Pod Insights Equity Podcast The tourist VCs in LatAm have gone home About this episode This week, Mary Ann talked to David Vélez, the co-founder and CEO of Nubank, the $50 billion São Paulo, Brazil-based digital bank that offers credit cards, checking accounts and life insurance to consumers.
How Nubank has managed to increase its market cap by over 40% in eight months’ time.
Why some investors are sticking it out in LatAm, and why it’s a great place to still put venture dollars.
Which startups in LatAm have been the most resilient and what other regions can learn from them.
All right, sit back, hit play and have some fun with us. Equity will be back next Tuesday due to a U. S. holiday on Monday. See you then!
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Transcript 0:11 Speaker 00 Hello and welcome back to Equity, a podcast about the business of startups where we unpack the numbers and nuance behind the headlines. I'm Maryann Azevedo and this is our interview show where we sit down with a guest, think about their work and unpack the rest. Today, we're once again talking to David Velez, the co-founder and CEO of NewBank, a Sao Paulo-based digital bank that offers credit cards, checking accounts, and life insurance to consumers. It's a company that just crossed a market cap of $50 billion. David, welcome to the show.
0:40 Speaker 01 Good, Maryann. Thank you so much for having me.
0:42 Speaker 00 Yes, thank you for being here. Today, we'll be talking about a variety of topics. We'll get into what's been going on with NewBank over the last 12 months. We'll do a LatAm check-in, including discussing whether or not global VCs have been abandoning the region or not. We'll discuss which LatAm startups have been the most resilient in this downturn and more. Why don't we dive in?
1:03 Speaker 01 Let's do it.
1:04 Speaker 00 Great. So as I mentioned in the introduction, NewBank just crossed a market cap of $50 billion. Now, last year, when we talked, the company was valued at, if I recall correctly, about $35 billion. So what happened over the past year? I mean, I know very recently, you just announced that you ended 2023 with a net profit of $1 billion. So was that the first time that you recorded a profit?
1:29 Speaker 01 We started recording a profit towards the end of '22. Already in the last couple of quarters '22, we were profitable, but we were able to really show significant profitability and increasing throughout 2023. So I think 2023 really was the year where we finally proved, or big thesis as a company, the big thesis, we started the company behind almost 10 years ago, which is digital banking is the future of banking globally. And it's the future of banking because it's a model that is able to create much better financial services and banking products for consumers that are rated higher.
2:09 Speaker 01 And at the same time, also offer a higher profitability. In our case, even in 2023, while we continue to invest a lot in growth, we were able to end the year with a return on equity of upwards of 26%. So it is one of the highest return of equity of any financial institutions in Latin America. And Nubank Brazil already has an ROE of upwards of 40%. So these are metrics of profitability that are much higher than really anybody in the industry. And I think that was the big question mark that I think a lot of skeptics on the model still had. And we were able to kind of put it to rest in 2023.
2:45 Speaker 00 Yes, you reached nearly 94 million customers during the year. The bulk of these customers are in Brazil, but you operate obviously in other countries, including outside of Latin America, right?
2:56 Speaker 01 Yeah, that's right. We are in Mexico and Colombia. And I think 2023 was also the year where we were able to prove, to your point, that this is a model that also goes beyond Brazil mass market consumer. We were able to grow in new markets, so Mexico and Colombia, and not only in credit card, but we also launched savings accounts in Mexico. We got banking licenses in Mexico and in Colombia. And in Mexico specifically, we launched our deposit product. And we were able to acquire over $1 billion of retail deposits in about three months. So it was pretty significant growth in deposits. And also, we were able to show progress around going in our segments in Brazil, which is high income. We saw significant growth in the high income consumer in Brazil,
3:41 Speaker 01 and also significant growth for small businesses. So it's a model that now we are able to show that it goes beyond. It goes beyond in different segments, and it goes beyond for different markets.
3:50 Speaker 00 Yes, I read also that you had over $8 billion in revenue in 2023, which is really impressive for any, I think, any company, much less one based out of Latin America, honestly. But I have been covering the region for a number of years, and I was really excited 2021, especially 2020 as well, when global investors were flocking to the region. They were finally seeing the value, the potential there. And it was exciting to watch all these dollars. Flowing to Latin American startups. Obviously, some of that funding has declined, just like it has all over the world, including in the US. 2023 venture funding in LatAm totaled about $3.3 billion compared to $7.5 billion in 2022.
