Brazil-Based ONEVC Closes $38M Cross-Border Fund, Amazon Web Services’ $800M Investment Intensifies Cloud Battle in Latin America, How Record-Low Rates Are Reshaping Brazil’s Economy, and more from Latin America...
Other featured stories include: Explaining Ecuador’s Government Crisis, The Rise of Challenger Banks in Mexico, dataPlor CEO Geoffrey Michener’s Interview with Brief, and How Latin American esports is Poised for Growth.
Brazil-Based ONEVC Closes $38M Cross-Border Fund
Brazil-based ONEVC has closed a $38 million cross-border fund, dedicated to investing in U.S. and Latin American startups.
The seed firm, with offices in São Paulo and San Francisco, has $30 million under management, and with $8 million to invest in “special opportunities”.
“We invest in both geographies acting as a strategic partner for U.S. companies that want to become global early and Latam founders that want to connect with Silicon Valley, either to set up offices here or raise capital from U.S.-based VCs… We believe this is one of the most unique and profitable opportunities available now within VC,” said ONEVC founder Pedro Sorrentino.
ONEVC’s first close on the fund was of $10 million in July 2018. The firm then decided to double its target, raising $20 million about a month later, followed by a $30 million cap on the fund, which it closed in July.
The remaining $8 million is dedicated to special-purpose vehicles that were created for later-stage investing in companies like Rappi and Loggi. At earlier stages, both startups had previous backing from members of the ONEVC team.
Prior to forming ONEVC, the six-person Brazilian team collectively invested in 71 companies, including notable companies such as Gympass, QuintoAndar, and Creditas. They saw a combined 27 exits in less than five years. With those investments, the team achieved a combined return of nearly eight times, “cash on cash,” (an 87.8 percent realized IRR), according to Sorrentino.
“We were able to partner with Rappi, by making a commitment to…help them open their operations in Brazil, by hiring the first set of local employees…We continued to be involved in further financing rounds, investing and making connections for the founders,” Sorrentino said.
Amazon Web Services’ $800M Investment Intensifies Cloud Battle in Latin America
Amazon has demonstrated significant efforts to strengthen their cloud presence, backing an increasing number of data centers. The company’s cloud computing arm, Amazon Web Services (AWS), intends to invest $800 million to build a regional data center in a free-trade zone in Buenos Aires, Argentina.
This recent investment aligns with Amazon’s initiatives to expand presence in the Latin America’s cloud space.
According to Yahoo Finance, Amazon will save on taxes by building the data center under review. It will get export tax breaks and income tax reduction from 35% to 15%, courtesy of the new Knowledge Economy Law of Argentina.The company will also be exempted from national and provincial taxes on energy consumption owing to the location of the new data center. These tax benefits will likely contribute to margin expansion within AWS segment.
“These factors are likely to provide Amazon a competitive edge in the cloud computing market, where it is facing stiff competition from the likes of Microsoft MSFT, International Business Machines IBM and Alphabet GOOGL” (Yahoo Finance).
Latin America is an attractive market for technology providers. The increasing adoption of IoT, AI and big data within the cloud infrastructure remain the key drivers in the infrastructure as a service (IaaS) market in the region. Frost & Sullivan reports that the market is anticipated to reach $7.4 billion by 2022 at a CAGR of 31.9%.
Additionally, the growth of IoT, AI and big data are supporting growth in the region’s data center market itself. According to a report from Arizton Advisory & Intelligence, the market is expected to generate revenues above $1 billion by 2023 at a CAGR of more than 11% between 2018 and 2023.
Amazon is not alone, however. Google, IBM and Microsoft have also demonstrated their desire to capitalize on the expansive growth opportunities in the market.
Yahoo Finance reports that Google Cloud intends to invest an additional $140 million in its Chilean data center located in Quilicura, Santiago. The company initially invested $150 million in the center.
IBM owns three data centers in the region – with two centers located in Sao Paulo and one in Queretaro, Mexico. IBM Cloud Direct Link is now part of Ascenty’s connectivity portfolio. Ascenty is the largest data center infrastructure provider of Latin America.
Microsoft Azure also provides cloud facilities in Latin America through its data center in Brazil.
AWS’ initiatives are likely to be a tough competitor to the above mentioned companies. AWS recently selected Buenos Aires as the new location to set up its seventh Edge location in Latin America. Additionally, AWS has three availability zones in Latin America, in addition to established offices in Brazil, Chile, Colombia, Argentina and Mexico.
