Mercado Bitcoin: M&A, IPO, or Series B?

The Professor's Questions

1. How does Mercado Bitcoin make money, and what is the potential for growth? How have they positioned themselves within the market, and how does this influence which of the options on the table makes the most sense for them?
2. Why and how do the valuations differ between the M&A, IPO, and Series B options? What does this reflect about the objectives of each of MB’s counterparties? How does this influence your decision if you are Dagnoni?
3. Which elements of the SoftBank term sheet would you consider renegotiating if you were Dagnoni? Why? What argument would you make in your renegotiation?
4. Taken as a whole, and assuming each deal is final, would you advocate as CEO to take the M&A, IPO, or Series B route? What are the most important financial considerations? What are the most important non-financial considerations?

My Answers

Q1. Business model, growth and positioning

How does Mercado Bitcoin make money, and what is the potential for growth? How have they positioned themselves within the market, and how does this influence which of the options on the table makes the most sense for them?

MB is a financial platform built around a crypto exchange. Its strongest asset is the ability to earn trust and process transactions safely, but its revenue is still exposed to the crypto cycle.

1. It has three revenue buckets. In 2020, Services-Exchange produced $11.041m, or 52.0% of gross revenue. This includes crypto trading, custody, OTC and other exchange services. Financial produced $9.731m, or 45.8%, from treasury, float and several financial and content activities. Tokens produced $0.482m, or 2.3%. Total gross revenue was $21.254m; EBITDA was $8.095m. We should not label the whole business “trading fees.” [Ex.5]
2. Trading activity is the main growth engine, but price increases alone do not equal revenue. A useful model is active customers × trading frequency × average trade value × effective fee, plus other services. The case does not disclose a complete fee schedule or consistent enough volume data to calculate a precise take rate. Customer assets held in custody are not MB’s own expansion cash. [pp.7–8, Ex.5, Ex.9]
3. Growth can come from deeper use of the existing platform and adjacent services. The company had 2.125m users at the end of 2020. It wanted more customers, more products, tokenized assets, institutional services, and expansion in Latin America and Europe. Its 2025 targets were 20m customers, about $86bn of trading volume and $822.230m of gross revenue. That revenue target implies about 108% annual growth from 2020. This is an ambitious plan, not a proven market outcome. [p.8, Ex.5, Ex.8, Ex.10]
4. Customer acquisition looks attractive, but retention needs work. Estimated LTV/CAC improved from 14.91x in 2020 to 19.34x in Q1 2021. Yet estimated LTV fell from $138.70 to $77.15. Cheap new customers during a boom do not prove lasting loyalty. The reported 2018 contraction is another reason to use a down-cycle budget. [pp.5,8]
5. MB positions itself as a trusted bridge to traditional finance. Its own technology, security focus, voluntary KYC, custody verification and regulated-market leadership support this position. They help attract institutions and strategic buyers. My preference is Series B because it funds the next stage while preserving a broad, independent platform. A bank is stronger if regulatory access and distribution are the binding limits; IPO is stronger if the business is ready to support public reporting and needs much more primary capital. [pp.4–8,10–13]

Q2. Valuation and counterparties

Why and how do the valuations differ between the M&A, IPO, and Series B options? What does this reflect about the objectives of each of MB’s counterparties? How does this influence your decision if you are Dagnoni?

These are prices for different claims on the business. We must compare cash, control and downside rights before comparing the headline valuations.