4:34 Speaker 00 I've heard from some people that a lot of the global VCs have somewhat abandoned the region. Do you have any thoughts on that? Would you say that's accurate?
4:43 Speaker 01 I think there is some truth to that. I think unfortunately, what you end up seeing in emerging markets specifically, the same thing frankly has happened in China venture capital, India venture capital is you have pendulums going back and forth. Suddenly, there comes a time when there is a lot of exuberance. Investors see the huge macro opportunity in the Latin America case of a region that has over 650 million population. So it's a pretty significant market size from a population perspective. With a higher income per capita than in India, that would make it actually one of the most interesting and larger geographies in the world. That will also go through a lot of transformation by technology, that will also have a lot of opportunities from technology companies, creating new products and services in different verticals.
5:29 Speaker 01 US investors discovered that and then suddenly there is a lot of flow into the region and there is a lot of investments. And then the cycle changes and then as sometimes in venture capital, you call them, the tourists go home.
5:41 Speaker 00 Right.
5:41 Speaker 01 People leave. And then five years after, they come back and then they leave. And so it's normal cycles that you will see in emerging markets. But for the investors that do not see themselves as tourists and that actually stay through the cycles, they always end up being happy and glad that they did that. So right now, we're in the cycle where a lot of people left, went back home maybe two years ago. The real investors stayed and they are continuing investing and the opportunities are there. The opportunities are there, are better valuations and there are better investments. And so there will be very great investments being done in Latin America right now.
6:18 Speaker 00 One of my colleagues, Anna Heim, wrote a story earlier this month about SaaS startups in Latin America, and she found a few interesting things that basically net dollar retention, customer acquisition costs, payback were higher generally in Latin America compared to US peers, especially with regards to SaaS companies for a few different reasons. And I think some of that can go back to what we talked about last year in terms of how Latin American startups operate compared to their US counterparts and that they generally tend to operate in a more lean and efficient manner because they don't have the same access to capital that their counterparts in the US might. What would you say to that? Do you, I would assume you're not surprised by those findings?
6:59 Speaker 01 Yeah, I know. I think that makes a ton of sense. I'll tell you at least from our own experience, we started in an environment in 2013 where there was no venture capital available. We had to have a real business model since the beginning. We had to have real unit economics since the beginning. We were incredibly scrappy, meaning we spent about $1,000 in rent in our office for almost two years. And we got to have 40 employees working out of a house, where an entire rent was $1,000 a month.
7:26 Speaker 00 Wow.
7:26 Speaker 01 So we were very scrappy, very careful, very focused on economics since the beginning because we just didn't have access to a lot of money and we couldn't really afford go out and shooting in all directions and grow at all costs. So Latin American companies tend to operate in an environment of scarcity, which means they are forced to think very carefully about how they invest their little money that they have.
7:48 Speaker 00 Right. Obviously, you're a fan of consumer fintech, which I know that a lot of investors are still bullish on despite the fact that there have been a lot of challenges in the space. But when you look at LatAm, which category of startups do you feel have been the most resilient as we face this downturn? I can say personally on my end, I've been impressed with a number of infrastructure companies, in particular in the fintech space, that have either been raising money or exited, definitely proven to be resilient.
8:14 Speaker 01 Yeah. So financial services is one of the largest markets in Latin America and really globally. So there are a number of different fintechs that are operating in infrastructure, they're operating on the small business side and capital markets that continue to grow very well. And I also think that the biggest opportunity is really across the cycle will be the startups that are delivering products and services within big industry segments. So education in Latin America. It's still in the early days, you have over 400 million people that need to be educated. And that hasn't been solved. Healthcare, you have over 450 million people that have very little access to good healthcare in the entire continent.
8:55 Speaker 01 Most of the healthcare in Latin America is public hospitals and you have a year worth of waitlist to get a surgery. People are waiting 360 days, 400 days to get a surgery or access to healthcare information. So infrastructure or mobility, you have bad roads, you have bad transportation. So these are massive problems that will also create massive opportunities. And I think a lot of entrepreneurs are looking and going after that and are thinking, how can technology now with the advent of AI, how can AI plus technology solve a lot of these big problems? And there'll be massive companies being created on some of these industries.
