QED on Nubank & Bullish LatAm Fintech - Investment Insights

Latin American Fintech: A Surge in Investment and the Nubank IPO

Venture capital investment in Latin America is experiencing substantial growth, and the region is poised to witness a landmark event: the public offering of Nubank. The Brazilian neobank has privately filed for an IPO in both the United States and Brazil, subsequently releasing a public filing detailing its plans.

QED’s Early Bet on Nubank

QED, a prominent investor in Latin American ventures, made its initial investment in the region with Nubank. This early decision is now anticipated to yield significant returns.

According to Crunchbase data, QED provided capital during Nubank’s 2014 Series A, 2015 Series B, 2016 Series D, and 2018 Series E funding rounds. It’s possible additional investments exist that are not publicly recorded.

An interview revealed that QED’s investment decision was primarily driven by its confidence in Nubank’s CEO, David Vélez, rather than a broad strategy to expand into Latin American fintech.

Expanding Investment in the Region

Since its initial investment in Nubank, QED has broadened its portfolio within the Latin American market. Lauren Morton, a partner at QED, focuses specifically on Latin American investments.

We sought her insights on the recent performance of the region’s fintech sector. Last week, The Exchange examined fintech investment originating from a global pool of capital, supporting numerous Latin American financial technology companies, including QED’s portfolio company, Pomelo.

Today, we are focusing on a single perspective to deepen our understanding.

QED’s New Funds and Portfolio

QED recently secured $1.05 billion for investment in global fintech companies. This includes a $550 million early-stage fund and a $500 million growth-stage fund.

TechCrunch reported that these funds will primarily support fintech companies located in the U.S., the United Kingdom, Latin America, and Southeast Asia.

This new capital will likely bolster QED’s portfolio, which already includes several LatAm fintechs that have recently secured new funding rounds. These include crypto exchange Bitso, SMB lender Cora, payment infrastructure provider Hash, and B2B credit card provider Tribal Credit.

Valuations: A Double-Edged Sword

Let’s examine how the increasing valuations are impacting investors currently deploying capital in Latin America.

TechCrunch: What is driving QED’s optimism regarding fintech in Latin America?

Lauren Morton: QED is exceptionally optimistic about the opportunities within the LatAm fintech landscape. The region boasts a large, youthful population rapidly embracing new technologies.

The necessary infrastructure is developing, laying the groundwork for successful companies. Compared to more established markets, the region presents a significant number of challenges – from data access to payment systems and capital availability – creating substantial opportunities for disruption.

A generational shift is also underway, accelerated by the COVID-19 pandemic, though a move towards digital solutions was already evident beforehand. More capital is flowing into the region than ever before, and the quality of entrepreneurs and founding teams is at an all-time high.

Growth Trends in Latin American Fintech

The accompanying chart demonstrates impressive growth – does this align with your observations in the region this year?

QED is witnessing this growth and its accelerating pace daily. While the number of deals is consistent with the trend observed since its initial investment in Nubank in 2014, the substantial increase in funding is particularly noteworthy.

Funding in LatAm has more than tripled in the past year, while global fintech funding has merely doubled, demonstrating that LatAm, particularly Brazil and Mexico, is a leading market for financial technology innovation and investment.

Term sheets are now being finalized in hours, not days, requiring QED to remain adaptable. The firm has adjusted its traditional investment process to engage with teams more quickly and reach investment decisions with greater efficiency.

A key advantage for QED is its exclusive focus on fintech, allowing it to stay informed about emerging trends and business models, ensuring preparedness for investment opportunities.

Competition and Valuation Shifts

Specifically, how competitive has deal-making been this year in LatAm fintech? Have valuations changed, and were these changes more pronounced at certain stages?

Deal-making has been exceptionally active, mirroring global trends. Valuations are at record highs, and the speed of term sheet issuance is unprecedented.

QED’s seven years of experience in LatAm have resulted in significant gains for its existing portfolio, but new deals are becoming more expensive and competitive.

Investments that would have been considered Series B rounds seven years ago are now effectively Series A rounds.

To address this increased competition, QED is actively seeking opportunities at earlier stages, focusing on seed and Series A investments, and expanding its reach to countries like Argentina, Chile, and Colombia.

QED recently launched Fontes to specifically invest in early-stage companies across the region and foster community growth. This network-driven fund includes CEOs from QED’s portfolio companies as investors, enabling them to contribute to the fintech ecosystem.

[Editor’s note: As previously reported by TC, this is a $12 million fund with average check sizes ranging from $300,000 to $500,000.]

The Impact of the Nubank IPO

What impact do you anticipate the Nubank IPO will have on fundraising and exits for other LatAm fintechs?

This IPO will serve as a clear demonstration that building a major company in Latin America is achievable. The Nubank story is exceptional, and its IPO will reinforce this perception.

Several other significant fintechs in LatAm are poised for rapid growth and potential exits. Investors view these companies as indicators of a thriving ecosystem, while entrepreneurs see them as examples of what is possible.

The number of international funds active in LatAm has increased dramatically, but QED’s specialized expertise in fintech and its established presence in the region continue to attract high-quality investment opportunities.

Looking Ahead

What are your expectations for deal volume and pace for the remainder of the year?

We anticipate the current volume and pace will continue into 2022, but we also recognize that valuations cannot continue to rise indefinitely. A correction is likely, but strong businesses will emerge regardless of future funding trends.

What specific areas within LatAm fintech are you most optimistic about for 2022 and beyond?

QED is enthusiastic about various LatAm fintech sectors, including payments, infrastructure, insurtech, and proptech. The open banking ecosystem in Brazil presents significant innovation potential, and we are excited to see how embedded financial services can reshape the industry.