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Mexico has been known as an up-and-coming tech hub and a gateway to the Latin American market. As an investor focused on developer-centered products, open-source startups and infrastructure technology companies with a particular interest in emerging market innovation, I have been wanting to do some firsthand learning there.
So, despite the ongoing pandemic, I took all the necessary precautions and spent roughly seven weeks in Mexico from January to March. I spent most of my time meeting founders to get a handle on what they are building, why they are pursuing those ideas, and how the entire ecosystem is evolving to support their ambitions.
Knowledge transfer is not the only trend flowing in the U.S.-Asia-LatAm nexus. Competition is afoot as well.
The U.S.-Asia-LatAm nexus
One fascinating, though not surprising, observation was how much LatAm entrepreneurs look to Asian tech giants for product inspiration and growth strategies. Companies like Tencent, DiDi and Grab are household names among founders. This makes sense because the market conditions in Mexico and other parts of LatAm resemble China, India and Southeast Asia more than the U.S.
What often happens is entrepreneurs first look to successful startups in the U.S. to emulate and localize. As they find product-market fit, they start to look to Asian tech companies for inspiration while morphing them to suit local needs.
One good example is Rappi, an app that started out as a grocery delivery service. Its future ambition is squarely to become the superapp of LatAm: It is expanding aggressively both geographically and productwise into delivery for restaurant orders, pharmacy and even COVID tests. It’s also introducing new payment, banking and financial-service products. Rappi Pay launched in Mexico just a few weeks ago, while I was still in the country.
Rappi now looks more like Meituan and Grab than any of its U.S. counterparts, and that’s not an accident. SoftBank, whose portfolio contains many of these Asian tech giants, invested heavily in Rappi’s previous two rounds and now has a $5 billion fund dedicated to the LatAm region. The knowledge and experience accumulated from Asian tech in the last 10 years is transferring to like-minded firms like Rappi, right under Silicon Valley’s proverbial nose.
U.S.-Asia-LatAm competition
Knowledge transfer is not the only trend flowing in the U.S.-Asia-LatAm nexus. Competition is afoot as well.
Because of similar market conditions, Asian tech giants are directly expanding into Mexico and other LatAm countries. The one I witnessed up close during my visit was DiDi.
DiDi’s foray into LatAm started in January 2018 with its acquisition of 99, a Brazilian ride-sharing company. In April 2018, DiDi entered Mexico with its bread-and-butter ride-sharing service. It wasn’t until April 2019 that DiDi launched its food delivery service, DiDi Food, in Monterrey and Guadalajara — two of the largest cities in Mexico. Its expansion hasn’t slowed down since, with a 10% extra earnings incentive to lure delivery drivers.
Image Credits: Kevin Xu
My Airbnb in Mexico City happened to be two blocks away from the large WeWork building where DiDi’s local office was located. Every day, I saw a long line of people responding to the earning incentives — waiting outside to get hired as DiDi delivery workers.
Meanwhile, the Uber office that’s literally one block away had hardly any foot traffic. As Uber and Rappi fight for more wealthy consumers, DiDi is working to attract lower-income users to grab market share, hoping that one day some of these people will reach the middle class and become profitable customers.
Edtech unicorns have boatloads of cash to spend following the capital boost to the sector in 2020. As a result, edtech M&A activity has continued to swell. The idea of a well-capitalized startup buying competitors to complement its core business is nothing new, but exits in this sector are notable because the money used to buy startups can be seen as an effect of the pandemic’s impact on remote education.
In the past week, the consolidation environment is making a clear statement.
The data agrees. Per Crunchbase data, there were 45 edtech exits in 2019 and 24 edtech exits so far in 2021. The same database shows just 35 exits for all of 2020. As we discussed nearly six months ago, the ability to buy (and be bought) has changed.
In the past week, the consolidation environment is making a clear statement: Pandemic-proven startups are scooping up talent — and fast. Kahoot, which is set to list on the Oslo Stock Exchange within months, has bought three businesses within the past 12 months. Quizlet, which became a unicorn nearly one year ago, made its first acquisition ever last week.
