Bloomberg Línea — Tiger Global Management has led a US$ 61 million Series B investment in Nomad, a dollar financial services fintech for Brazilians. The round also included current investors such as Stripes, Monashees, Spark Capital, Propel, Globo Ventures and Abstract.
With this investment, Nomad’s valuation is now 1.8 billion reais ($365 million).
Nomad had already raised $32 million in venture capital funding led by Stripes in May 2022, when it was valued at $200 million. Previously, Nomad had raised $20 million in Series A funding led by Monashees and Spark Capital in July 2021.
The new funding comes against a backdrop of stable rounds and down rounds, which indicates that Nomad has managed to raise capital with the confidence of investors.
PitchBook data to April 2023 shows that emerging market managers are on course to raise the lowest volume in a decade this year. In 2020, funds raised $31 billion, the same as in 2019. Last year, funds raised $37 billion, but this year, as of April, only $2 billion.
Nomad launched in the second half of 2020, co-founded by Patrick Sigrist, Marcos Nader and Eduardo Haber. Sigrist, one of the co-founders of iFood more than a decade ago, was one of the first investors in the digital bank Neon.
Nomad launched with the aim of initially being a bank allowing Brazilians to have a dollar account - with the “big dream” of later becoming a more comprehensive financial hub.
The founders used their own capital to launch the company and then raised two rounds totaling around $7.5 million from angel investors and venture capital funds. At the end of the first year of operation, from October to November 2021, the company had chalked up 100,000 accounts.
From November 2021 to April 2022, the startup opened 300,000 accounts. Now, the company has just passed the one-million account mark.
Sigrist’s partner, Lucas Vargas, CEO of Nomad, also has a history of entrepreneurship. During his MBA in the US, he launched an “American Groupon”, which didn’t prosper. He ended up joining Groupon in Brazil and has also held executive positions at Zap Viva Real and OLX.
“It was a challenging process [building Nomad]. There are fewer rounds taking place, so the approach is already more skeptical in general in the market. It’s natural that, with this skepticism, in this process of presenting the company, there is greater scrutiny and a need for a deeper understanding of everything behind it,” Vargas said in an interview with Bloomberg Línea.
“The valuation has increased. If it were in another context, it might have increased more, but I think that regardless of this, the investment helps to accelerate and reap the rewards in the future. We’re less concerned about this very short-term stuff,” Vargas said.
“A large part of the value that a startup builds is what is going to be built, it’s future revenue. So there’s a greater focus on these future deliveries.”
The funding process for this round began around four months ago, at an even more difficult time for the start-up market, according to Vargas.
“It seems that these last few months have been a little more optimistic, with the reaction of the market and listed companies. All this helps, but when we started [the talks], it was still a time of a little more pessimism, with investors all much more cautious.”
The new money will go towards expanding the global investment platform and launching new products, including initiatives in the area of credit.
“Comparing one year to the next, the company is at a different level. We see the funding we had done in the previous year, which was to make some deliveries and accelerate growth, the timing of the market. All of this helped the new funding, it shows that the company is in fact growing.”
Nomad acquired the international transfer startup Husky last year to expand its capabilities, with an eye on serving Brazilians who are paid in dollars. The purchase was mostly made with payment in shares, but there is “a small portion of the sale that is in cash” and Nomad has “a certain schedule of payments over time that was already planned”, according to Vargas.
Since the beginning of 2023, Nomad says it has processed more than one billion reais in card transactions and more than 5 billion reais in international transfers. The account is covered by the FDIC, the US federal agency that guarantees bank deposits of up to $250,000 per account.
Nomad’s investment platform, a feature that began operating at the beginning of 2021 with managed portfolios and later gained other variable income and fixed income products, currently offers more than 2,000 international investment alternatives.
As the debit card offered by Nomad is not Brazilian, the tax on transactions abroad is lower. To send money to the investment account, Nomad charges an IOF of 0.38% and an operating fee of up to 2%, while sending it back to Brazil has an IOF of 1.1% and a fee of up to 2%, in addition to $10. The fee varies according to the Nomad Pass loyalty program.
“We have a more long-term approach. Tiger is coming in now and has less pressure to look for an exit. In the short term, we’re pretty well capitalized. In fact, it’s a reinforcement that makes us calmer to face the different players that are already established, such as big banks and global fintechs, which are very well capitalized,” Vargas said.
Banks such as C6 Bank, which has JPMorgan (JPM) as a partner with 40% of the capital, and Itaú (ITUB4), which bought Avenue last year, offer global accounts in dollars, as well as Inter (INTR) and XP (XP), among others.
British companies Wise and Revolut and Brazil’s Remessa Online, bought by Ebanx, also offer accounts in dollars and other currencies.
“Our competitors are all much bigger than us, so in a way it’s a contribution that helps us create a more solid foundation to cope with what we’ve seen, the movement of the whole industry to offer complementary solutions,” Vargas said.
Credit card on the horizon
Nomad’s roadmap includes the launch of more investment products and services for legal entities, as well as credit businesses. The next stage involves offering a credit card through a partnership with another institution in Brazil, as yet undisclosed.
“We have already experimented and made some products, installments. We think there is an opportunity to exploit this asset, which is the deposits that customers have with Nomad,” said Vargas.
The company is already in negotiations to offer a Brazilian credit card - unlike the debit card, which is American - and should launch the first tests at the beginning of next year.
“We see the card as an opportunity for customers who use Nomad for international travel, so that they can buy a ticket, book a hotel and participate in categories that they don’t participate in today.”
According to Vargas, issuing an American credit card to Brazilians would be more difficult because the risks interpreted by the partners would be higher, and the credit limits lower. “A credit card in dollars is not necessarily the best option for these types of ticket purchases, which are usually made in Brazil and in installments,” he explained.
Today the startup has around 320 employees. Nomad made cuts in August last year. “We’ve been growing more cautiously since then, but with the new investment we should expand the team.”
