Last January 6th, 2020 an interesting situation happened. With a valuation of $10B USD and an increasing customer base of 50M, the Brazilian fintech and the highest-valued unicorn in Latin America Nubank, acquired Plataformatec, a software service company. At first, this might sound like just another acquisition in the tech world, but it’s not when you go deeper. There are only 9 unicorns in Latin America, with 7 of them established in Brazil and 2 in Colombia.
Our CEO started to collect different perspectives and confirmed this has multiple lines of thought from different standpoints. As 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, Eduardo Lopez 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? Let’s use this post to analyze multiple angles.
From a unicorn standpoint and with shareholders' constant pressure, it is crucial to move faster than the competition, more when you have close to 1 Billion USD in your bank account. Nubank has constant messaging clarifying that they are a tech-based company, building financial services for the Brazilian population. The acceptance of tech is critical to have the right understanding in order to appreciate those teams, products, and companies that are able to complement their existing value.
The software services company was first acquired to add value to its model. The team has been polishing for the last 11 years their practices, culture, processes, and even more importantly, nurturing a growing community of software enthusiasts. That 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 about 9 months. When building software, one must take the time needed to deliver its value. The process to understand the practice, build the engineering culture, and gain that technical muscle, takes time and depends on the company’s conditions. Acquiring Plataformatec will introduce Nubank to a new way to interact with their current and future engineers; thus retaining the best talent and attract new ones.
Development effort appropriately staffed, with considered ramp up to get up to speed with a new codebas
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 teams and make them succeed wherever they are is going to become a superpower. Getting the right specialization and expertise on 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:
Additionally, being located in the same region, speaking the same language, and sharing the same or similar social cultures, benefited both Nubank and Plataformatec. They immediately 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 high and will be decisive for businesses involved in any other core than building high-quality and reliable software services to acquire this capacity. In the end, all products and services will be delivered with some type of technology.
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 of the new generations as consumers are demanding.
We will see more M&As, investments, and other sorts of strategies as part of their future plans to keep their value in the market and fulfill the market’s unstoppable changing needs.
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 of solving any problem from anywhere in the world are the competitive factors seen nowadays in this particular field.
Starting a software service business nowadays demands a different skill set: specialization, culture, and a bunch of passionate individuals to conduct the organization to success. It is not about a particular individual or the client portfolio, neither the reputation —it is a combination of it all.
Those companies with 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.
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 acquirers’ position. Scalability might be questioned, but the value will depend on the one who observes.
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 the region is not attractive to all kinds of businesses, we all know that there is talent everywhere. Globalization is just embedded in our daily lives, and our society as well.
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 talk and consider talent, invest 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.
This is a sign of potential for the Latin American region. Many companies in the US, Canada, and Europe haven’t explored the possibility of expanding their tech capabilities into this region. And the challenges are going to be evident: cultural misalignment, language and communication barriers, lack of expertise, among other factors. But there’s a well-developed segment in Latin America, among others that are waiting to be trained and willing to learn.
Latin America will most likely acquire more attention not for the commercial possibilities of expanding the business, but mainly as a pool of talent that will be available, taking advantage of economies of scale.
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 to 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 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, expertise retention, 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 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.
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?