and Caribbean Archives - Product Management Confabulation

March 7, 2023

Despite the downturn, CVC gains traction in Brazil’s startup ecosystem

Matheus Tavares Dos Santos Contributor

Matheus is a hedge funds investment analyst for a major global investment manager and technology provider. In prior roles, he was an associate at a LatAm-focused venture capital firm and worked in corporate venture with regional banks and the Brazilian stock exchange.

The early majority is entering the CVC space

The CVC space is expanding in breadth and depth as the range of institutional investing solutions increases and diverse companies enter the fray.

The financial sector has historically been an early adopter of new investing philosophies, so it isn’t very surprising that financial companies have led the charge in the corporate venture space.

Currently, financial companies make up about 20% of CVCs in Brazil, which is more than any other sector. This has resulted in a dynamic where the majority of the successful and mature startups in Brazil are fintechs..

Non-financial companies, on the other hand, have tended to fund or partner with third-party accelerators, venture capital firms and incubators without bringing those capabilities in-house. But this dynamic has been changing meaningfully in the past few years thanks to a new wave of CVCs sponsored by companies that have little to do with finance.

The list of companies that announced CVC-related programs in 2022 is impressive, and includes the likes of Vivo, a subsidiary of the Spanish telecom company Telefonica; Vale, the largest producer of iron ore and nickel in the world; Anima, one of the largest higher education companies in Brazil, and Suzano, one of the biggest paper and pulp producers in the world.

Despite the downturn, CVC gains traction in Brazil’s startup ecosystem by Ram Iyer originally published on TechCrunch

December 27, 2022

Taking advantage of Latin America’s market downturn

Andre Maciel Contributor

Andre Maciel is the founder of Volpe Capital. He formerly worked with J.P. Morgan, and was a managing investment partner at SoftBank.

Jennifer Queen Contributor

Jennifer Queen is the founder of Pina, a PR firm focused on startups and venture capital firms.

Latin American venture capital and growth investments through 2018 had averaged less than $2 billion per year. With quality growth companies starved for capital, the few investors active in the region were making a killing. For instance, having invested in its Latin American franchise throughout different cycles, General Atlantic has an IRRs (internal rate of return) exceeding 50% from those vintages.

As a banker covering technology, I thought there was an opportunity to invest in the region and decided to quit my job at J.P. Morgan and give it a shot. When I called my former boss Nicolas Aguzin to thank him for his support, he said he’d introduce me to Marcelo Claure at SoftBank. By March 2019, we had launched SoftBank in Latin America with an initial commitment of $2 billion, which was worth more than the entire industry at the time.

Great companies like Nubank, Inter, Gympass, Quinto Andar and several others were in their early innings at the time, but the market dislocation did not last long. Latin America became the fastest-growing VC region globally, and the market expanded to $16 billion in 2021. In 2020, I founded a new growth fund to fill the funding gap in the region, giving me the opportunity to see how startups from recent vintages fared in a scenario of bonanza.

Fast-forward to today, late-stage funding in Latin America has been heavily impacted — volumes declined 93% in the third quarter of 2022 from a year earlier. Our assumption is that, going forward, the region will suffer more than other markets for its lack of available local growth capital.

The chart below shows that of the 290 investors focused on late-stage rounds in 2021, only three were active in the third quarter of 2022. Moreover, just 24% of those investors in 2021 were local, the majority of which were non-dedicated growth capital and included a high number of individuals, hedge funds and family offices.

Source: LAVCA. Note: Late Stage considers Series C, D, and beyond. Image Credits: Volpe Capital

By solving local issues, startups will build pricing power, which should allow them to thrive.

Early-stage funding has remained relatively active so far this year, and many good companies are raising early rounds, expecting to come to market in 2023. But over 200 late-stage Latin American companies are holding back as much as they can before trying to raise additional capital. Foreign capital will only cover a portion of these funding needs.

