1st acquisition by the highest-valued unicorn in Latin America: A Software Services Company
What does this mean for the region, industry, unicorns in Latin America and the future of growth in tech-based companies?
Last January 6th, 2020 happened an interesting situation. With a total valuation of $10B USD and a raising customer base of 50M, the first acquisition of the Brazilian fintech Nubank, the highest-valued unicorn in Latin America, was a software services company: Plataformatec. At first, this might sound just like another acquisition in the tech world, but it is not when you go deeper. There are just 9 unicorns in Latin America, concentrating 7 in Brazil and 2 in Colombia, and yet there are other regions growing faster both in value delivery and attention from the rest.
I got noticed immediately when Plataformatec’s Co-Founder, José Valim, tweeted about the whereabouts of the Elixir community and core of the programming language, due to the acquisition of his company. I started right away to connect different perspectives and confirmed this has multiple lines of thought from different standpoints. Being myself a Co-Founder and CEO of Icalia Labs — a software services company in a shared region, and working with similar core values to this team, I was eager to share my personal point of view of this emblematic moment for the world of tech.
What does this mean? How can we be sure this is an important milestone for the tech startup scene and a strategy to look at for the next years in terms of growth for companies? Despite the few comments on hacker news regarding this unprecedented case, let’s use this post to analyze multiple angles.
Nubank: The Acquirer
From a unicorn standpoint and with shareholders' constant pressure, it is crucial to move faster than the competition, more when you have close to a 1 Billion USD in your bank account.
It is very interesting to me to read the constant message from Nubank, clarifying they are a tech-based company, building financial services for the Brazilian population. The acceptance of tech inception is critical to have the right understanding and humility from the leadership positioning in order to appreciate those teams, products, and companies that are able to complement their existing value. What is more interesting, the company that was first acquired to add this value to its model is a software services company. A team that has been polishing for the last 11 years their practices, culture, processes and even more importantly, nurturing a growing community of software enthusiasts advocated to open source. The level of passion and dedication is irreplaceable and unattainable even for a company with more than 2,000 employees and $1B in funding.
Building software is like giving birth to a child — it takes ~9 months. Building software must take the time it is needed to deliver its value. The process to grasp the practice, build the engineering culture, and gain that technical muscle, takes time and depends on the company conditions. Acquiring Plataformatec might not transfer full control over the current engineering challenges Nubank is facing but will start helping the business to introduce a new way to appreciate and interact with their current and future engineers, in order to retain the best talent and attract those missing the party.
Plataformatec: The Acqui(hi)red
From the software services standpoint, it is a great moment to be building software teams, practices, tools and most importantly, momentum — this momentum is the combination of reputation, customer cases, outcomes derived from those experiences and the perception of their customers from them.
The value of building a capable and world-class team is more valuable than any other time in business, just as AVC said in his recent retrospective from last decade:
“[…]talent is really the only thing that matters these days”.
Having the ability to develop these teams and make them succeed wherever they are is going to become a superpower. Getting the right specialization and expertise on whether a niche or an industry will be crucial, just as Plataformatec started to get involved in more fintech engagements, knowing the pitfalls of all legacy systems, payments, security and their technical demands. Companies will be more involved in developing a versatile software engineering crew, going from the business problem, executing solution and maintaining with the lowest cost and highest efficiency the tools developed, reducing technical debt and allowing other team members to jump in, benefiting the business in terms of cost, agility, and competitiveness. Additionally, being located in the same region, speaking the same language and sharing the same or very similar social cultures, was a unique fit for both parties. Needless to say, they started working on some projects to test the water, which becomes more than common before getting involved in the acquisition/hire conversations.
The value perceived on these software teams is going to be high and there will be decisive from businesses involved in a type of core differently from the business of building high-quality & reliable software products to acquire this capacity. In the end, all products and services will be delivered with some piece of technology.
Financial Sector keeps growing
The financial services field, particularly the fintech sector is getting more and more hype. Recently, the acquisition of Plaid by Visa, is now a precedent for anyone involved in tech, and it became evident that fintech services are at their best moment. Financial projects are emerging, and one of the biggest problems for the bigger institutions is the capacity to move at the rhythm the new generations as consumers are demanding.
We will see more M&As, investments and other sorts of strategies as part of their 2020 plans to keep their value in the market and fulfill the market’s unstoppable changing needs.
