Bloomberg Línea — It’s not yet June, but for entrepreneurs in South America, it feels like winter has already begun. While major venture capital managers such as Sequoia, QED, and even startup accelerator Y Combinator are warning entrepreneurs to prepare for a more challenging economic scenario and less liquidity, some startups are still managing to garner their first early-stage investments in the region.
This is the case of Mexican fintech Cicada and Colombian startup Pandas, which raised the largest pre-seed investments in Latin America, and Argentina’s Nuqlea. Bloomberg Línea spoke to the entrepreneurs of the three startups.
Mexican financial infrastructure platform Cicada raised $3.6 million in a Seed round led by Kaszek, with participation from Geometry Ventures, BCP Securities, and Mexican financial industry angels. The fintech said it is already in negotiations for an extension of the Seed round.
In January, the company obtained a license to operate as a brokerage with money raised from angel investors. Now, the company will exit Beta mode to launch its first product for institutional clients in Mexico.
According to Ignacio Tovar co-CEO and co-founder of the startup, in capital markets in emerging countries traders use traditional means such as messaging systems, phone calls and broker-screens, the same way they’ve been trading for the last 20 years. Cicada’s idea is to offer a trading platform to digitize and centralize institutional capital markets and increase liquidity.
The startup also plans to expand into the swaps market - after obtaining a license for that - and leverage Blockchain technology for pre-trade and post-trade processes.
In an interview with Bloomberg Línea, Tovar said the startup’s project began two years ago when his partner Javier Hernández was working at Morgan Stanley in New York. “He realized that to do instrument transactions in secondary markets in emerging markets was very complicated,” said Tovar, who has a multidisciplinary background.
He studied robotics and design, and ventured into entrepreneurship when he returned to Mexico after spending time studying in London.
“In Mexico, there are about 300 institutions that move large volumes of debt. We are developing a strategy to attract them to the platform,” he said.
Tovar explains that in the Mexican debt markets there are institutional investors and traders, who make up the buy-side and the sell-side. “The buy-side are institutions that use these instruments as part of their savings structure. For example, you have big pension funds and treasuries. A lot of that money is concentrated in these buy-side institutions. But to operate, these institutions need the buyers, and in Mexico, they need an intermediary. Often there are multiple intermediaries in a single transaction. Now we are promoting this without an intermediary through a digital route,” said the co-CEO.
Cicada intends to expand to Peru, Chile and Argentina in a second phase, countries where there is a similar securities structure, according to Tovar. “We want to be the key part of the financial structure for fixed income,” he said.
Based in Bogotá, startup Pandas has raised the largest pre-Seed in Latin America to date: $6.3 million, in an investment led by Third Kind Venture Capital, with participation from Acequia Capital, Picus Capital, Tekton Ventures, Partech, K50 Ventures, Liquid2 Ventures, Clocktower Technology Ventures, Gaingels and other investors, such as founders of startups including Treinta, Belvo, Nowports, Merama, Tul, Riogrande, Truora, Ironhack, Clara and Farmu.
Pandas is a platform that connects small vendors in Latin America with factories in China. The money from the fundraising will be spent on scaling operations, developing the platform, and attracting talent.
The startup’s founder, Rio Xin, grew up between China and Spain and has a background in space engineering, with a PhD from Cambridge University. Xin worked at consultancy McKinsey for almost five years, focusing on strategy for private equity and digital transformations, where he met his partner at Pandas, Marcos Esterli.
Esterli studied in the UK and Spain and worked at a startup focused on ESG valuations. Then, in Latin America, he joined the Treinta team as an investor.
“As part of his work at Treinta, he was talking to a lot of small businesses in Latin America and realized that one of the big problems for these vendors was the procurement part,” Xin said in an interview with Bloomberg Línea. “Many products take at least 30 days to get from China to Latin America, so we decided to create something to help small businesses. Now, this is more relevant than ever because of the situation we’ve experienced in the last two years,” he said.
Pandas also plans to add financial services to the shopping platform. Today, the service works like this: small businesses access the Pandas website and buy their products from Asia. Pandas promises to deliver those products to Latin America within a day.
According to Xin, this is possible because the startup has leveraged the use of data to identify high-turnover products and predict which products sellers will need.
While renowned investors such Marcelo Claure, formerly of SoftBank, point to Latin America - and especially Mexico - with the potential to become the manufacturing producer for Western countries that would migrate to regionalization because of the problems in China’s centralized supply chain, Xin says some products are simply not available to be produced in Latin America.
According to Xin, Pandas has partners across China to redirect the flow of goods to Latin America if any area is blocked by lockdowns.
“China is still the world’s producer in terms of some products that you need expertise to make. I believe this supply chain situation shows how much Latin America needs a company like Pandas, with an office in China, to understand the problems and work close to them,” he said.
A digital platform for construction and housing in Argentina, Nuqlea has raised $3 million. Investors included Newtopia VC, with a majority stake, and other VC funds such as Nova (from Saint Gobain), Grupo Murchison, and Catalysts.
The group of investors also includes a mix of figures from sports - Manu Ginobili and Eduardo Novillo Astrada, from the business world, such as Darío Maffei (Indigo’s global chief business officer) and Matías Woloski (co-founder of Auth0, an Argentine unicorn), as well as other entrepreneurs and angel investors.
The startup is a kind of marketplace through which end users and specialized profiles have access to more than 20,000 products from 44 brands in the construction sector.