I started my career in private equity in 2002, but my first job at J.P. Morgan was simple: writing portfolio reviews and helping unwind a large portfolio of internet companies that had had their share of glory, but were mostly failures by then. What I’ve learned from those days about how some companies thrived while most have failed is part of what we share with our portfolio companies today.

Here are a few takeaways:

Milk every dollar, save every penny

Below are a couple examples how companies did all they could to stay afloat, and eventually, thrive:

In 2001, MercadoLibre employed a freemium strategy to gain market share in the highly competitive Latin American online auction market. Users could sell their products on the platform at no cost, which of course boosted GMV growth. By 2003, that was gone and the company quickly introduced fees accross its markets.

Taking advantage of Latin America’s market downturn by Ram Iyer originally published on TechCrunch

September 22, 2022

In Latin America, founders and investors seek to balance caution and optimism

Julio Vasconcellos Contributor

Julio Vasconcellos is the managing partner of Atlantico, a venture capital fund focused on Latin America. He was previously the founder of Canary and Peixe Urbano, and was Facebook’s first employee in Brazil.

Caution in an uncertain world

Uncertainty is still the order of the day in markets across the globe as tech companies and investors try to figure out how to weather the storm. After a long period of excess liquidity and low interest rates, inflation finally showed up to the party, leading Central Bankers to step on the brakes.

In Latin America, founders and investors seek to balance caution and optimism by Ram Iyer originally published on TechCrunch

September 12, 2022

For LatAm payment orchestration startups, market fragmentation is a blessing in disguise

Rocio Wu Contributor

Rocio Wu is a principal at F-Prime Capital. She focuses on early-stage investments in fintech and enterprise software investments in the U.S. and LatAm.

Empathy is essential for building a loyal team, says Kolors co-founder Anca Gardea

Whether you’re riding a chicken bus in Nicaragua or a Greyhound in the United States, intercity bus travel is rarely a glamorous affair. Despite its essential nature in moving people for vacation, visiting family and business, this particular mode of transportation has often been reduced to its most essential components — plenty of seats, wheels, an engine and a driver — in order to make the most amount of profit for the least amount of effort.

In Latin America, advancements in technology coupled with a growing middle class with more disposable income have opened up the bus industry for disruption. Kolors, a Mexico City-based startup that is providing an elevated bus service and intelligent intercity mobility, might just have a first-mover advantage on that disruption.

Anca Gardea, co-founder, chief technology officer and head of product at Kolors, previously founded Busolinea, one of the first bus aggregators in Mexico and Latin America. As with Kolors, Gardea founded Busolinea with her husband, Rodrigo Martínez — Gardea is the technology-minded one in the relationship, while Martínez handles the business aspects. A few months into founding Busolinea, the company was purchased as a subsidiary by one of the largest intercity bus incumbents in Mexico. Gardea and Martínez went on to lead the digital unit for that company, where the two gained plenty of experience in various aspects of modernizing the intercity bus industry.

Feeling stymied by the lethargic tech so often found in larger organizations, the two decided to pivot in September 2019 and start Kolors.

“At Kolors, we’ve developed everything that’s necessary for running operations from the route planning, pricing optimization, tools like revenue management, crew and customer support, etc.,” Gardea told TechCrunch.

Everything except actually owning and operating the buses themselves. Kolors is following a model that the company has described as “if Uber and Southwest Airlines had a baby.” The startup essentially provides a technology layer to small and medium-sized bus operators to help them operate more smoothly. Kolors also provides each bus with an attendant, a Kolors employee who checks in passengers, accepts payments of cash when needed, and sells snacks and drinks — all to provide that near-luxury level of service.

“I’ve been working for over 15 years in the tech industry, and it’s not enough to be the most intelligent person at the table if you’re not a team player and a good person.” Kolors co-founder Anca Gardea

This business model, while still evolving, has attracted the attention of big investors in the mobility space. Kolors recently closed out a $20 million Series A that was led by UP.Partners with participation from Toyota Ventures, Maniv Mobility, K5 Global and Mazapil.

