Observation Deck Highlights #2

April 2024

The Tech Ecosystem Watchtower shares periodic highlights on tech news and research related to the innovation industry being followed in the world of Venture Capital & Entrepreneurship. This Edition will include highlights on LatAm from attendance at the Rio Web Summit Conference in Brazil, the leading tech ecosystem in the region.

What I’m Reading this Month

Innovation Highlights:

• Ai & Blockchain (Why AI's Future Relies on Blockchain: Insights from a Web3 Expert (beincrypto.com))

Insights:

Blockchain could? ensure the integrity and authenticity of AI-generated content and could be used to address some of the issues of intellectual property rights where AI-generated art and content proliferate.

Market Highlights:

This month's theme is LatAm and the first research report on the radar was the publication, State of SaaS LatAm 2024.

Insights:

1. In Brazil, startups are accustomed to operating with high capital efficiency and often maintain operations close to cash flow positive due to lower access to capital. This aligns with market expectations of bootstrapping to success. While the number of VC-backed companies is on the rise, the Brazilian market's core values still reflect what mature market investors are increasingly seeking: capital efficiency, EBITDA, and sustainable growth over growth at any cost. With 31% of companies being bootstrapped, showcasing fiscal discipline and the ability to do more with less, Brazil presents a compelling opportunity for investors. The presence of a large number of bootstrap companies, as indicated in the referenced graph below from the State of SaaS LatAm 2024 report, highlights a pool of potential untapped deal flow for investors.

2. The Cloud/SaaS market in Brazil is on a promising trajectory, showcasing a 28% CAGR as noted in the "State of SaaS LatAm 2024" report. Brazil offers a promising landscape for SaaS growth, as a result of its market size, talent demographics, and industrial base. The SaaS startup scene and digital transformation in the country are just beginning to unfold, presenting significant opportunities for development and investment. This market is certainly one to watch, and I look forward to tracking its development over the coming years.

3. The Brazilian market is characterized by a notable fragmentation across various sectors, providing numerous opportunities for the spread of tech solutions through SaaS. This lack of industry consolidation is particularly advantageous for SaaS development, as it allows for broader engagement across multiple verticals rather than being limited to a few dominant players. This environment fosters a fertile ground for the development of SaaS startups looking to innovate and expand in a less consolidated market. According to the "State of SaaS LatAm 2024" report, these attributes signal promising growth prospects for SaaS solutions in Brazil.

4. The majority of SaaS offerings are strategically targeted towards SMBs, which is a common initial approach for B2B SaaS startups aiming eventually to scale up to enterprise clients. Given the previous data highlighting the fragmentation of industry verticals, it would be expected that there are many small players, primarily SMBs, that provide a lucrative target market for emerging SaaS startups. Following SMBs, Enterprise B2B emerges as the next largest target market, a trend that is expected to continue. The data highlights, depicted in the "State of SaaS LatAm 2024" report, suggests the strategic targeting observed of the SMB and Enterprise market by SaaS innovators.

5. Brazil continues to lead the LatAm region, accounting for 55% of its investments, as highlighted in the LATAM 2023 Wrap Up report. Despite facing typical market challenges, Brazil remains a critical area for investors targeting the LatAm region. Investors should consider prioritizing Brazil and explore synergies with other regional players and potential investment partners to enhance their tech investment strategies. It's important to recognize that Brazil has its own unique business culture, and adequate time spent understanding this market is crucial for success, rather than merely grouping it with the broader LatAm market.

Investment Highlights:

• Rails Announces $6.2M in Funding from Slow Ventures, CMCC Global and Round13 Capital for a Self-Custodial Crypto Perpetuals Exchange | WebWire

Insights:

In coverage of the Canadian Web 3 market, one deal stands out not because of the startup or deal details, but due to the participation of a Canadian venture firm Round13 Capital . This firm was part of a $6.2 million investment round in Rails , a self-custodial crypto perpetuals exchange, with other investors including Slow Ventures, CMCC Global, and Round13 Capital. Round 13's involvement is hopefully a signal of growing acknowledgment of Web 3 technologies as a viable investment category by mainstream Canadian venture capitalists.

Regulatory Highlights:

• Capital Gains Tax-Canada https://betakit.com/how-canadas-capital-gains-tax-changes-might-impact-canadian-tech/?

