Big VC Deals Will Delay Mexico’s First Fintech IPO
No need for startups to hurry into the public market when giants like SoftBank and General Atlantic are pumping in private capital.
By Carlos Martinez and Dominic Pasteiner
Investments in Mexican fintechs by large firms such as SoftBank and General Atlantic have added liquidity to the market and will likely delay the sector’s first initial public offering, two industry executives and a sector lawyer tell Mergermarket.
SoftBank, the Japanese conglomerate, in March launched a $5 billion fund to invest in technology startups across Latin America. A month later, it invested $1 billion in Colombian on-demand delivery startup Rappi, and in May it poured $20 million into PayClip, Mexico’s leading online payment processor by number of clients, as part of the company’s $100 million funding round.
PayClip, whose backers also include Greenwich, Connecticut-based General Atlantic, was considered a candidate to become Mexico’s first fintech to launch an IPO, Mergermarket reported in June 2018.
In August, SoftBank disclosed its newest investment in a Mexican fintech when its Chief Operating Officer Marcelo Claure announced on LinkedIn that the Japanese conglomerate would invest in used-car platform Kavak, according to Reuters. Claure oversees SoftBank’s Latin American investments.
General Atlantic also backs Kavak.
SoftBank is also in advanced talks to invest in local lender to small and medium-sized enterprises Konfio, according to Reuters. Last month, Konfio secured a $100 million credit facility from New York-based Goldman Sachs. The bank also backs local SME lender Credijusto.
Mexican fintechs will have to invest the capital raised in these large funding rounds before focusing on a possible IPO, says Maria Ariza, CEO of Bolsa Institucional de Valores, Mexico’s newest stock exchange.
Recent investments like those announced by SoftBank have increased market liquidity, allowing Mexican fintechs to remain private for longer as some of them struggle to comply with new regulations, according to a local sector lawyer.
Last March, a new law — Ley Para Regular las Instituciones de Tecnologia Financiera, or Fintech Law — was enacted that requires online wallets, crowdfunding platforms and cryptocurrency-based payment systems to obtain operating licenses from the country’s banking and securities regulator, known as CNBV. Some companies are expected to struggle to meet CNBV’s requirements, including meeting specific capital and liquidity levels. “It’s better to work through that struggle as a private company rather than a public company,” says the sector lawyer.
The CNBV estimates that about 200 of the more than 515 fintechs currently operating in Mexico require an operating license. As of September 26, 85 companies had applied for one.
Mexican fintechs also got spooked about going public following We Co‘s aborted listing and Lyft and Uber Technologies’ disappointing IPO debuts, according to one local venture capitalist.
After scrapping its IPO plan in September, We’s valuation plunged from $47 billion to less than $8 billion. Similarly, Lyft and Uber’s market caps are below their latest private valuations.
There has not been an IPO in Mexico since September 2017.
Carlos Martinez is Mergermarket’s Senior Correspondent based in Bogota, Colombia. Dominic Pasteiner is Mergermarket’s Mexico Correspondent based in Mexico City.