Finance: Mercado Bitcoin

Unit 3, Professor Martin Sinozich's Finance course, Mercado Bitcoin: M&A, IPO, or Series B?.

When a startup finally reaches the point where capital is chasing it, it also starts facing another question: once the money comes in, who decides how the company grows?

Here goes — enjoy:

Case Summary

On April 10, 2021, Mercado Bitcoin chairman Roberto Dagnoni had less than a day to decide. The company was preparing an IPO, two large banks were in acquisition talks, and SoftBank had just sent over a US$200 million investment offer valid for 24 hours. A few months earlier, he had still been running around trying to close a much smaller round.

Mercado Bitcoin, or MB, was founded in Brazil in 2013 by brothers Gustavo and Mauricio Chamati. The original business was simple: let customers buy and sell bitcoin with the local currency, the real. In the early days they faced the same choice again and again — should limited money go into product first, or into security first? The brothers chose security: they paid for audits, built their own trading platform, and did customer identity verification and record-keeping voluntarily while regulatory requirements were still incomplete.

When the market rallied in 2017, the company's revenue for the year exceeded US$24 million, customers approached 871,000, and staff grew from 8 to 85. The founders also realised the next stage would need different experience. They brought in Dagnoni and Reinaldo Rabelo, who had worked at the Brazilian exchange B3, to add governance, compliance and financial-markets experience. The trough that followed in 2018 showed the team the other side of expansion: revenue fell, expenses rose, the EBITDA margin dropped to about 33%, and headcount was cut in half.

The experience didn't make them give up. Management broadened its goal to financial market infrastructure, using 2TM as the holding platform, and gradually built out wallets, custody, asset tokenisation and other financial services. In 2020 the company had revenue of about US$21.25 million, EBITDA of about US$8.1 million, and 2.125 million users by year-end. Yet its first outside funding still took about a year: it eventually raised almost US$20 million at a pre-money valuation of US$64 million. The audit the investors required covered both the financial statements and verification of the customer assets in custody.

A few months later, the market heated up fast. MB wanted to expand into more Latin American countries and Europe, acquire small companies, recruit technical talent and add products, with plans to grow the team from 200 to 750. Early shareholders also wanted to cash out part of the wealth that had been concentrated in the company for years. Veteran investor Hélio Seibel often reminded everyone at board meetings:

“If you only have one option, then you have no options.”

Now Dagnoni finally had three options in front of him, each with a different price tag:

1. IPO: list in Brazil, expected to raise US$220 million to US$350 million, at a valuation of US$1.1 billion to US$2 billion. The company would enter the public markets and start bearing the pressure of continuous disclosure and market pricing.
2. Bank M&A: two banks wanted a controlling stake, at valuations of up to about US$1.5 billion. The banks could offer distribution, regulatory experience and organisational support, but earn-out payments tied to future performance and put/call rights on the shares were still under discussion.
3. SoftBank Series B: US$100 million into the company as a zero-coupon convertible note, plus another US$100 million to buy existing shares. The secondary shares would trade at a US$1.5 billion valuation; the convertible would later convert at a 20% discount, with a pre-money valuation cap of US$2 billion and an 18-month term, plus preferred shares, a board seat and IPO price-protection arrangements.

My Thinking

With a big round, first work out whose pocket the money goes into

US$200 million easily becomes a single, complete impression. But in this deal, the new money that actually supports building the company is US$100 million. The other half goes to the existing shareholders selling their shares.

Both parts have value. The company needs money for technology, compliance and new markets; the founders and employees may also need to reduce the risk of having their personal wealth overly concentrated. A moderate amount of liquidity can sometimes make founders more patient operators.

The problem comes from letting one total stand in for two budgets. The company has to answer how much money the most important capability-building ahead requires; the shareholders have to answer how much willingness to share the risk they keep after taking cash off the table.

My own take is that a financing plan needs to explain both where the money goes and how the benefits are split. Mix the two together, and it's easy to mistake a deal that satisfies some shareholders for one that has given the company enough money to grow.

Valuation must be read together with rights

The banks' US$1.5 billion, the IPO's US$1.1 billion to US$2 billion, and SoftBank's US$2 billion cap look on the surface like a single question of which is biggest. In reality, they buy different rights.

The banks want control; what they're buying is access to new markets and future synergies. Public shareholders buying into a listed company will keep watching revenue, profit and governance. What SoftBank offers is a combination: buy existing shares now at one price, and later convert the new money into preferred shares through a protected mechanism.

The US$2 billion cap limits the investor's conversion price. If the next round values the company at US$2 billion, the 20% discount means this new money converts at the equivalent of a US$1.6 billion pre-money valuation; if the next round is only US$1 billion, under the same simplified mechanism, it's US$800 million. It does not protect a US$2 billion floor for the founders.

On top of that, the IPO ratchet compensates the investor in certain scenarios where the listing is priced unfavourably. The case doesn't disclose the exact formula, so the extra dilution can't be calculated precisely; but it will affect how common shareholders view a future listing.

My own inclination is to first get clear on whether the discount, the preference and the IPO compensation are stacking protections, and only then push for a better-looking valuation. The fine print in the contract will decide who takes the weight first the next time the market turns.