We sat down with Gardea to discuss how being an empathetic leader inspired her team of engineers to work for six months without pay while Kolors was starting up, why intercity bus travel in Latin America is ripe for disruption, and how the company plans to expand in the coming year.

Editor’s note: The following interview, part of an ongoing series with founders who are building transportation companies, has been edited for length and clarity.

May 10, 2022

BNPL in 2022: 4 fintech investors discuss regulation, trends and how to stand out

Buy now, pay later (BNPL) has quickly established itself as the go-to method of financing for a variety of purchases, particularly online.

This financing model has primarily been available to customers shopping online, but customers outside the U.S. have already dipped their toes into similar alternatives at brick-and-mortar stores. We’re likely to see BNPL offerings become more prevalent at points of sale for a manner of different purchases through 2022.

Investors in the space already see BNPL leaving the bounds of retail and entering sectors such as healthcare. “BNPL will become a more popular POS option in 2022, not only across brick-and-mortar stores, but also in sectors like healthcare, where installment payments already exist but have not yet crossed the chasm to digital,” said Frances Schwiep, partner at Two Sigma Ventures.

“Average ticket sizes for healthcare can range between $2,000 and $10,000, making it a perfect candidate for vertical-focused, larger-ticket BNPL solutions.”

Despite the popularity of the model, it appears there are a variety of applications for which BNPL is just being tapped, and smaller players are carving out a niche as the retail market grows crowded.

We believe BNPL adoption at the point of sale will accelerate rapidly given consumer familiarity. Jonathan Whittle

“Now that consumers have gotten comfortable with BNPL as a concept and are increasingly using it as an alternative to credit cards, we’re seeing opportunities for new BNPL products for recurring bills, such as rent, streaming service subscriptions, etc. We also see opportunities for new BNPL products for small businesses that are looking to reduce cash flow strains or avoid maxing out credit lines,” said Jason Brown, partner at Victory Park Capital.

It isn’t all smooth sailing, though. Smaller BNPL providers could struggle in markets where bigger players have already established a presence. In the U.S., Klarna, Afterpay and Affirm have managed to wrest the majority of the market share, leaving the rest with just a quarter of the market to compete over.

To get a better picture of where the BNPL market is at right now, we spoke with four active investors about their expectations for the space, upcoming regulation, scalability, default risk and more.

We spoke with:

Frances Schwiep, partner, Two Sigma Ventures
Melissa Guzy, co-founder and managing partner, Arbor Ventures
Jonathan Whittle, co-founder and partner, Quona Capital
Jason Brown, partner, Victory Park Capital

Klarna, Afterpay, Affirm and PayPal generated more than $3.2 billion in revenue last year. Is BNPL still an open market, or is it already dominated by entrenched players?

Frances Schwiep: BNPL, though crowded in established markets, is still ripe for innovation in new geographies like Latin America. Notably, unique local characteristics challenge a one-size-fits-all approach.

There’s a host of difficulties to overcome: from managing market-specific database integrations with APIs that don’t talk to one another to understanding nuanced risk dynamics that inform underwriting models, and geo-specific consumer behaviors that impact product roadmap.

For example, BNPL companies based in LATAM must weigh an array of variables included in the risk model differently based on consumer behaviors natively bound to the characteristics of the local market. For example, telecom variables and contact graph referrals are more heavily weighted features in the underwriting model in Mexico versus the U.S. Repayment collection methods also vary drastically by geography, and require local knowledge and know-how to execute at scale.

We believe building fintech products (versus other classes of products) with geo-specific dynamics in mind is key to their success. As Kyle [Miller], founder of Nelo (a LATAM-based BNPL) and former product manager at Uber, puts it, “I’ve found that the product gap I saw with Uber in established versus developing markets is MUCH wider for financial products, specifically credit and BNPL. Major differences I’ve seen include available underwriting data, repayment methods and general consumer behavior. The winner of BNPL in LATAM will have been built in LATAM for LATAM.

