VC Fund Canaan Debuts in Latin America, Plans More Investments in Brazil

Brazilian fintech Marvin closed a Series A round without reducing its target valuation

Photo: Julio Grossi/Courtesy
May 25, 2022 | 03:21 PM
Reading time: 4 min.

Bloomberg Línea — U.S. early-stage venture capital fund Canaan has led its first round in Latin America, a $15 million Series A in Brazilian fintech Marvin, and intends to keep investing in Brazil this year.

Late last year, the firm participated in a small check with a Seed contribution in Cayena. But now, Canaan has done the entire Marvin round, with a residual pro-rata from Canary.

At a time when funding via equity is increasingly scarce, Bernardo Vale, founder of Marvin, said the company was able to raise at the valuation it wanted. “We did not lower by one real the valuation we wanted because the market has deteriorated,” he said in an interview with Bloomberg Línea.

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Although the company does not disclose its valuation “so as not to be a perverse incentive for the other rounds”, Vale said “the Series A diluted control less than what is usual”.

Nobody knows exactly what the fundraising market is going to look like from here on out, but this issue of knowing the size of the company is how you create FOMO (fear of missing out) among funds. Now, the challenge is here going forward. More than ever, team and execution have seen the name of the game, the recipe for our cake is clear: good people in, keeping the execution pace with cash reserves, and prepared for a harsher winter.”

Prior to the funding, the fintech that anticipates card receivables as a means of payment for businesses had enough cash to survive up to nine months, “which for a startup is reasonable”, Vale explains.

“When we started the round we didn’t have this reading that the market would melt down as has happened in the last few days. The decision to raise money also involves increasing the company’s cash flow, nobody knows when the winter ends, and who the players are that will continue. We raised money to expand without putting pressure on the cash position, so we don’t need to look at whether we would have to lay off people. We stretched our cash position for several months,” he adds.

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Vale jokes that until October of last year, “if a Cayman Islands address fell in front of a venture capital fund, you got a check”.

At that time, without having a clear direction for the use of fundraising, Marvin decided to wait and seek capital earlier this year. Now, the situation is different. Entrepreneurs are waiting for the money to drop into the account before they can actually count on the investment.

On Tuesday, Brian Requarth, co-founder of entrepreneurship network Latitud, tweeted that he has received five messages reporting that investors have withdrawn investment commitments at the last moment. He supplemented this with a LinkedIn post saying he was concerned by the number of messages and stories he has heard in the last two hours.

Vale also reported that he has seen several entrepreneurs telling stories of funds signing the term sheet and at the last minute pulling back on the investment amount. At the same time, investors such as Jorge Paulo Lemann have said that now is the best possible time to invest to pay less on equity stakes.

But according to Marvin co-founder Henrique Echenique, “Canaan did not take advantage of the moment to get different conditions to those that we talked about at the beginning of the round”.

Vale and Echenique said they talked to over 120 funds until they closed the Series A.

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“We went to speak with venture capital firms from South Korea, with an Arab sovereign wealth fund, with American venture capital funds. But with Canaan, we really identified with the partner, and he showed a lot of interest. We certainly weren’t just an option where he put a pitch in to see where it goes,” Vale said.

Brendan Dickinson, fintech thesis leader at Canaan, traveled from Connecticut to meet three of Marvin’s clients in Brazil and talk to law firms such as Pinheiro Neto to understand the country’s regulatory context.

Canaan has been investing in fintech for 20 years, and Dickinson said the company likes to invest in financial platforms that ensure infrastructure.

Marvin allows the use of the balance of vending machines (receivables from points-of-sale) of commercial establishments to pay suppliers without the need to pay anticipation fees, anchored by the new regulation by Brazil’s Central Bank that allowed this practice from June of last year.

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“If you can bring liquidity to markets that are not liquid, you can grow quickly. And with card receivables in mind, Marvin has a solution that enables a more efficient and liquid market,” Dickinson said.

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For the investor, even though large fintechs such as Klarna, Stripe, and Affirm have seen their valuations plummet and may be priced lower relative to the valuation paid by an investor 12 months ago, those companies are still priced much higher than what was paid in a seed round or Series A.

“The multiples are down from last year, but they are still great companies, so I remain very bullish on fintech theses,” he said.