How Record-Low Rates Are Reshaping Brazil’s Economy
Brazil’s record-low interest rate is primed to reshape the entire economy- from the real estate market to the investment landscape. After recent reductions by the central bank, Brazil’s benchmark interest rate stands at 5.5%, almost a third of the 14.25% level of 2016
Photo Courtesy of Bloomberg
Mortgage loans are closely affected by monetary easing in Brazil, considering that ~70% of which are provided by state-owned lender Caixa Economica Federal at subsidized rates. Since the beginning of the year through August, these loans grew ~13% compared to the same period in 2018, more than double the pace of overall lending.
Bloomberg reports that “average annual rates on mortgages are hovering around 8%, one of the cheapest available to consumers. A two percentage point drop in the benchmark rate gives 500,000 families per year the opportunity to buy their first house, according to Rubens Menin, the billionaire founder of Brazilian homebuilder MRV Engenharia e Participacoes SA.”
Cost of Public Debt
Subdued inflation coupled with the country’s record-low rates has helped ease Brazil’s debt burden. In the year through July, interest payment on government debt totaled to ~5% of the GDP- down almost half from the end of 2015- largely the result of the fact that most of federal debt is indexed either to inflation or the key rate.
Jason Vieira, chief economist at Infinity Asset Management, stated, “one takes after the other, and they both make the debt cheaper to service.”
Photo Courtesy of Bloomberg
According to Thais Zara, chief economist at Rosenberg Consultores Associados, some of the biggest winners of lower borrowing costs are companies.
“Declines in the interest rate curve and credit default swaps usually lead to cheaper long-term financing through capital markets, opening up a window for firms to sell shares or bonds at a time of heightened demand for yield,” Bloomberg reports.
Keeping money in savings accounts or parked in government notes has become increasingly less attractive, as 5.5% returns hardly compare to the 14.25% of just three years ago.
Brazilians have pulled ~15 billion reais this year through August from the traditional savings accounts (known locally as poupança). Concurrently, more than 660 billion reais has been poured into funds. Stocks and exchange traded funds are leading the inflows this year.
Retail And New Players
The shift away from a fixed income strategy has also caused a massive change in the profile of a Brazilian investor. According to Bloomberg, entire teams have left banks to start hedge funds: which have increased as easy returns fade and products previously only available to wealthy individuals become more widely accessible.
“The number of retail investors at local stock exchange B3 SA crossed the 1 million mark last April, a number it had aimed to reach over a decade ago. The Tesouro Direto platform, aimed at the same type of investors, also reached 1 million active subscribers this year, pushing the total amount of people registered in the system to 4.5 million.”
Explaining Ecuador’s Government Crisis
In response to violent unrest over rising fuel costs, Ecuador’s government has abandoned the capital city, Quito. President Lenin Moreno has accused supporters of his predecessor, Rafael Correa, of trying to overthrow his government.
Who is protesting, and over what?
Truckers and taxi drivers began blocking highways throughout the country after the government ended subsidies gasoline and diesel on October 3. Other protestors included indigenous groups, students and other opponents of the government.
Protesters in the capital city of Quito damaged the congressional building and violently entered the comptroller general’s office across the street. Rioters attacked an oil production facility, various plantations, and burned police and military vehicles. Shortly after, the government declared a state of emergency.
Why are fuel subsidies such a big issue?
Thes subsidies cost the government roughly $1.4 billion per year (which represents about 5% of the budget). President Moreno had to improve public finances under an agreement with the International Monetary Fund, and although the IMF and bond ratings agencies welcomed the move, the President’s opponents were insistent that the country’s poor cannot afford higher fuel costs or bus fares.
What’s gone wrong with the economy?
Like many of its Latin American counterparts, Ecuador is vulnerable to fluctuations in global commodity prices. Ecuador, which recently announced that it will leave the Organization of Petroleum Exporting Countries, took a substantial hit with the 2014-15 decline in crude prices, and was in recession in 2016.
Moreno also places blame on his predecessor Correa’s “spendthrift ways”.
The Washington Post reports that “Correa mixed populist largesse with propaganda and repression, raising public sector salaries and embarking on a string of ill-considered public work projects that drove the national debt load above the legal limit of 40% of gross domestic product. The $10.2 billion in loans Moreno has secured from the IMF, the World Bank and the Inter-American Development Bank were meant to soften the blow as he cut spending.”
What do the protests say about President Moreno?
According to pollster Cedatos, Moreno’s popularity, which peaked at 77% in August 2017, fell to 22% by July of this year. The public conception that Moreno hasn’t worked fast enough to get the economy on track is largely responsible for this shift.