• Bank M&A: up to $1.5bn. Banks wanted control and considered earn-outs and put/call arrangements. They preferred EBITDA multiples and worried about regulatory and custody risk. They were buying access to a new market and potential distribution synergies. A strategic buyer can pay a control premium, but here uncertainty and conditional payments can offset that premium. The quoted value is not necessarily cash paid at closing. [p.11]
• IPO: $1.1–2bn indicative value, with $220–350m expected proceeds. Public investors would price growth, comparable firms, earnings quality and liquidity. Underwriters also want a deal they can sell successfully. The estimate is not a guaranteed clearing price. The case does not specify the valuation basis, final primary/secondary split or fees, so net company cash and exact dilution cannot be calculated. Existing holders also face potential lock-ups. [pp.9–10]
• Series B: a $1.5bn price for secondary shares and a separate note. SoftBank wants exposure to a large regional platform, with protection if growth disappoints. The $2bn cap limits its conversion price; it is not a guaranteed valuation floor. It also receives a 20% discount, preferred shares on conversion, information rights, a board seat and an IPO ratchet. A higher headline value can coexist with a lower effective price per unit of risk. [pp.12–13]
• Different horizons matter. A bank wants strategic integration and tolerable regulatory exposure. Public investors need a business they can understand and value continuously. SoftBank seeks large future equity value while protecting its downside. A-round investors may also prefer an early exit: their short holding period makes annualized IRR very sensitive. That is not the same objective as maximizing the company’s long-term value. [pp.10–12]
• My decision would focus on the common shareholders’ outcomes across scenarios. I would compare company cash, immediate secondary proceeds, retained equity, control, and the payout to each class at a weak, normal and strong exit. A lower all-cash acquisition can be worth more to a seller than a higher price dependent on earn-outs; a higher VC price can become expensive if additional shares or preferences absorb the upside.

Q3. Renegotiating SoftBank’s term sheet

Which elements of the SoftBank term sheet would you consider renegotiating if you were Dagnoni? Why? What argument would you make in your renegotiation?

I would first reduce the terms that could damage a later financing or exit. I would not start by asking for an even higher headline valuation. The case gives a summary, not the full term sheet. The requests below are my proposals, not terms already agreed.

1. IPO ratchet — remove it, or cap it tightly and let it expire. The exact trigger and formula are not disclosed. It could transfer more dilution to common shareholders at a weak IPO, making a sensible exit harder. My argument: “You already receive a conversion discount and cap. A separate open-ended IPO adjustment can discourage new investors and harm both of us.” At minimum, define its base price, maximum extra shares, scope and expiry, and prevent double protection for the same price decline.
2. Preferred economics — specify them before signing. Request a 1x non-participating liquidation preference on the actual primary investment, no cumulative guaranteed return, and clear conversion at a qualifying IPO. Clarify the class of purchased secondary shares; do not assume that $100m of common shares bought from founders also receives a new liquidation preference. My argument: “A modest priority can protect your capital without destroying incentives for the team or creating an excessive preference stack.” The case does not disclose a liquidation multiple, participating rights or a guaranteed return.
3. Note mechanics — lower the discount, or trade it for a simpler priced round. A lower discount or a higher cap can reduce founder dilution, but asking for a higher cap alone may not help in a down round. Specify the fully diluted share base, treatment of the option pool and other notes, conversion on sale/IPO, and valuation if no qualified transaction occurs by month 18. I would ask to extend that period to 24–36 months as a proposal. The case says the note converts; it does not say cash repayment is automatically due at maturity. My argument: “Let the timetable match product and regulatory milestones, not an arbitrary financing deadline.”
4. Qualified transactions — prevent an isolated secondary trade from setting the price for everyone. The current definition includes a primary or secondary transaction of at least $100m, as well as IPO or company sale. A secondary can occur at a liquidity discount and bring no new company cash. Request an arm’s-length financing definition, exclusion of the simultaneous $100m secondary from unintentionally triggering the note, and clear separate treatment of change of control. My argument: “A price set for one seller’s liquidity should not automatically price the entire company’s capital structure.”
5. Primary versus secondary — preserve liquidity, but size company funding from a budget. Only half the $200m goes to MB. Keep a meaningful founder/employee sale to reduce personal concentration, but consider shifting part to primary if a downside operating plan shows $100m is insufficient. Use staged spending, not an assumption that every expansion project begins at once. My argument: “Your return comes from the company we can build with the primary cash, not only from the shares you can buy today.”
6. Board and information rights — accept oversight, define boundaries. A board seat, budgets and audited accounts are reasonable. Define reserved matters so minority protection does not become day-to-day control. Require confidentiality, information barriers and recusal for competitor-sensitive matters, because SoftBank was also involved with Bitso. Do not demand total blindness or assume SoftBank has already misused information. My argument: “Good governance should improve decisions while protecting the company’s competitive position.”
7. Deadline and closing conditions — ask for a short, defined review window. The 24-hour deadline limits our ability to model dilution and reconcile existing shareholder agreements. Request several business days, a dated diligence plan, a clear closing timetable and limited exclusivity tied to progress. Make waivers of preemptive rights explicit. My argument: “Our existing audit work and real IPO/M&A alternatives support a quick process, but a rushed signature can create avoidable conflicts.”

