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Latin American Unicorns Are Valued Way Above their Revenue Levels: Report

Unicorns in the region represent just 3% of the companies that have raised capital, compared to 51% in the US and 17% in China

Startups: Overvalued?
June 20, 2022 | 01:15 pm

Bogotá — Unicorns in Latin America were valued at up to 18 times above their annual average revenues of $148 million in 2021, while in the case of soonicorns, companies that are viewed as soon-to-be unicorns, it is up to 20 times, according to a report by Endeavor and Glisco Partners.

The valuation (EV/R) to revenue ratio calculation was performed with a sample of more than 100 Latin American ventures, according to the report Venture Capital and Growth Equity Ecosystem.

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“Given market conditions, by 2022 we will start to see adjustments in valuations, so these numbers may differ when consulted at a later date,” the authors of the report state.

In the case of companies in sectors such as fintech, the multiple of valuation to revenue or sales is 16-fold, while in e-commerce firms the average is nine-fold.

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If analyzed from the investment side, unicorns in Latin America “have a valuation to average raised capital ratio of six”, the report adds.

This means that “they have a valuation six times higher than the investment they have raised. During 2022, this ratio will have adjustments and challenges in order to be sustained”.

In Latin America, unicorns account for only 3% of companies that raised rounds of capital, whereas in the US the figure is 51%, and in China 17%.

The report indicates that Latin America has already seen the emergence of more than 30 unicorns, 78% of which are located in Brazil and Mexico, but these represent less than 0.0001% of the total number of companies in the region.

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Meanwhile, soonicorns represent only 9% of the companies that have raised capital, and 0.0006% of the region’s total number of companies.

The largest number of unicorns in Latin America is focused on the fintech segments, followed by e-commerce, transportation and logistics, technology for the real estate sector (or proptech), and video games, among other sectors.

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The average revenues of unicorns in Latin America currently stand at $148 million, while their average valuation is $1.7 billion.

The estimated time to reach unicorn status in Latin America is seven years, with 2013 being the average year of foundation, although Endeavor and Glisco Partners point out that cases of between one and three years from foundation to unicorn are beginning to be seen.

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Unicorns in Latin America have an average of 2,156 employees, and an estimated 351,482 employees are employed by all the region’s unicorns combined.

In terms of investment, the report states that each of the companies obtained an average of $118 million, while the total figure would be $17 billion.

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On the other hand, “83% of Latin American unicorns have made at least one acquisition since 2018, focused on offering comprehensive services to their clients, acquiring technological innovation and expanding internationally,” the report states.

Some 79% of the acquisitions were in the same industry, while 76% of unicorns acquired a company in their country of origin, and 58% bought companies in the IT sector.

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In general terms, the report states, “the 2022 outlook is based on a complex combination: a significant drop in the share price of companies in the technology sector, rising inflation, an increase in interest rates, and a war”.

In the midst of the startup ‘winter’ in Latin America and the recent wave of layoffs, venture capital activity has slowed down in terms of deal value, although the number of deals increased between January and May.

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Latin America saw 423 venture capital deals worth a total $4.86 billion between January and May, a 22% drop in the value of deals in year-on-year terms, and a 9% increase in the number of deals, according to Transactional Track Record and Datasite.

However, in areas such as Internet, software and IT services, there was a 36% drop in the number of transactions, with 103 during the period cited.

Translated from the Spanish by Adam Critchley