“His crackdown on fuel subsidies helped solidify his backing among the business elite as well as the middle class but stoked anger among indigenous groups, poorer Ecuadorians and transport organizations.”
Why did the government flee the capital?
Quito is particularly vulnerable to a shutdown if protesters are able to block a few access roads. Flights have been canceled, as roads to the airport were blocked. The government has temporarily moved the capital to the city of Guayaquil in an effort to mitigate the conflict.
What’s been the economic impact?
Petroamazonas has estimated losses of 165,000 barrels a day, which accounts for about a quarter of Ecuador’s total output. For safety reasons, staff halted operations at three oil blocks following protests.
“Bondholders also dumped the nation’s debt amid investor fears that public finances will deteriorate if the government caves in and reinstates the fuel subsidies.”
The Rise of Challenger Banks in Mexico
The growing adoption of mobile-only financial services by consumers has become the biggest fintech trends.
International investors like Andreessen Horowitz and Goldman Sachs have been pouring capital into challenger banks- the companies challenging the traditional banking institutions- which some see as the biggest fintech opportunity in Mexico.
In March 2018, the Mexican Congress approved the first comprehensive fintech law in Latin America. As reported in last week’s newsletter, CNBV, the Mexican financial services regulator, received 85 applications to operate under the new law. The impact of this legislation relies upon the fact that the regulatory risk- one of fintech’s biggest uncertainties- for investors and potential acquirers can be significantly reduced.
As reported by Federico Antoni in a post on Medium, Mexico has one of the fastest instant government-supported money wire systems in the world: SPEI.
“While pitching his latest fintech startup to a big bank, Oliver Samwer famously argued banks were fast becoming the plumbers of the financial industry, therefore essential but inconsequential. The financial pipes, valves and tanks managed by financial institutions, and government entities work well in Mexico. Technology companies have the choice to connect to any number of local, international banks and government infrastructure.”
Immense opportunity lies within the market of consumers already linked to financial services. Smartphone adoption and debit card penetration are more than 60%, according to Mexican statistics agency, INEGI and the World Bank.
Photo Courtesy of Medium
Despite access to banks, transactions above 25 dollars are still 90% cash-based, often driven by the informal economy. According to Medium, a typical blue-collar worker gets paid on a debit card bi-weekly, then heads directly to an ATM or the bank branch to cash her total balance.
“As the penetration of e-commerce and digital services has grown, this huge consumer base still uses cash to pre-pay their phones, subscribe to Netflix and Spotify and Uber. Every time digital money transforms into physical cash and vice versa, retailers and banks bite several percentage points off hard-earned money.”
Over the past decade, fintech companies have gained market share by focusing on a single financial need, effectively unbundling banking services like lending, payment gateways, wealth management, and insurance.
Today’s increasingly connected work has created a global demand for companies that can provide services to a captive client base to enhance unit economics and retention. Notable successes in the emerging wallet vary by entry points; including the social payments capabilities offered by Swap, UnDosTres’ mobile top-ups offerings, asset management services via Fintual, and lending on Zinobe’s platform.
Non-financial services players like Apple and Grab have quickly seized the opportunity to expand to financial services.
In Mexico, eCommerce company Mercado Libre and mobile telecom operator Weex are leading the challenger bank race by offering ambitious wallet products. Earlier this year, micro-mobility giant Grin acquired Mexican wallet company Flinto in effort to grow their platform into a “super app”, with a wallet at its core.
“If banks and financial institutions keep underinvesting in entrepreneurial innovation, the next wave of challenger banks maybe even bigger. Beyond consumers, hundreds of thousands of SMEs are underbanked, lacking access to credit, insurance, and essential financial services.”
dataPlor CEO Geoffrey Michener’s Interview with Brief
In his interview with Brief, dataPlor’s CEO, Geoffrey Michener, shares some of the latest from dataPlor as well as more about his background and outlook.
“The idea for dataPlor came to me when I was working on another data startup. I realized the potential of untapped data that exists in emerging markets and how improved access to hyperlocal data could benefit companies operating in these markets,” said Geoffrey Michener, founder of dataPlor.
Q: What would you like to see your team accomplish in 2019?
The dataPlor team is closing 2019 with a lot of wins and hard work. Looking ahead to 2020, we are focused on building our client portfolio and providing clients with data that enables them to work smarter, not harder. As our client base grows, we will expand our network of local explorers, continuing to provide high paying work and support their local economies. Finally, we are looking to expand our geographic footprint to Southeast Asia and additional countries in Latin America.