Insights:

The proposed increase in the Capital Gains Tax in the "Budget" may not effectively support industry priorities. The market typically commercializes more efficiently than central planning, regardless to whether the government intends to redistribute some of those tax gains into preferred industry capital investments. This approach is unlikely to deliver net benefits, address productivity issues or solve any systemic problems in the long-term in any significant way, but rather it may constrain capital flows, and disrupt favorable market incentives for growth. This policy will likely harm the entrepreneurial economy and deter foreign direct investment (FDI), sending a concerning message that Canada is less welcoming to entrepreneurship. Such policies will necessitate adjustments in investment strategies, and runs the risk of discouraging private investment in Canada's innovation sector as well as other industries in general.

Startup Highlights:

• Traveler's Wallet (emigro.co)

Insights:

I recently discovered Emigro at the Rio Web Summit, a digital currency payments and remittance solution that promises to simplify cross-border money transfers for global citizens. Given the increasing amount of international travel I undertake and my keen interest in Web 3 technologies, Emigro caught my attention. The company's offering appears to be a vital tool for today's digital nomads and the nomadic lifestyle in general, facilitating the reality of a "flat world" that is more interconnected and mobile.

Conference Summary:

Rio Web Summit

This was my second Web Summit Rio conference. The conference content, networking and overall programing has grown in volume and value since last year and I look forward to participating in 2025. (Already have my ticket!!)

Technology Verticals Observed:

Fintech:?

Brazil has emerged as a fintech powerhouse, often highlighted by the success of its Pix payments protocol, drawing parallels with India's UPI. An intriguing trend discussed at the conference is the increasing role of fintech in SMBs and SaaS businesses. Traditional banking services for SMBs are being supplanted by Fintech solutions that allow SMBs to essentially cut out a middle operator in the value chain and own more of their financial services needs through technology. This shift raises critical questions: Will the myriad microservices developed over the past decades be re-absorbed by businesses delivering core value to end-users, potentially transforming all SaaS providers and other SMBs into financial service providers in addition to the core business? If this is the case, what will be the role of traditional banks, especially if DeFi and other blockchain enabled tech removes some of the other core financial services such as store of value, leverage and distribution of capital? Short of regulatory oversight preventing the development of a 21st century financial system that works for everyone, it will be interesting to see how the Fintech market influence plays out.

Web 3:?

The global web3 market has consistently expanded year over year, reaching an estimated market size of $2.7 trillion, despite being in a bear market and less central to the previous hype-driven narratives in recent years. In Brazil, which ranks as the 9th largest crypto market globally, growth is expected to persist, bolstered by a regulatory-friendly central bank. A recent indication of this trend is Nubank, Latin America's largest digital bank, enabling withdrawals from its NuCripto platform. This leads to an intriguing question: In Brazil and the broader Latin American region, will stablecoins or cryptocurrencies dominate the future growth for financial blockchain transactions of day-day use?

Investment Sentiment:

1. Optimistic, as the emerging markets have lots of problems to potentially be solved using tech and are relatively early in the digital transformation cycle.
2. Ai was discussed, however the excitement was more around e-commerce, Fintech and B2b SaaS.
3. Fundraising for VC seems to be the same as last year, in terms of emerging funds and fund 2 initiatives.

Upcoming Conferences & Events Attending:

• NACO Annual Summit, NACO SUMMIT May 7-8
• CVCA Annual Summit, Invest Canada '24 May 27-29

Inaugural Candid Capital hybrid event: Innovators Forum occurred April 24, 2024

Recap:

The Candid Capital Podcast Presented "Tokenomics for Startups & Investors: Navigating the Web 3 Future." We dove into the future of? Web 3 Economics sharing insights with both Web 3 newcomers and veterans from the Web 3 ecosystem eager to explore token business models. We discussed topics such as pitfalls and best practices in the evolving world of tokenomics.

Playback will be made available to attendees and highlights will be shared via Candid Capital Channels. For more information follow Candid Capital .

Podcast:

Latest Podcast Episode on the Brazilian Crypto Market can be found here:?https://lnkd.in/gYUevsXe

Upcoming episode will be on Angel Investment contrasting the European & Canadian market.

Thank you for reading and share your thoughts on topics in the comments!!