Is Nubank’s lower IPO pricing bad news for Brazilian startups?

Brazil’s Nu Holdings, the parent company of the popular Latin American neobank Nubank, announced a reduction to the expected price of its public offering this morning. The well-funded fintech is listing in the United States and its native Brazil, and is among the final companies that TechCrunch is tracking for a 2021 debut.

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In its first F-1 filing, Nubank indicated that it expected to sell its shares at a price of up to $11 apiece, raising a maximum of $3.66 billion in its public-market flotation. The company now anticipates a smaller $9 per-share IPO price maximum and a $2.86 billion max raise.

The downward pricing trend is a disappointment for the company, though it will still command a strong valuation when it raises billions in its IPO. Nubank is expected to price its IPO on December 8.

What’s going on with an IPO that was expected to be a key moment for Brazilian tech companies in particular, and fintech upstarts more broadly? We unpacked the company’s new public offering valuations and dug into whether Nubank’s downward revision will matter for Brazilian startups generally. Let’s talk about it.

Calculating Nubank’s new IPO worth

The Nubank IPO is a little bit complex, given that the company is selling Class A shares on the United States’ New York Stock Exchange and BDRs, or Brazilian Depositary Receipts, on its home market’s B3 stock exchange. That — and an indication of interest from a host of the company’s backers for more shares — makes for an interesting aggregate package.

But that cannot slow us down, so let’s get some valuations in hand to better understand the company’s new anticipated valuation.

In its latest filing, Nubank states that after its IPO it will have 4,608,684,459 ordinary shares outstanding, a figure that rises to 4,637,255,888 when we include equity reserved for underwriter purchase. Using that larger figure, at its IPO price range of $8 to $9, the company would be worth between $37.1 billion and $41.7 billion.

However, those valuations are only part of the picture. At its first IPO price range of $10 to $11, Renaissance Capital calculated that on a fully diluted basis — inclusive of stock options that have vested, but have yet to be exercised, etc. — the company was worth $50.8 billion at $10.50 per share.

Converting that valuation to $9 per share, the top end of its new range, gives Nubank a $43.5 billion fully diluted valuation.

Is that number good?

It is in that it’s both large on an absolute basis and above the company’s effective $30.0 billion post-money valuation that it set this June. Still, it is lower than the company – and its investors – hoped. Our next question: Does the downward revision matter for other Brazilian companies? Certainly, Nubank is about to be better-capitalized than it could have dreamed a few years back, but what about its smaller, less-established private market brethren?

Does the revision matter?

If Nubank revised its price, it’s likely based on a mix of signals, from BDR pre-booking in Brazil to conversations with potential investors, which may have indicated less demand than expected or disagreements on the price range. However, knowing from the amended F-1 that some of these “have indicated an interest in purchasing an aggregate amount of at least US$1.3 billion of our Class A ordinary shares in this offering,” we are not exactly concerned for Nubank.

Nor are we concerned for its original investors, who have seen their initial investments hugely multiplied over the last few years. Amended price range or not, Nubank is what one could call a fund-maker. But its superstar status is precisely what makes its IPO matter more than usual: Nubank’s public offering isn’t just another debut; in Bloomberg’s recent words, it is a test.

What is it that is being tested? Per Bloomberg, the entire “Latin American tech fever.” While there is some truth to the claim, we disagree by degrees. Regardless of Nubank’s public fate — and beyond VC appetite — fintech in Brazil is driven by strong demand and macro factors that are not dependent on Nubank’s public debut. And, to be clear, these are many of the same factors that helped initially bolster Nubank.

Still, there’s no doubt that the Nubank IPO is being scrutinized to consider whether its IPO modalities were optimal. For instance, will other Brazilian startups have more luck listing only in the U.S., or only on Brazil’s B3? This is definitely something we plan to track.