Fabrice Serfati
General Partner & Managing Director
IGNIA Partners


Expert Contributor

Is Lack of Latam Startup IPOs a Problem for VCs? No. Here’s Why

By Fabrice Serfati | Mon, 09/12/2022 - 10:00

Just a couple of days ago, I was reading in the news about Sanborns, a company from Grupo Carso. They announced that they will repurchase their public stock and go private. Aeroméxico has been doing the same.

In July 2022, Jose Oriol Bosch, CEO of the Mexican Stock Exchange, mentioned that he does not see any Mexican unicorn making an IPO on the BMV anytime soon. There has not been an IPO in the Mexican market since 2017. That same year BIVA was born, a new Mexican stock market with the mission of giving access to new companies that are looking to go public. But even with that good news, the Mexican public market has continued to shrink.

Having been a VC in Mexico and Latin America for the last 15 years, this has always been on the horizon: being able to see a startup go public. I have seen startups gaining traction in the Mexican ecosystem, new unicorns popping up and attracting funding from global investors as they raise their B and C series and so on, but they’re still waiting to go the last stretch of the cycle, which means going public in the stock market, whether that is in Mexico, Brazil or even the US, as some of the most successful have done. 

Various Latin American companies, when they are ready, prefer to go public in New York, specifically Nasdaq. One of the first examples was Mercado Libre in 2007, and more recently, in December 2021, Nubank made its debut with US$52 billion market cap, becoming Brazil's third-most valuable public firm. More good news in that direction (and very close to my heart since it’s an IGNIA portfolio company) emerged just this week when Mexican digital and banking services platform Covalto said it will list on the Nasdaq through a special purpose acquisition company (SPAC), the first time a Mexican fintech will trade publicly on a US stock bourse. The deal puts the company, formerly known as Credijusto, at an implied US$547 million pro-forma enterprise value and could generate up to US$177 million of capital before expenses.

The decision to go public in the US is, of course, because in a bigger market a company can attain more liquidity; however, as the local ecosystem consolidates, more companies may choose, in the long run, to do it in their local markets, even if that has not been the case yet. 

The question that arises is if we will be seeing more Latin American startups IPOing soon and if the lack of IPOs is, for many, in fact, an intrinsic flaw of the venture capital business in the region?

In my opinion, that is not the case. Here is why:

  1. What we have seen in the last six months in Mexico is a consolidation of the startup ecosystem, after a party where later investment rounds were dealing out huge valuations. According to CB Insights, during the first half of this year, 63 investments were completed in Mexico (about US$775 million). This number of investments is similar to the 68 transactions in the same period of 2021. What has changed significantly is the total amount, which in 2022 is less than half the previous year (US$1.7 billion). The data shows that investment continues to happen at an earlier stage, consolidating the platform for future successful companies, some of which could potentially be IPO candidates.

  2. The growth in Mexico of retail accounts for investing in stocks has generated attention on the market. A good sign is that the number of investment accounts managed by brokerage houses in Mexico increased 226.78 percent in one year, according to the most recent CNBV report, since in December 2021 there were 3,096,413 accounts compared to 947,555 in December 2020. This could be a first step into building liquidity in the stock markets.   

  3. In the meantime, we have seen mergers and acquisitions between startups happening, which has been a great way to exit investments for some of us.

  4. The increasing appetite of secondary investment funds for purchasing assets from early-stage investors, such as IGNIA, also has opened a new door to building returns and liquidity for regional investors in the last 18 months.

  5. Finally, as I mentioned in my previous contribution to MBN, the demographics and fundamentals of the region are powerful enough to build a strong digital ecosystem.

All of the above builds my strong conviction that even if today we are far from seeing an active IPO market in Mexico, we should remain optimistic that the critical mass is being built. Also, we will keep seeing many of the soon-created Unicorns trying the Nasdaq way. Additionally, I continue to be bullish about the early-stage VC investment model and its huge contribution to economic and social value in Mexico, and, of course, the visionary investors who continue to invest in this asset class.

Photo by:   Fabrice Serfati