9:34 Speaker 00 You read my mind, I was just about to ask you. Obviously, AI is the talk everywhere, across every sector. So what do you think AI has, or what potential do you think AI has to help boost LatAm's, I guess, growth in the technology space? I honestly don't know what's going on in AI in LatAm compared to, say, here, other parts of the world. Do you think it's kind of on track or behind or ahead?
10:03 Speaker 01 I think it's on track. I don't think you'll see the next generation of semiconductor companies or LLM developers coming out of Latin America. I think the US, maybe Europe, maybe China, they are the best position in the world to really innovate within the basis of infrastructure and semiconductor and modeling. What you'll see in Latin America is a lot of applications of those LLMs into some of these big problems. And so I'm very optimistic to, at some point, very soon, start seeing. The AI private tutor that is really teaching 100 million students how to do math better and how to read and write. In Brazil, for example, you still are having, 70% of them don't know how to really read and write.
10:47 Speaker 01 70% of the people are graduating from high schools. So there is a huge amount of opportunity for technology, for AI, for the AI private tutor that everybody talks about, to really teach people how to do math, how to read and write better, and how to code, how to use some of these tools to create a phenomenal job that they can even export to other geographies. Same with healthcare, there is a lack of access to healthcare knowledge, given how hard it is to reach a good doctor. AI could have a pretty differentiated impact in democratizing access to good healthcare solutions. In our case, we think the same thing is going to apply on financial services. The top 0.1% of Latin Americans have phenomenal private bankers that do everything for them.
11:30 Speaker 01 They do taxes for them, they give them good financial advice, they tell them where to invest their money, the most tax-efficient way, where to get the lowest-cost loans when they need to buy a house. The 99.9% have no access to that at all. They have access to financial services, but nobody's really helping them to invest their money well, to get a good loan, to do their taxes. So I think we are working in this concept of the AI private banker, where AI can really help people optimize the money that they have and help them create wealth, and that could have pretty significant impact. So we are, I'm very optimistic about what AI ultimately can do for a lot of these countries here, and really for emerging markets globally.
12:08 Speaker 00 Yeah, so it sounds like you're bullish on its potential.
12:11 Speaker 01 Very.
12:12 Speaker 00 For sure. Okay. Great. Okay, Davide, we're gonna have to take a short break, but when we get back, I'd love to hear your advice for startups in Latin America, as well as for investors who are considering backing companies in the region.
12:30 Speaker 00 In general, when you look at Latin America, and obviously, as we talked about, some of these global investors have exited for now, what advice do you have for startups that are still trying to grow in this challenging market, that may be running out of runway, but still have a viable product or a lot of potential? What advice would you give them to keep operating in the face of such challenges?
12:53 Speaker 01 Yeah, I mean, I think the first real movement was to cut down on burn and become really, really cost efficient and really scrappy, really. I do think even Latin America being capital scarce, you still saw similar excesses that you saw in the US through the post-COVID nature. We all did, I think, probably overspent a little bit. And I think the first move was to become extremely efficient, really, everywhere. I think that's a big trend that allows you to extend your runway for another 12 months, another 24 months. And then really focus on unit economics. And if you can prove that you have real unit economics and you have real product market fit, the capital will appear. It's not that there is no capital.
13:34 Speaker 01 There are a couple of really strong local venture funds, the CACs, the Monarchies, the Red Points, they're not tourists, they've been here, they're fully focused on Latin America, they remain here, they have big funds. And there is a number of international funds that continue to look at the region, and there will be capital available for startups that have product market fit, that have growth, that can show good unit economics. So it is possible to find that funding round, even in this environment.
14:01 Speaker 00 When we talk about on the venture side of things, what would you say to an investor that is thinking about investing in the region or maybe on the fence? I guess, what advice would you offer to investors in terms of what to look for or how to go about evaluating potential investments in such a large, large region? I know Brazil and Mexico tend to be the larger markets, but there's a lot going on all over Latin America.
