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Newsletter #1 - July 2022
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On behalf of the entire H20 family, we welcome you to our first monthly newsletter where we will share market insights and relevant updates. In this month's edition, we will update you on the fate of DeFi, fundraising and operational updates from some of our portfolio companies, and finally a snapshot of main events we've been hosting and attending across Latin America. We hope you enjoy!
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CRYPTO IS CRASHING; WILL IT KILL THE DEFI VIBE?
In 2010, many of us, ourselves included were very skeptical about the crypto revolution. Crypto currencies were meant to take back control from the government and place it in the hands of the people – our hands. But why would governments, who at times use currency as a political weapon, willingly relinquish that power? Think about trade embargos which restrict access to USD for communist states, or financial blockades which lock tyrants out of the US financial system (hindering their ability to buy goods that are typically settled in USD, EUR, or another hard currency). According to Bloomberg, in 2021 alone, the market cap of crypto rose by $1.5 trillion to end the year at $2.3 trillion with 39% represented by Bitcoin, 20% by Ether, and 41% by other coins. In a similar vein, more companies began accepting crypto payments and banks began to scramble to develop a crypto strategy. However, that all seemed to come crashing down in early 2022. In June of this year, the value of the global crypto market fell to $970 billion, a 58% drop since December 2021 (source: CoinDesk). Stable coins that were algorithmically pegged to the US dollar miraculously became de-pegged, tech players such as Meta gave up their dream of scaling their own currency, large crypto lenders went bankrupt, and their founders are nowhere to be found. The crypto naysayers who were silent for most of the last 2 years were awakened and it became their moment to finally say “I told you so” (at least for now).
While the jury is still out regarding whether crypto will completely upend the market for fiat currency, no one can deny that its emergence has led to the development of a concept that is sure to have lasting effects irrespective of whether crypto lives or dies. That concept is DeFi (decentralized finance) – the ability to settle contracts on a peer-to-peer level without the need for support by a centralized body. The emergence of new blockchains such as Ethereum, Solana, Avalanche etc. have allowed for decentralization beyond the payments world into other aspects of finance such as insurance, trading, lending, escrow management, etc. and non-financial use cases such as digital identities and marketplace transactions. By bypassing a centralized body that acts as validator and custodian of assets, DeFi can perform transactions at lower costs and faster speeds. Further (in theory), the system is more reliable as it eliminates human error and biases. These are real, tangible use cases that no one can deny.
Over the past few weeks, we have continued to see several DeFi projects emerge across Latin America. Despite the depreciation in crypto currencies, these DeFi projects continue to offer a strong value proposition as they are solving structural problems that have plagued the region for some time. Think about the future of savings where according to Bloomberg, Argentina suffered from 58% inflation in June 2022 and hasn’t had single-digit inflation in over a decade. The ability to save in USD stable coin could help protect families’ ability to buy essential products. Or focus your attention on the residential rental market, where the fate of a family’s deposit lies solely on the goodwill of the property owner to return the deposit on their own timeline with whatever “discount” they choose. An escrow on the blockchain could easily reduce this risk of deposit fraud. Or better yet, think about the possibility of no longer needing notaries to validate our identities because our proof of birth, citizenship and criminal history are all managed through decentralized identifiers with embedded encryption. This could potentially help reduce what the World Bank quantifies as almost 1.1 billion people around the world who have no proof of identity because of cumbersome paperwork processes, cost limitations, and lack of access.
In the beginning of 2020, the Total Locked Value of DeFi (TLV) defined as the amount of capital across DeFi platforms was ~$600 million. Today, it’s closer to $40 billion. Nobody, not even the most respected VC knows what the future of DeFi will look like but given the exponential growth of DeFi projects over the last few years, we at H20 are willing to bet that it’s here to stay and that Latin America is a market with immense opportunity to exploit that potential.
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Baco is reinventing local commerce for the better by implementing new features in their own proprietary prepared-food-retailer solution, aiming to create the next-generation restaurant solution in LatAm.
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Seeri is a social commerce platform that enables selling through social networks, connecting brands with sellers and giving the necessary tools to educate and empower people with the aim of democratizing retail.
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Tap is the next generation platform for utilities, partners, and their clients to re-envision the way bills get paid in LatAm.
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Farmu successfully raised its Seed Financing Round in a deal led by Monashees. H20 and Tiger Global, who co-led the Pre-Seed Round, re-invested after already achieving a 4.4x mark-up.
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Jüsto successfully raised $152M USD in its Series B Financing Round in a deal led by General Atlantic. Press Release.
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Mecanizou successfully raised its Seed Extension Round from Alexia Ventures.
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Other Portfolio Highlights
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TuL officially launched operations in Brazil, reaching 4 total LatAm countries in which they operate.
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With only 100 days since inception, Morado has delivered +3.2k orders and +265k products across 63 cities in Colombia.
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Formally Welcoming All of Our Advisors
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Our advisory program aims to help founders navigate the hardest parts of building a company in going from zero to one. Welcome!
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& Special Thanks to Our Partners
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EVENTS / H20 PRESS RELEASES
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"Startups a prueba de todo"
We co-hosted an event with Jeeves and Truora, bringing investors and startups to the table to speak about startup resilience.
Our Chief Investment Officer based in Mexico, Stevon D. Darling, acted as one of the panel speakers. Other speakers included Matthieu Hafemeister (Jeeves), Courtney McColgan (Runa), and Maite Muniz (Truora).
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Key Takeaway: Some of the best companies have been started during recessionary periods as they try to solve problems that are heightened by economic downturns. Current market is no different and companies solving real pain points will continue to get funded.
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"Webinars with H20 advisors and portfolio companies"
We thank Grant and Roger, members of the H20 extended family, for sharing words of wisdom with our founders to navigate the current economic situation, learnings from their previous experiences as well as insights to leverage technology & innovation in these times of crisis.
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Key Takeaway: The Venture asset class is cyclical. We have been here before and will once again get back up. There are several tactics startups can use to survive and while growth might be slow, companies can use this time to focus on the customer and improve their products
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"Capital Summit - by Camara de Comercio de Cali"
Our Investment Principal in Colombia, Renzo Sesana, has been invited to participate as a speaker in Capital Summit alongside Angela Acosta, founder of our portfolio company Morado. This event will convene decision leaders from both the public and private sector, as well as top-class founders.
If you are interested in participating register here.
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