Loft's founders, Mate Pencz and Florian Hagenbuch: attracting global backers to Brazil
Just over two weeks after announcing the largest venture capital round for a Brazilian startup, proptech Loft strikes again. The real estate marketplace raised an extension to its Series D round, which took its market value from the $2.2 billion mark set a fortnight ago to $2.9 billion.
The $100 million extension to the Series D, which is now complete, was led by Baillie Gifford, a global investment management firm led by Andrew Telfer that has supported the likes of Amazon, Alibaba and Tesla. Other investors joining the round are Caffeinated Capital, Flight Deck and Tarsadia Capital. The new funding follows a $425 million round announced earlier this month led by D1 Capital Partners and joined by investors including Andreessen Horowitz, DST Capital and Tiger Global.
The additional investment was supported by individual entrepreneurs at other startups, including the founders of Better Mortgage, GoPuff, Instacart and Sweetgreen. The CEO and cofounder at Kavak, a used car marketplace , Carlos Garcia Ottati, has also joined the founders that are now backing Loft - the Mexican unicorn has recently announced its own round and plans to focus on Brazil as part of its international expansion.
The Series D extension takes the total equity raised by Loft so far to $ 800 million. In addition, the company has raised more than $150 million through a series of publicly- listed real estate funds. According to Loft's co-founder Mate Pencz, the company raised the new round opportunistically ahead of what he describes as a new phase of growth for the Brazilian startup.
"We are preparing to create a very large step change in the history of the company: we're really trying to step on the accelerator with several initiatives that we already have ongoing, but in a lot more intense and aggressive manner," says Pencz.
Still, the "why now" question still applies. According to the Hungarian entrepreneur, who founded Loft with his German friend Florian Hagenbuch in 2018, the capital will fuel the proptech's plans to significantly boost is headcount in Brazil and abroad, support its plans for mid-size acquisitions and nationwide expansion to other Brazilian capitals beyond its current operations in Rio and São Paulo.
Moreover, Loft's latest move is a response to what the company considers to be a profound transformation in the Brazilian real estate market."It's a perfect storm between the behavioral changes that have been accelerated because of Covid-19 and how a large chunk of the consumer journey in Brazil will be moving to digital", Pencz points out.
According to the cofounder, Loft is placing its bets on the thesis that most of the real estate shopping experience will, just as in retail, move increasingly to the digital space. Pencz argues this is an important reason why the Brazilian startup is so attractive to backers - some of whom joined the round despite the higher valuation and the socioeconomic challenges Brazil currently faces as a result of the Covid-19 crisis.
"The investors that are coming in and us, as founders, are fully cognizant [of Brazil's overall challenges] and are completely aware that you must have some patience and can't be kind of timing your market entry and your market exit. In a place like Brazil, that's very difficult to do", Pencz argues.
According to Pencz, Brazil is a market for investors "betting on medium-term transformation" and the value creation opportunities that can be accelerated with technology. "We will see the Brazilian GDP transformed from analog to digital, that will happen. It may take longer than some people think, but it's essentially inevitable", he noted.
"People obviously ask, and the healthcare crisis the socioeconomic and political challenges are something of a concern but the distress and necessity has also driven and will continue to drive innovation despite all the pain and suffering that we see right now", Pencz adds.
To reinforce his point, the entrepreneur argues that the Latin American country is a "pro-innovation" economy, and that can be illustrated in the Central Bank's efforts to drive innovation in the financial services industry through the introduction of instant payments and open banking, as well as the digital transformation ongoing in the sector Loft operates.
"The regulatory infrastructure is here to enable real estate to do transactions 100% online. In the US, you still need to sign physical paperwork to buy a property and that is no longer a problem in Brazil", Pencz says. "Even institutions perceives as backwards like notaries have embraced that Covid-driven transformation: this is one of the silver linings of this period which illustrates the value creation opportunities ahead."
In the medium-term, Loft plans on expanding internationally and becoming a publicly-listed company. According to Pencz, the company still sees some advantages to raising capital privately. "We have created a syndicate of investors that hasn't previously paid that much attention to Brazil, and can support us going forward in a very meaningful way if we required further funding. That was really unique and important to us", he notes.
According to Pencz, the backers also bring international know-how and invest in similar businesses to Loft elsewhere, which will be important to drive the firm's future global expansion. "It is a combination of capital and access to expertise and talent we wouldn't otherwise be able to tap into", the founder says.
The proptech's latest round also demonstrates that international investors are, according to its co-founder, putting their preconceptions about Brazil aside. "These are businesses that can transform a meaningful portion of the of the Brazilian GDP: you now see Nubank, a Brazil-born digital bank that has become the largest in the world, and we're now the largest real estate platform real estate marketplace outside of the US and China", Pencz points out.
"Investors are waking up to the fact that you can have global businesses that get started in Brazil and that from a talent and performance perspective, really have nothing to be ashamed of when compared to US or European companies," he concludes.