14:24 Speaker 01 Yeah, I think Brazil and Mexico, it all needs to begin in Mexico and Brazil. These are the biggest markets. There are startups in our countries, but if they don't have a Mexico or Brazil strategy, it's unlikely they'll be able to get to any meaningful scale. So even for entrepreneurs that begin outside these markets, I would tell them, you've got to have a Brazil strategy, you've got to have a Mexico strategy. That has to be your core market because that's where you make it. If you make it there, you can make it anywhere in the region. So that's, that's number one. And I, I would say, look at the region because there'll be massive companies coming out of here. Again, this is one of the largest geographies in the world. When you look at not only the population, but the income per capita, this is a bigger market than India. For example, you might look at India as a 1.6 billion market, but in reality,
15:09 Speaker 01 800, 900 million of those customers have very, very small income per capita. It's very hard to make a lot of business models actually work. In Latin America, you don't. You are operating with a much larger income per capita, which means from the consumer side, you can create viable business models. But I would say, come here and operate with a longer term horizon. Create a brand and look at the biggest problems that are available. And I think it's in some of these biggest industry segments. You see today, when you look at the, what are the companies politing the bovespa? What are the biggest companies from Mexico or biggest companies in Colombia? There generally are very big market caps in financial services. So look at financial services, there are big market caps in education companies,
15:53 Speaker 01 big market caps in healthcare companies. These are the segments and sectors that will be reinvented, that will be disrupted by technology. Software itself, it's still very early days. You mentioned software, that transition from on premise to SaaS is still in the very early days in Latin America. We are probably 10, 15 years behind the US.
16:11 Speaker 00 Right.
16:12 Speaker 01 So there'll be a massive transition of market cap towards that region. So even a lot of those trends that you've already have seen playing out in Silicon Valley, they still need to happen in, in some of these markets.
16:21 Speaker 00 Before we wrap up, I just wanted to go back to something we were talking about earlier in the show. You crossed a market cap of $50 billion today as a company, which is huge. But in the past year, that market cap had dropped as a low as 15 billion, right? So you, you've obviously had a great comeback over the past 12 months. Would it be accurate to say that it's your goal to have New Bank become Latin America's largest financial services company? And are you planning to expand outside of this region at all?
16:48 Speaker 01 Yeah, so the underlying hypothesis of New Bank since the beginning is that digital banking or digital financial services have the opportunity to create better products for more people at lower cost with higher returns to investors. And that's a global opportunity. If you look globally, today, something like still 97% of the entire financial services market cap of something like $15 trillion is still incumbent banks. After 10 years of fintech, fintechs have only really been able to acquire something like 3% of that market cap. So we're in the early, early, early days and it's not that that transition hasn't happened faster, not because the opportunity is not there, it's because incumbents are
17:30 Speaker 01 very entrenched, these are very regulated industries and it just takes a lot of, takes time to build real alternatives to the traditional financial services. So we are proving that hypothesis now in Latin America, the three largest countries in Latam. I think we're on the path to become the leading financial services institution in the region. And over a 10, 20 year horizon, we will go beyond Latin America. We think this is a global thesis and globally, we're very well positioned to show this model really working for both consumers as well as investors. So yeah, absolutely. I think we're just kind of taking one step at a time because it's a tough model to internationalize, but it's absolutely, we continue to think it's a global trend.
18:14 Speaker 00 Well, before we officially wrap up, David, can you tell us where our listeners can find you on social media? I know that New Bank is simply New Bank on X, but what about you?
18:23 Speaker 01 I'm on X, Val is David, I'm on LinkedIn, but I'm not a big social media user, to be completely frank, so you won't see a lot of activity from me.
18:32 Speaker 00 I'm sure you have a lot going on and it may not be so easy to be scrolling on X or posting on X when you're running a $50 billion company. As for us, you can find Equity Pod on X and threads at Equity Pod. And thank you so much for listening. We'll be back on Monday. David, it's been a pleasure as always to have you on the show. Until next time.
18:55 Speaker 01 Thank you, Marianne. Great talking to you.
18:56 Speaker 00 Likewise.
18:59 Speaker 02 Equity is hosted by myself, editor in chief of TechCrunch Plus Alex Wilhelm, and TechCrunch senior reporter Mary Ann Azevedo. We are produced by Teresa Loconsolo with editing by Kel. Bryce Durbin is our illustrator, and a big thank you to the audience development team and Henry Pickavet, who manages TechCrunch Audio Products. Thank you so much for listening, and we'll talk to you next time.
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