Q: What were the most challenging area in the early stages of the company’s growth?
Building the right team and going to market with an MVP or alpha product is incredibly challenging for a new company. Working at an early-stage startup is thrilling, stimulating, and really difficult. It’s not for everyone, so it’s critical to bring together a mix of people who are adept at managing uncertainty and being productive with minimal structure. At the same time, we were building a team, we were selling dataPlor to companies, from venture-backed startups to Fortune 500.
People understood and immediately were on board with our mission; however, closing those first deals with a product barely out of alpha wasn’t always easy.
Q: Who is your role model or hero?
Since reading The Mystery of Capital I’ve been intrigued by many of the ideas presented by its author Hernando De Soto Polar regarding capital and creation of a thriving economy. I’m not aligned with all of his ideas, but his approach on effective distribution of wealth surrounding property rights has inspired me. His economic ideas have been praised by leaders, including former US Presidents Bill Clinton and George H. W. Bush.
Q: What is your favorite book?
The Mystery of Capital, published in 2000, is my top choice as his ideas around economic prosperity and property ownership remain relevant today.
Q: Do you use any specific method or system to run daily operations?
My system is being present and engaged so I can effectively prioritize issues and daily tasks. Having led startups in the past, my instinct is well developed to assess what is urgent and what can wait. My team is skilled in prioritizing client issues and concerns, escalating to me when necessary. Regular communication with our explorers is also critical to our operational success. We place a premium on the service and value they provide and are available to address any roadblocks or issues they encounter.
Q: Why did you choose your present industry at this time?
Data has always been an area of interest for me. My last two startups focused on small businesses and data, and at my previous company, I was intrigued about the potential. Consulting with my mentors, a number of them mentioned the challenges and opportunities of small business data in emerging markets. I immediately saw the value in creating a service that curates and validates data from small businesses in emerging markets and provides that information to larger companies. We’ve seen with our clients how highly accurate data converts from 10% success in lead generation to a 90% success rate.
Q: What is the best/worst moment you can remember in your career?
My last company, also a startup, ultimately didn’t work, and we had to shut it down. While it’s not unusual in this world, it was a very tough experience for me personally and professionally. I came away from that experience humbled and wiser. Having been through the end of a company, our recent investment milestone of US $2M from investors and mentors, people who believe in the dataPlor vision, was a career highlight.
Q: Looking back – if you could advise a younger version of yourself to do something different – what would it be?
It’s been said many times because it’s true, “Don’t sweat the small stuff.” When you are full speed ahead, juggling multiple tasks, it’s essential to take a moment and remember the big picture. Things are going to go wrong; products will have bugs, and clients will be frustrated. The key is to remain focused on forward momentum, two steps forward one step back, you are still ahead.
Venture Beat Interview: How Latin American esports is Poised for Growth
Venture Beat’s Dean Takashi spoke with Juan Carlos Cortizo, the CEO of Mexico City-based Pro Play Esports. Cortizo believes that mobile gaming will be the primary platform for esports in Latin America, and that 5G will be a game-changer when it arrives.
GamesBeat: How and when did you get the company started?
Juan Carlos Cortizo: The company was the evolution of the business we used to run in past years. It’s marketing agencies in Latin America. We’ve been working with developers like Rockstar, like Activision, like Electronic Arts, all of them, for the past years. We’ve worked with almost every major developer.
Since we’re gamers and we love gaming and we love competitive gaming, it was a natural process. Brands were asking us to run local tournaments and do these types of marketing initiative around esports. It was a natural evolution to say, “This is the moment, so let’s give it a go.” That process started almost two years ago, around 2017.
GamesBeat: What was the first thing you focused on at that point?
Cortizo: We wanted to develop the business model. You know how business models run. You have an idea. The first thing we did was approach developers, the licensers of esports games, to see what they thought about our ideas. Sure, they liked it so we decided toto give it a go. “Start working on it, and when you’re ready let us know.”
It was about a year and a half that we spent developing the business model, the marketing, the communications, everything around what we are today. By May of this year we started doing closed tournaments on our platform and seeing what the community thought, what we could improve. After that we had another flash round, three months of working and making improvements. By the end of July we announced our first season and what we’ll be doing with that.
GamesBeat: And the focus is on esports in Latin America, then?
Cortizo: No, actually, we went all the way. Right now we’re running tournaments in Europe and North America as well as Latin America.
GamesBeat: I see you have different kinds of competitions. Can you describe some of those?
