- The next financial services all-star could come from Latin America, where fintech is exploding.
- QED Investors is betting on the region with a new $12 million investment fund named Fontes.
- The fund is earmarked for pre-seed and seed financial services companies in Latin America.
When the next fintech all-star is born in Latin America, QED Investors plans to have a first crack at the company.
The venture capital firm has gained a foothold in the region, where funding for startups remains scarce. It recently closed a $12 million fund named Fontes, Latin for fountains, that’s earmarked for pre-seed and seed companies in Latin America. The fund is being led by an immigrant-entrepreneur and principal, Ana Cristina Gadala-Maria.
The secret to attracting the best founders, Gadala-Maria says, is a deep bench of limited partners who are sourcing deals. The fund’s investor base includes more than two dozen successful startup founders from Latin America who refer other entrepreneurs to the firm. Plenty of founders also know the firm’s reputation so in other cases, they reach out, she said.
“The foundation is being set for this fintech explosion,” Gadala-Maria said. “We are excited to be on the forefront.”
The venture industry has historically avoided the region because investors just didn’t understand the market, Gadala-Maria, who was previously a strategy consultant helping companies better serve their multicultural customers, said.
That’s no longer the case. The startup scene in Latin America is scaling and venture capitalists are paying attention, as Crunchbase News reporter Christine Hall writes. The total dollars invested in in Latin America has increased almost every year since 2016, she reports, and the mix of venture firms participating in deals is also diversifying.
They’re often drawn by the investment prospects in fintech, which are beating out the incumbent banks by offering lower costs and better customer service, Gadala-Maria said. The region also has a heavily underbanked population.
QED has a history of investing in areas that other firms won’t touch.
The firm was founded by a cofounder of Capital One, Nigel Morris, and his right-hand-man, Frank Rottmn in 2008, a rough economic year. They set out to create a venture firm focused on financial services companies. But the firm’s strategy was pretty unpopular at the time it was founded. The financial crisis had wiped out trillions of dollars of stock-market wealth, and “the world of financial services was not exactly attracting a ton of entrepreneurs and a ton of capital,” Rottman previously told us.
The two investors were like “hammers in search of nails,” Rottman said. Their persistence paid off.
They placed early bets on startups such as GreenSky, SoFi, and Klarna, a Swedish fintech that’s now worth $46 billion. Credit Karma, another early investment, had one of the biggest exits in fintech last year with a $7 billion sale to Intuit.
Feelings about fintech have changed. The industry is exploding as more people bank and trade from their phones, and banks seek to upgrade their infrastructure. The startups that help them do these things are seeing record investment.
Now, the venture firm that made an early bet on fintech is taking another calculated risk in Latin America.
In 2014, QED made its first investment in Nubank, and its first investment south of the border.
Nubank is the most important financial services company most people have never heard of. Based in São Paulo, the financial center of Brazil, the digital bank and credit-card issuer has 40 million users across Latin America. This week, it raised a $750 million mega-round at a $30 billion valuation, launching it into the pantheon of fintechs worldwide.
The startup is one of about 25 investments that QED has made in the region. They’re mostly concentrated in Brazil and Mexico, Gadala-Maria said, but the firm wants to spread the new fund across Mexico, Colombia, Chile, and Peru.
Source: Business Insider