Melissa Guzy: The market for BNPL is maturing, and unless a new player has a differentiated approach and can offer additional services to both consumer and merchants, it will be tough for new entrants.

Three key areas for differentiation include:

Checkout distribution (e.g., association with a scaled platform).
Cost of funds (capital available for lending).
Consumer proposition (consumer experience and repayment model).

What is clear today is that a new entrant will need a significant amount of capital from the start for marketing and winning a position on the checkout page.

Jonathan Whittle: It depends on the market. In most emerging markets where Quona invests — including Latin America, the region I lead for the firm — BNPL remains relatively open, with a few market leaders beginning to emerge, such as ADDI in Brazil and Colombia, and Zest Money in India.

Jason Brown: It’s true that the large BNPL players that are focused on point-of-sale financing for consumers have dominated the market — they have strong brand recognition and customer bases. Because the market is crowded and it’s expensive to acquire customers, it is difficult for new BNPL entrants in the traditional consumer point-of-sale space.

However, now that consumers have grown comfortable with BNPL as a concept and are increasingly using it as an alternative to credit cards, we’re seeing opportunities for new BNPL products for recurring bills, such as rent or streaming service subscriptions.

We also see opportunities for new BNPL products for small businesses that are looking to reduce cash flow strains or avoid maxing out credit lines.

What kinds of opportunities are you looking for right now, and how do you like to be approached by founding teams?

Frances Schwiep: We’re on the lookout for companies both enabling and distributing next generation financial products. We continue to be bullish on platforms that are selling embeddable financial products, such as payments, insurance and lending.

We are seeing an exciting class of companies providing “OS systems” for specific verticals and professionals (from Glossgenius for stylists and Altruists for financial advisers, to Side for real estate agents), and believe financial offerings will be key pillars of these platforms.

We also see a compelling opportunity for fintechs to unlock more value within marketplaces — whether it’s retail, restaurants or B2B inventory — and attracting wallets by offering the financing and checkout experience consumers want. I believe the next Alibaba will start as a fintech play.

Beyond embeddable fintech products, we’re excited about companies that are disrupting traditional payment rails with more efficient models. As complexity and average processing fees at checkout have increased for merchants in recent years, there has been mounting pressure to innovate and regain control over costs.

We are also excited about companies building modern software for both financial institutions — who are under pressure to compete with digital native competitors — and for financial teams within enterprises who are trying to modernize their management of cash.

Last but not least, we think financial health and wellness is being redefined, with alternative asset classes, including crypto, becoming more mainstream. Consumers’ financial footprint is getting increasingly complex, and we’re eager to invest in tooling that helps with consumer on-ramps, consumer access and management of new financial investment opportunities.

Melissa Guzy: We like founding teams who think differently about opportunities and winning market share. They need to be realistic while being visionaries, which is hard to find. Also, founding teams need to demonstrate that they can build a team and attract talent.

We also believe there are opportunities to develop BNPL expertise in a segment (e.g., medical expenses) or a geographic region/country that has less competition and more growth potential.

Jonathan Whittle: We’ve already backed the company that we believe will dominate the B2C BNPL space, and perhaps B2C/M2C payments in general, in Latin America, and it’s ADDI. There are also opportunities in the B2B-focused BNPL arena on the back of growth in B2B e-commerce marketplaces and as M2B businesses come online. Many early-stage companies are attempting to tackle this opportunity, too: Slope, Dinie, R2 and Kontempo, to name a few.

Jason Brown: We are always looking for opportunities to partner with new entrants that have a differentiated and cost-effective customer acquisition channel, either through partnerships or product innovation.

As a lender, we work closely with VC firms that have significant expertise and vision in the space to identify innovative companies with strong management teams that need credit financing to unlock their next stage of growth.

Do BNPL offerings run the risk of appearing too similar? Which products or services are innovating? What can startups do to stand out?