Software Services Industry: A great moment to be involved
We can confirm it is sexy to be building, not software or technology, but outstanding software teams and high-quality products. World-class institutions, with high-performing team members capable to solve any problem from anywhere in the world, are the competitive factors seen nowadays in this particular field.
When another services company was started, it was just another one, but starting a type of business like this today demands a different skillset: specialization, culture and a bunch of passionate individuals to conduct the organization to real success. It is not about a particular individual or the portfolio of clients, neither the reputation —it is a combination of everything.
Those companies having all the important factors aligned will be supremely highly valued. Building teams that can solve problems, assembly a scalable solution and move faster than the rest, will be one of the most important assets in the world of business. Many organizations will start to consider these entities as a mature group that can ramp up their current state into another place on the ladder.
Latin America and its digitization
For the Latin American region, this is a great moment. We started with the rise of new unicorns, and companies raising thousands of millions from 2018 until now. A completely new situation from what happened 10 to 20 years ago in a naturally risk-averse region.
Now, this demonstrates that both products and services businesses are relevant, depending on the acquirer’s’ position. Scalability might be questioned, but the value will depend on the one who observes.
I have always seen the region as a place full of laggards, requiring education from any type of vendor or business. The technology adoption is lower compared to other places, and the leaders of the biggest organizations are unaligned with the mindset from other companies headquartered abroad and boards around the world.
Even though commercially the region is not fully attractive for all kinds of businesses, we all know the talent is everywhere. Today, we all know globalization is just embedded in our daily lives, and our society is globalized as well. There are researches demonstrating that Silicon Valley talent, mainly comes from outside the US, and a considerable portion from Latin America.
Due to the unfair positioning and advantage of the region, so close to the biggest western economy — the American — it would become a more common practice to turn around into Latin America as a place to first, talk and consider the talent, invest in them and grow from there. Eventually, this positioning might mean commercial opportunities due to the recognition of the cultural aspects of building teams in those regions or working with partners that might be a potential proxy with the talent that those growing companies might demand.
Americas and the rest of the world
This is a sign of the potential for all the Latin American region. Many companies in the US, Canada, Europe, haven’t explored the possibility of expanding their tech capabilities into this region. And the challenges are going to be evident: cultural misalignments, language and communication barriers, lack of expertise, among other factors. But there’s a segment well developed, and another bunch waiting to be trained and willing to learn.
My main point here is that Latin America will acquire more attention not for the commercial possibilities of expanding the business, but mainly and at the beginning for the pool of talent that will be available, taking advantage of economies of scale.
Thoughts on growing tech-based companies
Growing a business is not easy. Anywhere in the world, isn’t easy, and there’s not a single book that comprises the absolute knowledge to grow properly the type of business you are building. What is true, is the fact that talent, product teams, and engineers are, still, the most valuable asset in any tech-based company. Without qualified talent, there’s no value-added into the products or services, and if there’s no product to build, there’s no business.
It will become a combination of onshore teams, working closely with other departments and teams across the organization, and teams dedicated to particular functions, working in a multidisciplinary context and mission-oriented mindsets, having autonomy and responsibility to deliver what the market demands. The dynamics of collaboration will require full flexibility to work on-site and remote at all times, in an asynchronous way. Defining a normalization to select both employees and technology partners will be essential to compete. Staying in the same region and growing from there will become an outdated strategy, with a lack of diversity and different perspectives.
What we can see from the acquisition of Plataformatec, is a growing business in Brazil, acquiring a company in the same region. Taking this definitive step started working together and testing the company cultures, confirming there’s value transferred from each part to the other. What we will see is these same moves but probably from region to region, in order to position the business for future or current expansion opportunities.
Software services models and approaches have always been questioned. The scalability, the expertise retention, the dependency on people and their knowledge are the common and tough type of challenges. Founders don’t typically start these businesses because it is supposed to be profitable. The companies that thrive started with a common purpose and clear goals, with passionate individuals building a growing and solid culture, trying to improve the way we craft software and forge teams—still a discipline with an immense room for improvement.
Despite it is not the easiest type of business, the opportunity is huge. The current problems for talent acquisition, training and retention are evident in every region around the world. The software teams that have the right flexibility and adaptability to deliver what is needed will survive and continuously create value for whoever is the final user. That’s the ROI in these initiatives and the sweat invested there.
I am always going to wonder: What would be the real need from any acquirer of this type of business? Is there a faster way to build the same path to knowledge and engineering culture as these consolidated teams and passionate individuals? What would be the cost-benefit of not doing it the right way and at this moment?