To understand more about this activity, I caught up with Quizlet CEO Matthew Glotzbach and Kahoot CEO Eilert Giertsen Hanoa. We talked about trends in the space including lifelong learning, self-directed learning and more.
Q&A is a lucrative business
“To be successful students in the past decade or two, it has required self-direction,” Glotzbach said simply a few minutes into our chat. “Quizlet as a platform is helping to empower that self-directed learner and give them the tools they need to really be successful.”
To further this goal, Quizlet acquired problem-solving tool Slader last week. Unfortunately, the price of the deal was not disclosed (but don’t worry, we’ll have numbers in the next section). What we do know is that it’s the startup’s latest move to solidify its focus as a tech-powered tutoring tool rather than a simple flashcard app.
Currently, Quizlet uses its data around flashcard sets, questions and trained natural language processing tools to understand how students might respond to certain prompts. Artificial intelligence gives the company a little more flexibility to understand the different ways a student could correctly answer the same question.
Today Coinbase, an American cryptocurrency trading platform and software company, said that it will begin to trade via a direct listing on April 14th. In a separate release the company also said that it will provide a financial update on April 6th, after the close of trading.
Coinbase’s impending public debut comes at an interesting market moment. As some tech companies delay their offerings over demand concerns, Coinbase is pushing ahead with its flotation perhaps in part because it will not price its debut in the traditional sense; direct listings forgo raising capital at a specific price point, and instead merely begin to trade, albeit with a reference price attached.
That Coinbase will release new numbers before beginning to trade is at once interesting and pedestrian. It’s interesting as TechCrunch cannot recall a private company looking to go public holding a similar event. And, Coinbase deciding to share “first quarter 2021 estimated results” and “provide a financial outlook for 2021” is also in part a common move, as many companies provide updated financials in their S-1 documents if time passes from when they first file to when they actually trade.
We’ll be tuned into that call, as the numbers shared will impact not only how Coinbase trades when it does float, but will also provide insight into how active consumer trading is writ large, and particularly in the cryptocurrency space; more than one startup in the market today depends on trading incomes to generate top-line, so seeing new numbers from Coinbase will be welcome.
The company will trade under the ticker symbol “COIN.”
While several tech companies are opting to delay their IPOs in the face of less-than-enthusiastic market demand for their shares, real estate tech company Compass forged ahead and went public today. After pricing its shares at $18 apiece last night, the low end of a lowered IPO price range, Compass shares closed the day up just under 12% at $20.15 apiece.
TechCrunch caught up with Compass CEO and founder Robert Reffkin to chat about his company’s debut in the market’s suddenly choppy waters for tech and tech-enabled debuts.
Regarding whether Compass is a tech company or a real estate brokerage, Reffkin — who raised the comparison himself — used the opportunity to note that companies like Amazon or Tesla aren’t only one thing. Amazon is a logistics company, an e-commerce company, a cloud-computing business and a media concern all at the same time. Price that.
The argument was good enough for Compass to sell 25 million shares — a lowered amount — at its IPO price for a gross worth $450 million. That, the CEO said, was his company’s goal for its public offering.
Sparing TechCrunch the usual CEO line about an IPO not being a destination but merely one stop on a longer journey at that juncture, Reffkin instead argued that putting nine figures of capital into his company was his objective, not a particular price or resulting valuation.
That might sound simple, but as Kaltura and Intermedia Cloud Communications have pushed their IPOs back, it’s a bit gutsy. Still, if financing was the key objective, Compass did succeed in its debut. And it was even rewarded with a neat little bump in value during its first day’s trading.
Reffkin did confirm to TechCrunch what we’ve been reporting lately, namely that the IPO market has changed for the worse in recent weeks. He described it as “challenging.”
So why go public now when there is so much capital available for private companies?
Reffkin cited a few numbers, but centered his view around having what he construes as the “right team” and the “right results.” We’ll get a bit more on the latter when Compass reports its first set of public earnings.
For now, it’s a company that braved stormier seas than we might have expected to see so soon after a blistering first few months of the year for IPOs.
And because I would also bring her along if I ever took a company public, here’s the company’s founder and CEO with his mother:
Via the company.