Frances Schwiep: Yes, and to overcome this risk, we’ll see a bifurcation of companies — those who will pursue a B2B strategy with merchant integrations and merchant services at one end of the spectrum, and those who will prioritize a direct-to-consumer acquisition strategy and own the consumer relationship via their “super app” on the other.

The latter is a relatively new development and involves focusing on customer repeat engagement, loyalty and creating a marketplace of products with the financing solutions customers want. And that’s where Nelo fits in. They moved from a direct-to-merchant integration strategy to a direct-to-consumer approach, winning the hearts and minds of consumers with their slick, easy-to-use app.

Finally, we believe vertical-specific BNPL solutions will emerge with ancillary services tailored to address a particular sector’s need (e.g., healthcare, home construction, etc.)

Melissa Guzy: BNPL companies vary by geography to fit the local market. Tabby is a great example in MENA, Akulaku in Indonesia, and so is Paidy in Japan. They are all in the BNPL category, but they have developed an expertise in regional distribution channels, non-traditional customer segments and product variations.

Jonathan Whittle: Installment payments can quickly become a fairly standardized and easily commoditized offering. What will differentiate BNPL solutions is tech architecture, underwriting ability and UX, coupled with seamless integration of other synergistic products, such as one-click checkout and payment management solutions across payment methods.

Other forms of differentiation will stem from additional value-add merchant and/or consumer products, like a consumer app tied to a line of credit that can be used across multiple merchants. That strengthens stickiness and reduces churn while fueling client acquisition and conversion.

Jason Brown: Consumer point-of-sale BNPL products are very similar, though some are differentiating by offering longer payment options for products that are more expensive or more nuanced.

Another area where we’re seeing innovation is with white-label BNPL products that can be embedded into a merchant’s checkout process. With a crowded market, it’s important for startups to differentiate themselves by acquiring customers in a cost-effective way.

Will we start to see more consolidation this year? If so, which types of BNPL startups will be likely acquisition targets in 2022?

Frances Schwiep: Acquisition targets will be considered for their relevance in their users’ everyday lives as well as their granular (i.e., item level) longitudinal data ownership.

January 14, 2022

Fintech and insurtech innovation in Brazil set to take off on regulatory tailwinds

Brazilian instant payment system Pix ended 2021 having powered more than 8 billion transactions, according to statistics from the country’s Central Bank. This is quite an impressive figure for an offering only launched in November 2020 and goes to show how ubiquitous Pix has become in the country.

You could describe Pix as “a government-built version of Venmo,” as João Pedro Thompson, founder of fintech Z1, told TechCrunch. However, the analogy doesn’t fully capture the fact that Pix appeals to many more than just digitally savvy teenagers repaying friends for coffee. Otherwise, it wouldn’t be used by six of 10 Brazilians.

In a country where many people are still unbanked and queuing to pay bills is part of daily life, the impact of being able to pay anyone instantly can’t be understated. In addition, Pix now supports more services, such as letting you withdraw cash from businesses.

It’s interesting that Pix is an institutional initiative, part of a wider range of public efforts to transform Brazil’s financial landscape. “The Central Bank has been doing a tremendous job and Pix is one of the most relevant structural changes,” Brazilian VC Bruno Yoshimura told TechCrunch when we wrote about Latin America’s fintech boom.

I’ve lived in Brazil, so this naturally piqued my interest. At the time, entrepreneurs were constantly complaining about bureaucracy, and their highest hope was that institutions would just stay out of the way. But now, VCs and founders are actually praising the Central Bank for its initiatives and the opportunities it has created.

“Both Open Banking and Pix will level the playfield for new challenges, and we expect to see a lot of innovation around them,” Yoshimura said, referring to another of the Central Bank’s projects.

It’s not just Pix, and it’s not only the Central Bank’s BC# agenda either. Brazil’s Superintendence of Private Insurance (Susep) is working on open insurance plans, which means that insurtech could be the next sector to benefit from regulatory tailwinds.

To understand what’s going on with regulations in Brazil, and how this is affecting startups, I reached out to experts with firsthand knowledge of Latin America’s fintech ecosystem.

