Trace Finance, a Brazilian fintech operating for almost a year that pivoted its model to facilitate the transfer of values between venture capital funds and Latin American startups, announced a $4.3 million Seed round. The investment was led by HOF Capital (a manager that has previously invested in companies such as Stripe, SpaceX, Klarna, Uber, and Niantic) with participation from nearly 30 funds and individual investors, such as Circle Ventures, The Chainsmokers‘ Mantis Ventures fund, 2TM (holding that owns crypto unicorn Mercado Bitcoin and received an undisclosed investment from Mercado Libre), Blockfi Ventures and its CEO Zac Prince, Marcelo Sampaio of Hashdex, Miguel Fernandez of Capchase, and founders of Rappi, Coinmarketcap, and Quantstamp.
Today, Brazilian startups that raise rounds with funds and managers in the United States have limited options to make the money effectively reach their accounts. Few banks allow this type of operation in Latin America, and those that do, do it with a lot of delay (a month and a half, on average) and high fees (of up to 4%) for each remittance.
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Trace Finance solves this problem by automating the integration process between banks, working, via APIs, with several institutions at the same time on the backend (there are about 12 plugged institutions at the moment). “We set up a flow in which we limit, as much as possible, the inefficiency of banks, eliminating redundancies because it automates a series of information that, we know, these institutions will ask for, and also inconsistencies, since many of these processes still depend on many people. We also have the autonomy to answer some questions ourselves. If a bank asks for something too specific, blocking the process, we drop it and continue the process with others”, explains the CEO and co-founder of Trace Finance, Bernardo Brites.
By doing that, the fintech drastically reduces the time for these transactions (which goes from months to up to two days) and also the spread (the cost of transactions between banks), from 4% to 0.2%.
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Trace Finance’s first customer was The Coffee, a cashless coffee chain in Brazil, which raised a Series A round led by monashees in late 2020. “They work with special coffees and other products and needed help to expedite the import process. As we resolved the issue in a few days, they ask if we could also bring their [funding] rounds [to Brazil]. We said yes, first, and then figured out how to do it,” recalls Brites.
He says that the partners – Rafael Luz (COO) and Leone Parise (CTO) – thought they took a long time to solve things out but found out that the three days it took them to complete the process was a record. “We talked to other friends, other startups and we realized that this was a huge pain for the whole ecosystem. They take three to four months to get a check. Then, they need to open legal entities to deal with the money: usually a company in Cayman [Islands ] and an LLC [Limited Liability Company] in the US. This takes at least a month and a half. After that, startups take another month or two to open their bank account in the U.S., and another month to get their first transaction [transfer with exchange] done and bring in the funds,” says Brites.
In 11 months of operation, Trace Finance transacted BRL 150 million (almost $30 million). The fintech currently has a portfolio of 30 clients, including Zippi, Pomelo, Condoconta, Cobli, and Big Bets, and is onboarding several new ones, such as the Colombian Tul and Mercado Bitcoin.
The new funding will enable the opening of banking operations in the U.S. so that Trace can create bank accounts for startups based in Brazil.
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In addition to that, the round will also help the fintech offer other B2B services to the ecosystem, such as raising and lowering startup capital and import-export exchange. According to Brites, there is a waiting list of more than 50 funds and startups interested in using fintech solutions. “We see foreign exchange operations as a means to free them from financial shackles. For the official launch of the bank account service, in the second quarter, we expect to have 100 customers.”
“I’m amazed at how above the market Trace’s experience is. I was able to localize my seed round in a single day, with an excellent exchange rate and a personalized user experience. This was a pleasure for me after having waited two months for foreign entities and bank accounts to be opened,” said Ana Zucato, CEO and founder of payment sharing platform Noh, in a statement.
Prior to Trace, Brites and his partners had already carried out more than $400 million in foreign exchange transactions at their previous companies – Brites and Luz worked at VC and advisory firm Lasting Capital and blockchain’s platform Transfero, and Parise worked at crypto exchange platform Binance. According to Brites, Trace’s team, close to reaching 15 people, is made up of people with stints in other fintechs whose core business was already related to financial operations, including cross-border operations.
Trace Finance’s biggest competitor in the U.S will be Silicon Valley Bank – an institution that has around 1,000 startups clients in Latin America and helps them to open accounts in the United States, among several other services. In Brazil, Remessa Online, recently acquired by EBANX, owner of LABS, also offers a remittance service specialized in startups.