Q4. Final choice

Taken as a whole, and assuming each deal is final, would you advocate as CEO to take the M&A, IPO, or Series B route? What are the most important financial considerations? What are the most important non-financial considerations?

I would advocate Series B on the disclosed terms, even if all three deals are final and my renegotiation requests fail. IPO is my second choice, and bank M&A is third. This is a judgment based on the disclosed terms; the case does not provide enough detail to calculate an exact risk-adjusted winner. Dagnoni is chairman in the case and Rabelo is CEO; I answer this question from the requested company-level CEO perspective.

Why Series B: MB wants to build a broad financial infrastructure business. Series B puts $100m into the company, gives existing holders $100m of liquidity and keeps the business independent of a bank parent. It also postpones the recurring burden of being public while revenue mix, controls and several adjacent businesses develop. Its funding is smaller than the indicative IPO proceeds, but the case does not prove MB needs all the IPO capital immediately. I would prioritize the core platform and phase expansion. This reasoning does not depend on IPO failure, a slow M&A process or better SoftBank terms.

Financial considerations, in order:

1. Usable company cash and downside runway. Build a cash budget after fees, capex, working capital and regulatory capital needs. Customer custody assets cannot fund operations. The case gives no full cash-flow statement or expansion budget, so $100m cannot honestly be called “enough for X years.” Annual forecast expenses of $55.889m in 2021 and $124.177m in 2022 are not cash burn. [Ex.5]
2. Dilution and exit payout. Model the note, secondary transfer, future primary rounds, option pool and every preference/ratchet. In the illustrated $2bn next-round valuation, SoftBank would hold about 12.16% before that round’s new capital and other adjustments—not simply $200m/$2bn = 10%. Under the $1bn scenario, management’s illustrative share falls to 48.30%.
3. Quality of earnings across a cycle. Separate transaction services from treasury and other Financial income. Stress lower volumes, lower fees, lower LTV and sticky security/compliance costs. The Financial forecast inconsistency must be resolved before using the forecast as a financing plan.
4. Liquidity for shareholders and its governance. Limited secondary sales can reduce pressure to sell the company too early. But allocations must be transparent and employee incentives preserved. Company needs come first; selling shareholders’ preferences should not decide the transaction by themselves.
5. The cost of future capital. A high private valuation can make the next round difficult. Preferred terms and a ratchet can leave common shareholders worse off even if the headline value remains high. We are accepting that risk, not assuming it can be negotiated away.

Non-financial considerations, in order:

1. Strategic independence and culture. The independent platform can serve different banks and institutions and prioritize new products without a bank parent’s approval. The cost is giving up the bank’s ready-made distribution and regulatory relationships.
2. Custody, security and governance. Capital and a recognized investor do not themselves validate custody or make the platform safe. Independent checks, clear client-asset records and reliable operations remain central.
3. Management capacity. Moving from 200 to 750 people while entering countries, launching products and making acquisitions is a major execution risk. Financing should support staged milestones rather than reward simultaneous expansion everywhere.
4. Investor fit and conflicts. Test SoftBank’s practical contribution, growth expectations and competitor information boundaries. “Smart money” is a hypothesis to verify.
5. Future choice. Remaining private preserves the possibility of later IPO or M&A, but the note and ratchet make those options more constrained than they were before the deal.

The strongest objection to my choice: IPO could deliver much more company capital, a tradable acquisition currency and less dependence on one preferred investor’s contract. With every deal final, execution risk cannot be used to dismiss it. I still prefer Series B because the company’s current challenge is to turn a cycle-sensitive exchange into durable infrastructure, while founders obtain partial liquidity. I would switch to IPO if a verified downside budget showed the $100m primary could not finance that stage. That threshold states the limit of my judgment; it does not change my vote on the facts supplied.

Case Summary

In 2013, brothers Gustavo and Mauricio Chamati founded Mercado Bitcoin in Brazil, initially letting customers buy and sell bitcoin in reais. The team put its money first into security audits, built its own trading platform, and — at a time when regulatory requirements were still incomplete — voluntarily verified customer identities, kept customer records and issued service invoices. It needed to earn the trust of customers, banks and future investors all at once.

