22 June, 2020
Amid Covid stress-test, investors keep betting on LatAm fintechs

Brazilian SME lender BizCapital’s series B round is the latest proof that fintech investment amid Covid is still possible – albeit tougher

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By Katie Llanos-Small

 

When Brazilian SME lender BizCapital began seeking a new round of equity capital late last year, a global pandemic was the stuff of sci-fi movies. But after investors had gone through the due diligence process, and the company was finalizing term sheets, suddenly coronavirus brought a fresh round of questions.

What would the pandemic mean for business? Would the company make it through?

“I think the amount of things that we were doing, and were able to do, to confront the crisis, helped us closed the round,” says BizCapital CEO Francisco Ferreira. “Investors could see we were a serious company with a long-term vision.”

BizCapital announced its $12 million Series B investment round, led by German development bank DEG, last week. The capital injection is the latest in a handful of investments announced by Latin American fintechs since the onset of the pandemic.

Among the other lending fintechs to raise capital since coronavirus was declared a pandemic are Zinobe, a Colombian lender that closed a $10 million debt facility, ADDI, a Colombian point of sale lender that raised an undisclosed amount in a Quona-led round, and a55, a Brazilian lender to tech businesses which closed a deal with Santander InnoVentures.

Despite these deals, overall, the pandemic has made investment-raising tougher. The vast majority of respondents to iupana’s April Covid & Lending Survey said that there were fewer financing options available. 

Brazil’s local securitization markets – a common funding source for local fintechs like BizCapital – “froze up” in April, says Ferreira. Now, the market is still quiet but slowly returning as investors are lured by super-low base lending rates in Brazil, he says.

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Fintech investment amid Covid

Equity investors are also hugely cautious of uncertainty ahead. The venture capital investors being courted by BizCapital for the Series B round came back with a barrage of questions as the pandemic ramped up globally, about how the company would fare. Having a series of crisis-mitigation strategies, as well as a well-tuned model, helped it get the deal over the line.

“We are very happy that our credit models still work well,” he said. “We developed the credit models in a crisis – we launched BizCapital during the Dilma crisis in 2016 – so they are well-trained in that environment.”

BizCapital has tried to be flexible with clients impacted by the pandemic, offering debt restructuring and standstill options as Brazil’s small businesses weather the storm.

“As a brand we want to be really close to our clients, to help them with refinancing and by providing them information,” says Ferreira.

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Cautious spending plan

The fresh injection of capital is cause for celebration, but Ferreira stressed that the company would be highly cautious about spending the money, given the uncertain outlook.

BizCapital plans to develop a range of new credit products to augment the 18-24 month working capital loans that are its staple. Credit cards, overdrafts and revolving credits are potential new products for the company. Additionally, the company is looking into developing payments products. Although the Brazilian payments sector is “pretty crowded”, it would form part of a plan to become more integrated with clients’ systems, says Ferreira.

“There’s still a lot of uncertainty so we’ll be cautious about spending the capital. But we have a vision to be more present with our clients.”

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