Carolina Mandl, Anirban S

(Reuters] – Sebastian Kanovich struggled to gain global attention when he co-founded the Latin American digital payment startup dLocal, Montevideo, in 2016.

He told Reuters that it took them many Nos to get the first Yes. “We weren’t only Latin American, we were also from Uruguay. We are not known for our technology.”

Now, five years later, the story is different.

dLocal, which was first listed on New York’s Nasdaq Exchange in June, is now valued at $16 billion. Thanks to partnerships with Amazon (NASDAQ) and Uber(NYSE:) in thirty countries, other Latino tech companies are also riding this wave.

Data provided by CBInsights to Reuters showed that Latino startups, ranging from Nubank in Brazil to Rappi, a Colombian delivery company, raised $14.8 million in the first nine months 2021. This is a 174% increase over last year.

Private equity and venture capital giants such as Sequoia Capital, General Atlantic, and SoftBank Group Corp have all been interested in the Latino boom. Wall Street banks want to capitalize on the “gold rush” by making more Latino “unicorns public in the United States.

Six sources familiar with the matter told Reuters that more than 10 Latin American tech startups are preparing to launch initial public offerings (IPOs). These include Brazil’s QuintoAndar apartment-rental service, as well Mexico’s Kavak used-car dealer and Fintechs Clip and Creditas.

As discussions concerning the planned listing are confidential, all sources asked for anonymity.

Clip, QuintoAndar, and Kavak declined to comment. Creditas denied that any information on an IPO was available at this point.

Nubank, which counts Warren Buffett’s Berkshire Hathaway (NYSE:) Inc as an investor, is aiming for a valuation above $55 billion in a U.S. IPO next year to become the region’s most valuable financial institution, Reuters reported https://reut.rs/3phc1Ep in August.

Graphic: Dealmaking boom in Latam: https://graphics.reuters.com/LATAM-TECH/byprjrmeape/chart.png

GLOBAL ASPIRATIONS

Latin American unicorns are privately owned firms that have a value of at least $1 million. They were created by an unprecedented internet boom.

Rodrigo Maldonado (executive director at) stated, “Companies within the region have developed in the past five years. Now we think there will probably be between two- and three IPOs of Latam technology companies per quarter next year.” Morgan Stanley Brazil’s NYSE: refers to U.S. listings.

Although Latin America still trails Asia, Europe, America in terms of the volume of tech startup volumes, Latin America has seen a rise in demand for innovative digital services due to its widespread use of smartphones, wireless networks, and payment cards.

Mobile-savvy users in the region are becoming more familiar with digital wallets, and have even begun to use smartphone apps for virtual doctor appointments.

This is why venture capitalists still create technology unicorns in Latin America and other established startups continue with U.S. listings plans despite the market downturn that has affected tech stocks.

Alex Ibrahim, Head of International Capital Markets, New York Stock Exchange, stated, “If you take a look at the Latam pipeline now, it’s pretty incredible what could come out of the region – both from Brazil but also from other countries such as Mexico, Colombia and Peru.”

He said that “a lot of these high-growth startups coming from these countries are betting big on global markets such as the United States.”

Latin American stock markets are heavily dominated by traditional firms such as banks or commodities traders. This is driving startups to seek listings in the north. Brazil’s benchmark Index is less than 10%, but tech companies make up almost a third.

These days are gone when investors saw Latino entrepreneurs as less risky than those in the U.S. Reuters was told by venture capitalists as well as investment bankers that most funding is at comparable valuations to Silicon Valley counterparts.

Martin Escobari is co-president, U.S. growth investment General Atlantic. It has 12 Latin American startups.

Graphic: Latino unicorns: https://graphics.reuters.com/LATAM-TECH/zdvxoorropx/chart.png

The region still has many challenges that tech companies must overcome, such as a dearth of skilled engineers.

General Atlantic says that Latin America’s universities produce 40,000 software engineers per year. This is far less than the 100,000 required by the tech industry, which it believes will be growing rapidly. Investments in businesses with a reputation for resilience are being influenced by other factors, such as political and economic instability.

It has had a long history of experiencing booms and busts. This was evident in 2014-15 when large investors pulled away following an economic downturn which ruined the prospects for several new tech startups.

However, Sequoia or SoftBank, which are deep-pocketed, believe this time will be different and could reap huge returns from their initial investments. These eye-popping returns are inspiring new generations of investors and tech entrepreneurs.

General Atlantic’s Escobari said that while tech companies have been around since the 1990s, they are only starting to emerge in this region now, some 20 years after their inception.

FAVORITE FINTECH

According to LAVCA (the association for Latin American private equity), startups that are focused on fintech or financial technology have a 40 percent share of 2020’s total funding.

Many of these companies sell financial services for the “unbanked”, people who cannot access traditional banking. Brazil’s Nubank, C6Bank and SoftBank Creditas, both backed by JPMorgan (NYSE) have all benefited from investors’ interest.

Non-financial startups like QuintoAndar and Kavak have begun offering financial services, including insurance and car loans.

Sequoia has just two Latin American investments at present – Nubank, Rappi. But, Sonya Huang, a partner in the venture capital firm said that they plan to invest in one or two more companies each year. These will be in areas such as finance, education, and ecommerce.

Huang stated that the region was very different to the U.S.A. or Europe. However, some key theses have been proven correct globally – digital and mobile-first banking – which can be applied in this region.

SoftBank Japan renewed its focus on Latin America last month with a fund of $3 billion. This is less than three-years after it launched its first regional fund. SoftBank’s Brazil Head and Operating Partner Alex Szapiro said that it had invested in 50 Latino startups over the past year.

Capital is a basic commodity in the region.