On the VC side, I got in touch with Amy Cheetham, a partner at Costanoa Ventures, whose recent investments include Rio de Janeiro-based Plug; and Alma Mundi Ventures‘ Javier Santiso for additional thoughts on insurtech. On the startup side, I spoke with CEOs Rodrigo Teijeiro from RecargaPay and Pedro Sônego de Oliveira from TruePay.

Opportunities abound

“The open banking initiatives adopted by Brazil’s Central Bank are absolutely tailwinds for fintech innovation,” Costanoa’s Amy Cheetham said. “As consumers regain control of their data, it creates space for new entrants to the banking ecosystem and creates more competition, giving consumers access to better, cheaper, fairer, and more secure financial products and services. This includes giving fintechs the power to build for previously [underserved] or unserved segments of the population,” she explained.

RecargaPay is one of the startups leveraging the new regulations to expand their B2C services. “Our mission at RecargaPay,” founder Teijeiro said, “is to democratize mobile payments and financial services in Brazil, so open banking and Pix are the perfect recipe to accelerate our mission.”

Teijeiro is particularly appreciative of Pix and its “incredible” trajectory. “What was accomplished in just one year was a tremendous disruption benefiting millions of Brazilians by making their payments easier, faster and cheaper. For this, the Brazilian Central Bank deserves to be recognized as the ‘fintech startup of the year,'” he said, describing Pix’s impact on cash going mobile as “a huge blessing for RecargaPay.”

November 12, 2021

A wave of LatAm fintechs are laying down new global commerce rails

João Del Valle Contributor

João Del Valle is the co-founder and CEO of EBANX, a Brazilian fintech unicorn that serves as the gateway to Latin America through its payments platform for global merchants, tech giants and other large companies from all over the world.

If you look under the hood of nearly any large merchant’s e-commerce operations, there are likely more than a dozen different card-acceptance platforms meshed together to serve different parts of the world with banking partners doing payment settlements and managing foreign exchange.

Latin American companies have the added challenge of processing the many transactions that are not card based, like bank transfers, emerging instant payments and the cash-based ones that offer in-person payments that need to be electronically confirmed.

A merchant might need anywhere from 50 to hundreds of partners, depending on complexity and the countries they are targeting. If any of the aggregate transactions across platforms go down for just a millisecond, that transaction will fail, potentially leading to huge losses.

Why online merchants need a new breed of infrastructure fintechs

The key to growing market share and loyalty for global merchants and service providers is knocking out the friction tied to payments and the online buying experience.

For global merchants expanding to the region — from Alibaba to Amazon and Shopee in e-commerce, to tech giants offering a variety of services such as Garena, Netflix or WhatsApp — Latin America’s payments landscape is particularly daunting. In South America alone, there are at least 14 different currencies.

Across Latin America and the Caribbean, there are more than 30 countries, all with varying local customs, financial regulations and consumer protections. There’s also the issue of most global acquirers’ inability to recognize many Latin Americans’ credit scores, leading to a high rate of unapproved transactions.

While advancing quickly, these global merchants have not caught up with regional e-commerce giant MercadoLibre, which continues to lead in Latin America, pushing past a market cap of more than $90 billion earlier this year. In a Nasdaq analysis of MeLi’s most recent earnings report, writer Will Healy describes some crucial advantages for LatAm’s current e-commerce leader, including its investments in both shipments and payments, and its “secret weapon” in Mercado Pago to facilitate electronic payments in its cash-dependent markets.

November 8, 2021

Why QED, hot on Nubank, is bullish about LatAm fintech

As venture capital totals grow in Latin America, the region is about to see its leading champion go public. Nubank’s IPO is coming into closer focus after the Brazilian neobank filed privately to list its shares in both the United States and its home market, later releasing a public IPO filing.

One investor in the company that caught our eye for its Latin American investments is QED. As it turns out, its first investment in the region was Nubank, a deal that is set to pay off handsomely.