Cortizo: It’s run in two ways, because the business model is a bit more robust than just doing tournaments. The first thing we do is divide — first, you have the base of the pyramid. Ninety percent of the people who play esports games do it for fun. Maybe they’re on the edge of going competitive, or maybe they’re just part of the community. Competitive gaming has been around for a lot of years, but people pursuing it as a career is relatively new. In the U.S. and parts of Europe we’re seeing development centers and colleges trying to professionalize and educate around competitive gaming. But for us, that part of the market, the first–let’s call it the first pillar that we’re running. That’s what we call arenas.
Arenas covers 18 titles right now that are running in these three regions every week. We’re running around 37 weekly tournaments. It’s about educating and empowering that market. We have a good plan for people who join the platform, to start giving them a lot of education, a lot of insights around competitive gaming. If you want to just do it for fun, it’s fun. But if you want to pursue it as a career, we want to empower you. Arenas is that part, where we look at players and what they’re doing, and we help them. It’s like the training element of the platform.
The other part is the major leagues. These major leagues are running for this first season, from 2019 in 2020. That’s going to have just five titles. It will have higher prize pools. We’ll have an opening season and a closing season. We’ll have tournaments for qualification and then playoffs by region, and the champions and runners-up for each region will travel to a different location for the finals. At the end of that road is what we’ll call the Grand Champions, where we’ll have the champion of the opening season versus the champion of the closing season for each title.
GamesBeat: How many players do you think you’re already serving or touching in some way?
Cortizo: Right now we’re reaching 25,000 users. We’re trying to get to the goal of 100,000 users in all three regions by December of this year.
GamesBeat: Are these events run in different languages?
Cortizo: We’re running it in Spanish and English right now. The more we grow, we’ll be having more localized events that are going to be in local languages. With North America and Latin America, it’s easy. You have English and Spanish and that’s it. When you go to Europe it gets more interesting. [Laughs] And then other parts of the world, Africa and Asia, you have a lot more languages. Right now most of our userbase knows English or Spanish, so we’re focusing there.
GamesBeat: Is there a local element or a regional focus to your events, or are they all online, where people can compete against anybody anywhere?
Cortizo: It depends on the game and it depends on the type of event, whether it’s arena or major league. For example, Fortnite has global events. Rocket League has local events online. League of Legends is impossible to play competitively between certain regions, because of the pings and all of that. So some games are local to a particular region and some of them are global.
With major leagues, you’ll have the chance to just go and face people from those tournaments. Timing is the other part of this. We’ll be launching our own streaming network in the coming months. We’ll be broadcasting everything, building shows around our games.
One of the things that’s happening today is that you have a lot of players trying to reach these goals, and there’s nothing to see around their stories and who they are. Right now, what esports needs is to give this ability to not only the sponsors and companies behind it, but the players that empower and all those companies and developers that are pushing their content. The network will help us give this ability to all of those thousands of players.
Right now one of the things we’re planning to do weekly is what we call challenger stories, doing the backgrounds on players. We’re working on players’ stories that they send to us — who they are, what they do, what they want to achieve. This network will help us in a lot of ways, to empower not only the storytelling we have around our tournaments, but their stories as well.
GamesBeat: Are there companies that you see in this space that you might admire, esports organizations in other parts of the world, and you’re bringing that example to Latin America? Or do you have a different kind of business in mind?
Cortizo: One of the things you do–the big companies, I admire them because they open up the pathways to what the industry is starting to become. We’re not trying to emulate. We’re going to be pushing a lot of what we do in this globalization of the sport. At the same time we’re going to be doing a lot of storytelling around all those players. We’re going to be pushing a lot of new technology that’s in development for our live events.
Esports is going to be the world’s game. Right now we’re seeing esports present itself as a sort of lookalike to traditional sports. You have an arena and you have guys in jerseys. But it’s video games. We love video games because they’re totally different from any other kind of thing that people play. One of the main things we’re going to be showing when our major leagues start launching is the aspiration that–a kind of entertainment that we want to deliver to people that goes into our live events. It’s a different experience from traditional esports, an amazing technological spectacle.
Video: Athena’s Bitcoin Business Blooms in Argentina
CoinDesk reporter Diana Aguilar talks to Dante Galeazzi, country manager for Athena Bitcoin in Argentina. Athena is one of the first and biggest crypto ATM networks in the country. Athena has become a lifeline for many refugees and the ability to buy and sell bitcoin – and send it to other countries in Latin America – is picking up steam.