When the crypto market rallied in 2017, MB's full-year gross revenue topped US$24 million, customers approached 871,000, and the team grew from 8 to 85 people. The brothers brought in Roberto Dagnoni and Reinaldo Rabelo, both with experience at the B3 exchange; the two bought out some early shareholders' stakes and joined the governance. In 2018 the market cooled, revenue fell and expenses rose, the EBITDA margin dropped to about 33%, and the company cut half its staff.

Management then broadened the business goal to financial market infrastructure. 2TM became the holding platform, covering trading, wallets, custody, asset tokenization, education and other businesses. From 2019 the company began tokenizing real-world assets, including assets tied to Brazilian government court-ordered debts. The core team hoped to turn the exchange's customers, technology and credibility into a more complete financial services system.

The 2020 Series A took about a year. After some potential lead investors dropped out, GP Investments and Parallax Ventures led the round, with other investors joining. In December 2020 the company raised nearly US$20 million at a US$64 million pre-money valuation. The deal included fairly strong shareholder rights and required a Big Four audit and verification of custody. Management felt the price didn't fully reflect the year-end growth, but the new shareholders also brought institutional recognition.

In early 2021, trading activity surged. MB prepared for an IPO in Brazil, led by JP Morgan, expected to raise US$220–350 million at a valuation of US$1.1–2 billion. At the same time, two large banks were negotiating a controlling acquisition, with offers capped at about US$1.5 billion and arrangements such as earn-outs and put/calls under consideration. CEO Rabelo valued the regulatory, distribution and organizational support a bank would provide; Dagnoni and adviser Cunha worried about the valuation, integration and the deal process.

On April 10, 2021, SoftBank made a new offer valid for only 24 hours: invest US$100 million in the company through a zero-coupon convertible note, and spend another US$100 million buying existing shares. The secondary shares would trade at a US$1.5 billion valuation; the note would convert at a 20% discount at the next qualified transaction, with a US$2 billion pre-money valuation cap and an 18-month term. SoftBank also asked for information rights, a board seat and an IPO ratchet. Dagnoni had to recommend a path to the board.

Key Data

Amounts are in US dollars by default; in the table below, m means million and bn means billion. Gross revenue is revenue before deductions — not trading volume, and not gross profit.

Get the terms straight first: A primary offering / primary capital means the company issues new equity or financing securities, and the money goes into the company; a secondary sale means existing shareholders sell their holdings, and the money goes into the sellers' pockets. An IPO is the initial public offering/listing route, and can include both new and existing shares. So "primary" and "IPO" are not mutually exclusive categories; the Series B in this case also includes both primary and secondary.