Growth forecasts need to be tested against a downturn

MB's customer acquisition metrics look great. In 2020, the estimated customer lifetime value was US$138.70 and customer acquisition cost was US$9.30; in Q1 2021, the two became US$77.15 and US$3.99. LTV/CAC rose from about 15x to about 19x.

The ratio improved, but the estimated value of each customer fell. Acquisition cost fell even faster, making the overall metric look better. That should prompt management to keep asking: will these customers keep trading, will they use other services, and will they stay once the market cools?

The revenue mix is also worth breaking down. In 2020, about 52% of revenue fell in the Services-Exchange category — trading, custody, OTC and so on; about 46% fell in the Financial category, which includes a range of activities such as treasury and float. Not all revenue can be treated as stable, recurring fees.

The case's 2025 revenue target is about US$822 million, nearly 39 times 2020. Over five years, that implies a compound annual growth rate of about 108%. Meanwhile, some of the segment forecasts in the exhibits have inconsistent definitions and need further checking.

My own take is that even after raising big money, the budget must still be executable when the market cools. Spending on security, custody and compliance is hard to shrink in step with trading volume. 2018 already taught the team that lesson once; capital should give them more room the next time things contract.

The banks' distribution advantage needs to be priced together with control

CEO Rabelo supported taking the bank acquisition seriously, for very practical reasons. The company needs to work with regulators, needs top talent, and needs customers to feel safe keeping their assets in custody. A bank's experience and distribution could help, and its existing customers could become an entry point for new business.

These capabilities have economic value. If you compare financing options only on valuation and dilution, you underestimate what a strategic buyer contributes. Capabilities a team would take years to build itself can sometimes be gained by joining a bigger system.

But the banks also need control. MB had hoped to become financial infrastructure serving many kinds of institutions; once inside one bank, its product priorities, partners and pace of innovation would all be shaped by the parent's goals. The distribution synergies promised in an acquisition also need concrete resource commitments and execution plans before they materialise.

My own take is that before choosing a strategic buyer, you need to be clear about which capability the company lacks most. If the gap is mainly distribution and regulatory organisation, a bank may be a good fit; if the core opportunity lies in independently connecting more institutions, the cost of handing over control is higher.

I would choose the Series B and accept the cost of its terms

My pre-class vote is Series B, with the IPO second and bank M&A third. That includes the strict premise the professor set: assume all three offers are final, and my choice can't rest on a renegotiation that is sure to succeed.

So the reason can't simply be that a bank merger is too slow, or that the IPO might fail. What I value is that the Series B offers US$100 million for the company, US$100 million of liquidity for existing shareholders, and room to keep building the platform independently — all at once. For a team in the middle of broadening its revenue sources and governance capabilities, that combination is attractive.

The case against is just as strong for the IPO: the company might raise more money and also have tradable stock for future acquisitions. If it's confirmed that the necessary investment over the next phase significantly exceeds US$100 million, and the IPO could fill that gap, it could well be the better choice.

But the case has no complete cash flow budget, so you can't claim MB must immediately spend money on the scale of a full IPO. I would put core technology, security and compliance first, and arrange cross-border expansion, acquisitions and new products into a sequenced plan.

The cost of the Series B is that common shareholders have to accept more conditional allocation of rights. The 20% conversion discount, preferred shares, the IPO ratchet, and a possible future down round could all affect the value the founders and employees keep. A high valuation also raises expectations for growth in the next stage.

I am willing to bear these costs at this stage, but they need to be laid out clearly in front of the board. Choosing a shareholder is also choosing how you'll talk things through in hard times.

Takeaways for Arcus42

This case made me think that a business built on long-term relationships can also start by asking a few more specific questions when choosing capital.

First, turn trust into a process that can be audited. Trust needs records and clear responsibility behind it. Why an important judgement was formed, and on what information, should hold up when looked back on later.

Second, choose shareholders around the decisions ahead. Shareholders take part in the company's pace, governance and trade-offs. Before signing, you can talk through a few difficult scenarios and see whether both sides can understand each other's judgement.

Third, discuss company funding and founder liquidity separately. Both deserve serious attention, and each has its limits. Only by laying them out clearly on the table can you see which problems a deal really solves.

Fourth, match the speed of growth to organisational capability. Money can buy talent and systems, but shared judgement still has to be formed through the work. Every new commitment should come with matching responsibility and the capacity to deliver.

Fifth, check how rights are allocated on the downside while times are good. A friendly atmosphere at the negotiating table is precious; clear terms matter just as much. Spelling out disagreements that might arise in future is itself part of the partnership.

Before Class

Before class, I vote for the Series B, and the line I agree with most is: valuation must be read together with rights.

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This piece is a pre-class discussion based on the HBS case Mercado Bitcoin: M&A, IPO, or Series B?; the main data are from pp.5–13 of the text and Exhibits 5, 6, 8 and 10; the case notes that some details have been altered. 2025 figures are management forecasts, and the conversion figures in the text are simplified illustrations of the mechanism, not the final contract or actual deal outcome. The judgements are limited to the case's decision context and do not constitute investment or legal advice.