It’s no great secret that startups and SMBs in Brazil and Mexico struggle with funding their operations. And, despite significant recent strides by burgeoning fintech and traditional banking players and strong measures taken by the Central Bank(s), entrepreneurs in these two countries remain markedly underbanked and underfinanced.
Timely financing at key moments in a company’s evolution could mean the difference between flourishing and failure, forcing business owners to struggle between the limited funding options commonly available to secure their much-needed capital.
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“Family and friends are the number one alternative for funding. The second alternative is generally a personal loan with personal guarantees, so you always must respond at a personal level for whatever happens to the company, with personal assets at risk. Number three, if you’re lucky enough to be connected to the very few venture capital funds in the region and globally, you can dilute yourself with venture capital money. And finally, you have those new SMB lending platforms making small, clean and fast loans, which are typically expensive,” explained Hugo Mathecowitsch, a55 co-founder. He and Fabio Massuda, Movile director of strategy, spoke with LABS about their new relationship and its implications for the Latin American startup ecosystem.
Founded in 2017 by Mathecowitsch and André Wetter, a55 plans to change all that – offering credit lines to “new economy” startups with predictable future revenue. And, thanks to a brand new BRL 92.8 million ($16.3 million) Series B investment led by long-term investor and local LatAm tech accelerator, Movile, this leading platform is well-positioned to make its vision a reality.
A use case for a55’s funding model – and a personal experience from the founders
By offering financing when these emerging companies need it most, a55 can potentially save them from becoming another startup failure statistic. Mathecowitsch recalls their first deal, “Omie is the largest ERP for financial accounting for SMBs. My partners and I [used] our own personal savings accounts to save the company from near-bankruptcy, using pen and paper for a personal loan. Today this company is a rockstar. This shows that at the right time very small solutions, with or without technology, can really make a difference.”
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What is the “new economy?”
According to Mathecowitsch, the definition of the “new economy” is still evolving. Although this sector is rooted in tech, recent changes in the regulatory environment, COVID, and the development of new technologies make the interpretation more nuanced. “I think that today, it’s not whether you’re tech or non-tech. I think if you’re non-tech, you’re probably dead,” Mathecowitsch said.
Instead, the new economy encompasses “connected companies” that actively use such tools as online payments, CRMs, digital marketing, online stores, or any integrated platforms that are primarily web-oriented. These tools create valuable analytics and monetizable business data, which a55 can leverage to predict revenues and thus secure and provide upfront capital for startups that need it.
Connected companies and the entrepreneurs who own them aren’t the only winners – there are two sides to a55’s strategy. By using this predictive revenue modeling, a55 is essentially creating a new, liquid, transparent, fixed-income-like asset class that attracts investors looking to diversify their portfolios, while giving them a stake in companies with demonstrated revenue and the potential for exponential growth.
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How large is this market?
Already, a55 deploys over BRL $400 million in loans to more than 500 companies. Their median investment size today comes in at BRL 300,000 with an average of around half a million reais. And, their growth rate remains phenomenal, with cumulative volumes increasing roughly 6x in 2021 vs. 2020.
Despite these impressive figures, a55 is only scratching the surface. Mathecowitsch estimates that roughly 25% of SMBs in Brazil and Mexico now utilize the economic tools necessary for predictive revenue modeling, and adjusting for their target-sized company, this equates to almost 4.5 million businesses that could benefit from their services.
Fabio Massuda, Movile director of strategy, agrees and underscores that digitalization of the economy is only accelerating. “Many companies are emerging to fill the gaps that exist in the market. I think we will probably see that trend continue for the next few years, and these emerging companies will need financial services along the way,” he explains.
What this investment means for a55
With this Series B investment, a55 plans to accelerate its expansion in Brazil and Mexico while using the fresh capital to recruit more talent and grow its portfolio of clients. Further, a55 intends “to enhance its existing open-finance platform, develop new data science and blockchain-based technologies and continue its international expansion.”
From a Movile standpoint, a55 stands to gain a lot more than a simple influx of money. “[Movile] believe[s] that capital is our entry ticket to start a deep relationship with the company,” said Massuda, “We are long-term investors that not only offer the funding but also strategic support in many different subjects: strategy, M&A, culture, people, management models, … so basically, we really want to find companies with teams that are open to our support.” At the same time, Movile’s extensive portfolio of companies creates numerous opportunities to foster collaboration, a perk that may prove immeasurably beneficial to a55.