LATAM Unicorns part 1
Latin America has become an important hub for venture capital activity in recent years. In 2021 venture funding tripled previous records, reaching USD$16Bn according to LAVCA. Several factors have contributed to this expansion, like the increasing amounts of capital from both local funds (E.g., Kaszek new USD$1Bn fund) and international funds (E.g., Softbank USD$3Bn additional commitment to the region). On the other hand, Covid-19 accelerated many trends; for example, according to Statista, retail e-commerce sales in LATAM increased 70% from 2019 to 2021, reaching USD$85Bn. The final and most significant component are the founders, the true heroes; they are the ones who have made possible the creation of so many unicorns in the region.
Depending on the criteria used (HQ, founder nationality, year founded, corporate or non-corporate), there are 32 to 44 LATAM-related unicorns. Inspired by the work of Stanford professor Ilya Strebulaev and VC investor and book writer Ali Tamaseb, I decided to write a 2 part article about LATAM unicorns. The first part will focus on comprehensive data about the companies (E.g., the time it took to reach unicorn status, amount of capital raised, the year they reach unicorn status, sectors), and the second part will focus on the data behind the founders (E.g. universities, age at the foundation, years of work experience, technical or non-technical founder).
I wanted to give a word of caution, as my purpose is to provide as much data as possible, but not to imply that there is one right way to build a successful company. Also, it is essential to mention that past performance is not necessarily an indication of future performance.
There is debate around what can be defined as a LATAM unicorn company. I decided to focus on companies created during or after 2010, born in a Latin American country, have a valuation over USD$1Bn, and not incubated from a corporation. This threw a result of 28 companies and 76 founders. Given the investment pace in the region, it is possible that by the time you are reading this, more unicorns have been created, as, from the time I started working on this paper, three new unicorns were formed.
List of companies included: Nubank, Kavak, Dlocal, Rappi, Quinto Andar, Cornershop, Wildlife Studio, Nuvemshop, Ualá, Bitso, Loft, CloudWalk, Clip, Loggi, Ascenty, Creditas, NotCo, Konfio, Merama, Clara, GymPass, Hotmart, 99, Ebanx, Olist, Facily, Mercado Bitcoin, and Betterfly.
Given that a lot of information is not public, some results show the values of the complete set, others just for a group of companies (In those cases, a note is made). The sources used were LinkedIn, Crunchbase, TechCrunch, and PitchBook. Further information about the methodology is shared at the end of the article.
Some graphs show a company logo at the top; they represent an example of a case in a given group (randomly chosen).
The first interesting finding was the time it took companies to reach unicorn status; the median was 6.4 years. The results are similar to those found in the U.S. where companies like Zoom and Google took about six years. Building a successful company is a long-term process, 50% of the companies took seven years or more to reach a USD$1Bn> valuation. Still, there are cases of companies that reached unicorn status in short periods, like Clara, which took 1.6 years, or Merama, which took 1.2 years. In this point, it is important to clarify that reaching unicorn status is not the end goal for most founders, but instead, the goal is building an enduring company whose product or service their clients love.
Regarding the year these companies were created, 39% started between 2011 and 2012. Curiously two companies were formed during Covid (Merama, and Clara), which proves that a good company can be created during a crisis, as were the cases of Uber, WhatsApp, Groupon, and Venmo during the 2008–2009 financial crisis.
Looking at the year these companies reached unicorn status, 64% achieved it between 2020 and 2021, which aligns with the region’s increasing venture capital volume. The earliest companies to get that status in the sample were Nubank, Rappi, Ascenty, and 99 that reached it in 2018. The most recent unicorn is Betterfly which announced its USD$125M Series C last week.
Brazil has been historically the most advanced country in the LATAM venture capital ecosystem, which is partly explained by the fact that it is the country with the highest population, with 213M people and a GPD of USD$1.4Trn. In line with this fact, it is the country that has produced more unicorn companies, with 15. Chile is an interesting case as it is the third unicorn-producing country with NotCo, Betterfly, and Cornershop. Still, it is not the third country on the list in terms of GDP as it has USD$253Bn compared to USD$389Bn of Argentina and USD$271Bn of Colombia.
In terms of sectors, fintech and E-commerce have more unicorns with 39% and 18%, respectively. This goes in line with the industries that have had more VC funding in LATAM; as per Atlantico report, in 2020, 40% of VC investments went to fintech startups and 12% to E-commerce startups. Lauren Morton from QED shares an interesting view of the opportunities in fintech in this article.
Building a successful company requires, in many cases, significant amounts of capital, the median equity raised by these companies is USD$375M. Just two companies have raised less than $100M (Ascenty, which raised USD$53M, and Cornershop, which raised USD$32M before being acquired by Uber). On the other hand, the companies that have raised more capital are Rappi with USD$2.7Bn and Kavak with USD$1.6Bn.
Going deeper into funding, companies’ average time from creation to raising their first institutional round was 1.5 years. Curiously, this is similar to what it took for U.S. unicorns, for which the average time was 1.6 years. Still, there are cases of companies like Wildlife or Konfio that took over three years before looking for this institutional capital (at least according to public records), and at the same time, there are cases of companies like Loft that received funding at the same time they were created.
Regarding the amount of capital raised in this first institutional round, the median value was USD$1.8M. The range of money raised is broad, where you have a company like Nuvemshop that raised USD$300K in its first round with NXTP, and at the same time, you have a company like Merama that raised USD$60M with Monashees, Valor, Balderton, and Maya capital in its first round. Information was found for 18 companies as some showed an investment of institutional investors but did not display the value.
For the 25 companies I was able to find data, 76% of them have a valuation of USD$4Bn or less. The highest valued company in the region is Nubank, which by February 6, 2022, has a market cap of USD$34Bn. Two companies from the sample, Nubank, and Dlocal are publicly listed in the U.S.
One of the most critical parts of the cycle for VC investors is to get to a liquidity event where they can return the money to their LPs. From the sample studied, just 18% of the companies had a significant liquidity event (read methodology details for the definition). The median time to exit was 6.5 years, and those events were:
- Nubank and Dlocal IPOs in 2021
- Didi’s acquisition of 99 in January 2018.
- Digital Reality acquisition of Ascenty in September 2018.
- Uber’s acquisition of Cornershop in July 2021.
Exits have been one of the weak points of the region since to have a healthy ecosystem there should be ideally a greater level of exits to the numbers of new investments. According to Pitchbook the ratio of exits to new investments in the U.S in 2021 was 2.3x (USD$774Bn in deal exit value). Last year with the IPOs of Nubank and Dlocal there is an expectation that a necessary trend has begun and that this year there will be at least three new IPOs, and that as the ecosystem develops there will be a more balanced system.
IV. Part 2
This first part focused on data regarding the company and its financing, part two will focus on the founders. To give a glimpse of the results that will be shared in the next part, the most attended university at the undergraduate level was not Harvard, Stanford, or MIT, but Universidade de São Paulo, with 11 founders.
Other results that will be shared are:
- % of unicorns that had a technical co-founder
- % of founders that had a master’s degree
- Ranking of universities attended both for master’s and undergraduate degrees
- Age of founders at the creation date
- Founders prior years of experience
- Top companies w for which the founders worked
V. Methodology details
Founding date: looked for all the founder's available LinkedIn profiles and put as the date when the earliest founder announced it start working on it.
First founding round date: selected when first institutional investor invested in the company.
Unicorn date: Date according to Pitchbook, when the date was not available the earliest news announcement date was used.
Valuation: latest transaction found on Pitchbook.
Significant liquidity event: event in which the majority of the investors can cash out their investment, either through a majority of acquisition or an IPO.