Dimension	Figures / Facts	Source and Basis
Decision point	2021-04-10; SoftBank offer valid for 24 hours	p.1, p.12
Early investment	Seed capital about $140,000, much of it spent on security audits; proactive KYC	p.4
2017 expansion	Gross revenue >$24m; EBITDA margin 84%; customers 0.871m; employees 8→85	p.5, Ex.8
2018 trough	Text gives gross revenue of about $13.7m; Ex.5 gives $12.917m; EBITDA $3.972m; net revenue $11.961m; margin 33%; headcount halved	p.5, Ex.5; text and exhibit use different exchange-rate bases
2019	Gross revenue $17.777m; EBITDA $9.793m; net revenue $15.639m; margin 63%; customers per chart 1.810m	Ex.5, Ex.8; text approximates revenue at $18m and customers at 1.9m, and says 96% of revenue came from the MB exchange entity (p.6)
2020 actual	Gross revenue $21.254m; net revenue $19.514m; expenses $11.419m; EBITDA $8.095m; net profit $4.581m	Ex.5
2020 revenue mix	Services-Exchange $11.041m (51.95%); Financial $9.731m (45.78%); Tokens $0.482m (2.27%)	Each item ÷ $21.254m, Ex.5
Revenue definitions	Services-Exchange: trading, custody, OTC, etc.; Financial: treasury, float, traditional funds, listing/grants, staking, content and news, etc.; Tokens: revenue from the platform selling tokens issued by the group and third parties	Ex.5 notes; Financial can't all be treated as recurring commissions
2021 Jan–Apr actual	Gross revenue $34.940m; Services $24.869m; Financial $9.332m; Tokens $0.739m; net revenue $31.686m; expenses $10.528m; EBITDA $21.158m; margin 67%	Ex.5; includes data from after the decision date
2021 full-year forecast	Gross revenue $101.229m; Services $95.307m; Financial $4.812m; Tokens $1.110m; net revenue $89.570m; expenses $55.889m; EBITDA $33.681m; net profit $22.207m; margin 38%	Ex.5, f = forecast; Financial forecast is lower than the first four months' actual, see below
2022 full-year forecast	Gross revenue $212.821m; net revenue $186.913m; expenses $124.177m; EBITDA $62.736m; margin 34%	Ex.5
2025 targets	20m customers; trading volume about $86bn; gross revenue $822.230m, of which Services $530.943m, Financial $106.226m, Tokens $185.062m; EBITDA $381.968m	p.8, Ex.5; all targets/forecasts
Required revenue growth	2025/2020 = 822.230÷21.254 = 38.69x; five-year CAGR = (822.230÷21.254)^(1/5)−1 = 107.7%	Own calculation, Ex.5; not realized growth
Trading services forecast	2021 Services/2020 = 95.307÷11.041 = 8.63x, i.e. growth of about 763.2%	Own calculation, Ex.5
User base	2.125m at end of 2020; 2.795m in May 2021; text rounds to 2.8m	Ex.8, p.8; the May figure was not an actual known on April 10
Acquisition economics	2020 CAC $9.30, estimated LTV $138.70; 2021 Q1 CAC $3.99, estimated LTV $77.15	p.8; LTV/CAC own calculation 14.91x→19.34x, while LTV itself fell
Trading volume check	Text says 2021 Q1 was $4.6bn; Ex.9's Jan–Mar total is R$13.750bn and Jan–May total is R$24.713bn (rounded in the chart to R$24.7bn)	p.8, Ex.9; rough conversion at R$5.4036/$ gives about $2.54bn and $4.57bn respectively — the period mismatch can't be ignored
Series A	Nearly $20m; $64m pre-money; closed 2020-12	p.7
Illustrative post-Series A ownership	Management shareholders 61%; Angel/Seed 8%; option pool 11%; Series A investors 20%; illustrative total shares 16,393,443	Ex.6; share counts constructed by the case authors, some information adjusted
IPO	Expected raise $220–350m; valuation $1.1–2bn; domestic Brazilian offering; JP Morgan leading a five-bank syndicate; text discusses a roughly 180-day lock-up in general terms	pp.9–10; no final primary/secondary split, fees, pre/post-money definition of the valuation, or exact lock-up for this deal given
Bank M&A	Valuation up to about $1.5bn; buyers require control, earn-outs and put/calls discussed; exact stake to be acquired and allocation of proceeds not disclosed	p.11
SoftBank new money	$100m zero-coupon note; converts to preferred; 20% discount; $2bn pre-money cap; 18 months; qualified transactions include ≥$100m primary or secondary, an IPO, or a sale of the company	p.12
SoftBank secondary and rights	$100m secondary at a $1.5bn valuation; information rights; one board seat; IPO ratchet; due diligence and existing shareholders waiving pre-emptive rights are closing conditions	pp.12–13; ratchet formula, liquidation multiple/participation, and independent pricing method at maturity not disclosed
Expansion plan	Initial acquisition targets $0.05–3.5m each; technology, compliance, marketing, new products and cross-border; team planned to grow 200→750	pp.8, 13, Ex.10
Common assumptions for conversion examples	V=$1/1.5/2/3bn; C=min(0.8V,$2bn); counts only this note's conversion and the secondary transfer, excluding new money in the next round, the ratchet, option pool expansion and fees	Own sensitivity analysis below, not results from the original case

Five basis issues to deal with first:

1. Avoid putting after-the-fact exhibits into the decision-maker's head. The decision date is April 10, but Ex.5 has January–April actuals, and Ex.8–9 run to May; Ex.4 even marks some businesses as acquired in May; the Coinbase, Bitso, FTX and Nu deals in Ex.7 all come after the decision date. An answer can use these as analytical material provided by the instructor, but can't claim Dagnoni already knew these results at the time. Nor should it invoke the real-world eventual financing outcome to prove one's own choice.
2. The financial forecasts need checking. Ex.5's full-year 2021 Financial forecast of $4.812m is lower than the January–April actual of $9.332m. Unless there was a reclassification, reversal or different version, this can't hold on the same basis; the case doesn't explain it. The total forecast can still be shown as a scenario, but you can't claim on that basis that the full-year segment forecasts have been verified.
3. The trading-volume periods don't match. Ex.9's Q1 real figures don't match the Q1 dollar figure in the text; $4.6bn is closer to a rough conversion of the chart's January–May amount. This is only a lead for checking, not a definitive correction of the original. So don't use the text's $4.6bn to calculate a precise take rate, and don't treat trading volume as revenue.
4. Use a consistent denominator for margins. 2020 EBITDA margin = 8.095÷19.514 = 41.48%, about 41%; dividing by gross revenue gives 38.09%, which is not the margin shown in the table. The 2019 "96% from the exchange" refers to a business entity, and can't be equated with the Services-Exchange revenue category in Ex.5.
5. Don't force the illustrative cap table to reconcile. 20÷(64+20)=23.81%, which differs from the 20% Series A stake in Ex.6; the text's "no earlier outside rounds" and the table's Angel/Seed can't be directly equated either. Ex.6 explicitly says it has been adjusted and the share counts are illustrative. This answer uses the table to demonstrate ownership, without reverse-engineering a set of precise historical transactions that don't exist.

Key People

Person / Institution	Role and Power	Position and Relationships
Roberto Dagnoni	Executive chairman; management shareholder; makes the route recommendation, must coordinate with the board and shareholders	Inclined to seize the financing window and expand the financial infrastructure business; worried about the time an acquisition takes, the valuation basis, and the banks' limited understanding
Reinaldo Rabelo	MB CEO; management shareholder; former head of legal, risk and compliance at B3	Clearly supports seriously considering a bank M&A; values regulatory dialogue, talent, distribution, and a cushion against volatility
Gustavo Chamati	Co-founder, former CEO; management shareholder	Provided the early business and the foundation of customer trust; must trade off personal liquidity, company culture and growth
Mauricio Chamati	Co-founder, former CTO; management shareholder	Provides technology and security capabilities; involved in product, security and custody governance
Daniel Cunha	Long-time M&A adviser, later head of corporate development	Worried about the banks' strategic commitment, the custody handover and post-acquisition execution; involved in comparing financing routes
Fabio Dutra / Parallax	Series A co-lead, investor	Optimistic about the exit returns of an IPO; cautious about high valuations, large raises, and culture and execution risk
GP Investments and other Series A investors	Shareholders and governance participants	Focused on investment returns and exit; existing pre-emptive rights and prior agreements affect the closing of the Series B
Hélio Seibel / HS	Investor and senior board discussant	Reminds management to keep several real options open and avoid being left with a single route
Two unnamed banks	External strategic buyers, require control	Value the entry into crypto, the customers and the synergies; also worried about regulation, custody and the impact on their core banking business
SoftBank	External potential new investor	Provides company funding and secondary liquidity, asks for downside protection and governance participation; also involved in financing competitor Bitso, a potential conflict of interest
JP Morgan / IPO investors	Underwriting organizer / public-market investors	The former cares about offering pricing and distribution; the latter about growth, earnings quality, liquidity and governance. Their goals can't be lumped together

Core Tensions

1. Build financial infrastructure independently, or expand by leaning on the banking system. The Series B preserves strategic independence but adds the burden of financing terms; M&A brings distribution and regulatory capability while handing over control; an IPO offers a larger potential raise and brings in public-market discipline.
2. Money for company growth and shareholder cash-outs are not the same use. SoftBank's check totals $200m, but the company only gets $100m; the company's interests, the founders' de-risking and the Series A investors' quick exit may not line up.
3. The deal heat of the moment versus long-term revenue quality. Financial made up about 45.8% of 2020 revenue; the high growth to 2025 depends on several new businesses. Revenue declines and layoffs already happened once, in 2018.
4. A high headline valuation versus common-share value in a downside scenario. The valuation cap, discount, preferences and IPO ratchet together determine the economic cost; you shouldn't just compare the headline numbers of 1.5 billion and 2 billion.
5. Lots of capital versus organizational capacity. Going from 200 to 750 people, cross-border expansion, acquisitions, new products and compliance build-out all at once — the size of the cash pile can't substitute for management capability.