Why the WeWork debacle matters to Brazil
Andre Maciel, Softbank’s managing partner in Brazil, drew whispers from a packed auditorium at Cubo’s innovation conference last Friday when he affirmed that Softbank will make a “big announcement” in the next two weeks. He also hinted at the possibility of bringing foreign businesses to Brazil, stating that around 40 companies show high growth potential in the market.
WeWork’s IPO disaster, which brought Softbank to the forefront of American business news last week, didn’t garner nearly as much attention from Brazilian outlets. The practice of overvaluing companies may cause inflation in ecosystems like the USA’s, Bruno Diniz, the director of the Brazilian Association for Startups told Suno Research. “But [in Brazil],” he says, “there’s still a lot of room for growth.”
Why Brazil loves Softbank
This optimism may be spurred by Softbank’s USD$5 billion Innovation Fund, reserved for funding Latin American ventures. As a region that was largely ignored until 2017, Softbank’s entrance allows for important late-stage funding that local VCs struggled to provide.
According to a special report by McKinsey, private funding in Latin America has doubled every year since 2016, with funding in the first half of 2019 surpassing total funding in the previous year. What’s more, Brazil accounts for 70% of those investments.
In March, Softbank launched a USD$5 billion fund specifically for Latin America called the Innovation Fund. The Japanese conglomerate subsequently went on what Bloomberg dubbed a “Billion-Dollar Deal Binge,” leading upwards of USD$1.9 billion in funding rounds within six months.
Most of these rounds went to Brazilian companies. The notable exception is Columbian delivery app Rappi, which received USD $1 billion in April. Even so, the app’s distinct mustache logo can be seen across major cities in Brazil, making its impact no less important to the country.
No signs of stopping
When Softbank leads a funding round, it is usually accompanied by significant, if not outrageous, increases in valuation. This has held true for many of its Brazilian ventures. Logistics app Loggi and apartment rental platform Quinto Andar both became unicorns after USD$150 million and USD$250 million funding rounds, respectively. Lending platform Creditas tripled in valuation in July and could soon be valued at over USD$1 billion, according to LAVCA’s unicorn leaderboard.
Softbank’s most recent venture, announced in mid-September, is home goods platform Madeira Madeira, which received USD$110 million. Although no valuation has been published, this is nearly triple the total amount the 10-year-old company has secured thus far.
The ball continues to roll, with talks to invest in more Latin American venture funds by the end of the year (so far both Argentina’s Kaszek Ventures and Brazil’s Valor Capital have confirmed funding). Not to mention the special surprise Maciel promised in two weeks.
Will WeWork’s fallout reverberate in Brazil?
Softbank has already invested over 20% of the Innovation Fund, which is designed to be invested over a five-year period. There is still a full quarter of 2019 left and at least one more major announcement before the end of the year.
At the same time, Softbank is starting to face pushback as it tries to secure the second round of its USD$100 billion Vision Fund, for ventures worldwide. WeWork is not its first high-profile investment to draw criticism — Uber and Slack also failed to meet expectations after their IPOs. Saudi Arabia’s Public Investment Fund, which contributed nearly half of the first worldwide fund, is now planning to only reinvest profits into the second iteration, Bloomberg reported.
Nevertheless, Softbank will likely remain bullish in Brazil for the foreseeable future. The company remains optimistic about opportunities in Brazil, going as far as stating that there are still many opportunities to create unicorns in the country.
Likewise, Brazil remains optimistic about Softbank. The company has a hand in four out of seven Brazilian unicorns (QuintoAndar, Loggi, Gympass, and 99 via Didi Chuxing), with no major setbacks as of yet. With that being said, high-growth Brazilian tech companies, such as PagSeguro, Stone, and Arco Educação, tend to hold their IPOs in New York rather than nationally.
None of Softbank’s Brazilian investments have attempted to go public as of yet, and if the company fails to shore up its credibility with American public investors, its favor in Brazil (and other Latin American countries) could sour.
