Nyatta Says New Growth Equity Fund ‘Not Chasing Unicorns’, Eyeing Brazil and Mexico

Former SoftBank executives for Latin America, Shu Nyatta and Marcelo Claure, have raised $440 million for Bicycle Capital, focusing on startups in Latin America, particularly in Brazil and Mexico

Shu Nyatta, former managing partner of SoftBank for Latin America. Photo: Scott R. Kline.
June 14, 2023 | 07:25 PM

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Bloomberg Línea — Marcelo Claure, former Chief Operating Officer (COO) of SoftBank, and Shu Nyatta, former managing partner of SoftBank for Latin America, announced on Wednesday the launch of their growth equity fund for Latin America: Bicycle Capital, as anticipated by Bloomberg Línea in March.

The vehicle, which aims to raise $500 million for its inaugural fund, already has commitments of $440 million from Claure’s family office and the Abu Dhabi sovereign wealth fund, Mubadala. In an interview with Bloomberg Línea on Wednesday, Nyatta said the fund aims to fill the capital gap for local growth in the region but is not interested in “chasing unicorns”—many of which were created during the peak activity of his former company, SoftBank, in the region since 2019.

“We don’t care if they are unicorns or not. I think everyone has been too focused on unicorns. Valuation is not what attracts us to a company,” Nyatta said. “We’re not chasing unicorns, that’s not our job. Our job is to find companies with good valuations, whether it’s $200 million or $2 billion, it doesn’t matter.”

This will be Mubadala’s first major tech foray in Latin America, investing $200 million in the duo’s new fund from the former Japanese conglomerate.

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“Mubadala has a venture fund in Europe and San Francisco. They haven’t made technology investments in Latin America, but they have a private equity fund in Brazil, so they’re familiar with the region and technology globally, making them the perfect partner because they know the region and the world,” Nyatta said.

In May, Bloomberg Línea reported that Paulo Passoni, one of the former managing partners of SoftBank’s Latin America fund, withdrew plans to join Bicycle with Nyatta and Claure.

In early May, Passoni posted on LinkedIn about the end of the countdown to his return from sabbatical since leaving SoftBank in April 2022, alongside Shu Nyatta, who launched Bicycle in Miami.

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“Today, I was supposed to reveal what comes next. Instead, I decided to follow a new path. One of the toughest decisions of my career.”

On Wednesday, Passoni expressed his congratulations for the launch of Bicycle on LinkedIn.

“Paulo and Marcelo were abiding by SoftBank’s non-compete clause, nothing was set in stone until today. There were discussions about who would join, but nothing was finalized. We were talking about joining forces at some point, but we decided that two people were enough, and there are no hard feelings or anything like that. I don’t know what he will do, but he will do something different, Marcelo and I will manage the fund,” Nyatta said.

‘Private markets thought stocks would only go up’

According to Nyatta, there is a local capital gap for growth in Latin America, and Bicycle aims to invest from Series B onwards, up to pre-IPO.

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During the record venture capital years for the region, DST, TCV, Dragoneer, and Coatue invested in companies like Nubank, dLocal, and Hotmart.

“If you’re a foreign fund and a public-private fund like Tiger, Coatue, which entered and exited the region, it’s hard to imagine these funds being reliable over time in terms of their focus on the region,” Nyatta said.

“Bicycle wants to be that partner. The vehicle’s portfolio will be small, consisting of 10 to 15 companies, and the investments will be in equity only, meaning growth equity.”

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However, the checks won’t be that large. Bicycle intends to offer between $20 million to $50 million for investments in companies, without a specific target ownership stake, but with a significant stake to join the board. “If a company only wants a check, we won’t do that; there are many other opportunities in life,” Nyatta said.

Given the size of the fund, Bicycle cannot finance companies that require hundreds of millions of dollars or capital-intensive industries.

“For those companies, they’ll need to find deeper capital, funds of several billion dollars to support them. For us, we have to seek capital efficiency, it must be companies that have a clear path to profitability at some point in the next few years, that don’t need hundreds of millions of dollars to get there,” he stated.

However, the fund does not intend to invest in any specific sector. When asked about cryptocurrencies, since Marcelo Claure was an avid supporter of blockchain, Nyatta said cryptocurrencies are a complicated matter.

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“They had their moment, but that moment has passed. It’s very difficult to generate interest from other investors in them,” he said. “We never say never, but we’re not particularly focused on that at the moment; we’re looking for founders who are solving problems. We’re not obsessed with cryptocurrencies.”

Nyatta doesn’t see a problem with financing down rounds either.

“In public markets, down rounds happen every day. Stocks go up, stocks go down; that’s very normal. For some reason, private markets believed that stocks only go in one direction. That’s a very misguided assumption. It’s just a habit we developed over time,” he said.

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Nyatta also stated that it’s healthy for companies to establish the correct valuation, not just the highest one. According to Nyatta, some companies are doing that, but there are still some that struggle because their boards don’t want to allow adjustments. “We believe there will be down rounds, flat rounds, structured rounds, and we’ll be happy to participate in any of them,” he said.

Bicycle has more than 10 limited partners, such as pension funds, endowments and family offices, and aims to have over 40 when the fund is fully established. “

They’re investing in us in search of equity returns,” Nyatta said.

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Competition with SoftBank

With the end of the non-compete clause, the former SoftBank executives will actively compete with SoftBank. However, for Nyatta, it’s more about collaboration than competition.

“The good thing about growth rounds is that they are not as competitive because you can always collaborate. Series A is when there’s more competition in this industry, because funds want to own their 20%. When you get to Series B, C, and D rounds, funds love to collaborate because it’s helpful to have different voices around the board, and we want to be collaborative. We look forward to fully collaborating with SoftBank, General Atlantic, Riverwood, QED, companies that have been investing in growth for a long time,” Nyatta said.

Nyatta also said there’s “a good chance of having multiple investments by the end of the year.”

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When asked about where these investments will occur, Nyatta said that although the fund looks at the region, “if you want to build a great company, at some point, you need to address Brazil and Mexico”.

For the fund, which aims to participate in pre-IPO rounds of tech companies in the region, there are at most 10 Latin American companies that are strong candidates for entering the capital market in the coming years “if the window opens”.