Per Crunchbase data, QED put capital into Nubank’s 2014 Series A, 2015 Series B, 2016 Series D and 2018 Series E, though there may be more dollars in play that we cannot see. According to an interview, QED only invested in the company after being impressed with its CEO, David Vélez, instead of due to a larger push into Latin American fintech.

Since then, the fintech-focused fund has made more investments in the region. QED partner Lauren Morton is dedicated to the Latin American market for the investor, so we reached out to get her take on recent results from the region. Last week, The Exchange delved into fintech investment from a global investment pool powering a host of Latin American financial technology companies, including QED portfolio company Pomelo. This morning, we’re tuning in to a single voice to further our understanding.

QED has been investing in LatAm for seven years now, so the spike in valuation has been great for our back book and our legacy fund, but it has also made it more expensive and more competitive for new deals. Lauren Morton

QED recently closed $1.05 billion to invest in global fintech companies, across a $550 million early-stage fund and a $500 million growth-stage fund that, TechCrunch reported at the time, will back “fintech companies primarily in the U.S., the United Kingdom, Latin America and Southeast Asia.”

This should help add more names to a portfolio that includes several LatAm fintechs that recently raised new rounds, such as crypto exchange Bitso, SMB lender Cora, payment infra provider Hash and B2B credit card provider Tribal Credit.

Let’s talk about how the boom in valuations is proving to be both a bonus and a cost center for investors putting capital into Latin America today.

TechCrunch: On a high level, why are you and QED bullish about fintech in Latin America?

Lauren Morton: QED is incredibly bullish about the fintech opportunities in LatAm. Latin America has a large, young population that is adopting technology at some of the fastest rates in the world. The infrastructure is starting to catch up to build the foundations upon which great companies can be created. Compared to other more developed markets, the number of friction points is also staggering — from data to payment rails to access to capital — resulting in massive opportunities to disrupt traditional players.

There’s also real generational change happening across the region. It has of course been accelerated by COVID-19, but we had seen the early tailwinds of this step function to digital even prior to the pandemic. More money is coming into the region than ever before and the quality of the entrepreneurs and founding teams has never been stronger.

November 1, 2021

Nubank’s IPO filing gives us a peek into neobank economics

As the neobanking boom has matured into a collection of large digital banks, we’re slowly getting a better picture of the economics of such business efforts. Chime was early in telling the market that it was EBTIDA positive, for example, unlike less profitable European neobanks.

The upcoming Nubank IPO — technically the public offering of Nu, but we’ll just say Nubank for simplicity — provides us with far more information and detail regarding the operations of a neobank at scale, thanks to its newly-public filing.

The Exchange explores startups, markets and money.

Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday.

In good news for its peers that may seek to go public, the numbers Nubank has shared seem to make pretty reasonable business sense.

We will have more notes in time regarding the company’s offering, its shareholders, its varying business lines, and more. This morning, we’re narrowing our focus to the broad economics of neobanking, and will end with an examination of Nubank’s aggregate financial health. We’ll take just a second at the end to test a few valuation marks against what we find.

Building a neobank at scale is not cheap. Leading startups and unicorns in the market niche have raised tectonic sums of capital to get to where they are today. But what did all that cash buy them? In Nubank’s case, quite a lot, it appears.

The Nubank EC-1

The economics of neobanking

Nubank is one of the most valuable startups in the world, with over 40 million users across Brazil, as well as Mexico and Colombia.

Neobanks, like any consumer product, can be viewed through the lenses of customer acquisition costs, customer monetization and activity, and long-term revenues. We want to know what Nubank pays to attract new users, how their product use and rates thereof translate to income, and how much the fintech giant can juice users for over a longer time horizon.

Customer acquisition costs

Nubank is proud of its customer acquisition costs (CAC). The company states in its F-1 filing that its CAC was “US$5.0 per customer of which paid marketing accounted for approximately 20%” for the first three quarters of 2021. That’s lower than we anticipated, frankly.