[Gameplay] Hyperplane and Nubank

An analysis of the last acquisition of the purple bank

Last week, Nubank announced another acquisition, and a very strategic one: the AI ​​startup for banks Hyperplane. Today we are going to look into it and dive deeper into it.

TL;DR

• Nubank acquired Hyperplane Artificial Intelligence startup for banks 

• The acquisition adds to the Bank's mergers and acquisitions puzzle, with yet another strategic technology acquisition

• The acquisition also removes from the market a technology that could be strategic for competitors and concentrates this difference on the buyer

• In the premium session, discover:

  • How to position your company to favor an acquisition like Hyperplane did

  • Nubank's buyer profile

What is Hyperplane?

Hyperplane is a Startup that aims to enable financial institutions (more specifically banks) to launch personalized experiences for consumers through the use of large language models, that is, the new generation of artificial intelligence models, like what's behind the ChatGPT.

The company offers language models that can be trained with data from client institutions (banks) to interpret the behavior of their consumers to identify the propensity to adopt new financial products, predict credit risk, loss of customers and even revenue.

The company was founded in 2022 and quickly made sophisticated AI products available to large customers. 

What we know about Nubank's acquisition strategy

We have already studied it in depth here Nubank's first acquisition and we comment on some of those that followed. Let's briefly recap.

In 2020, Nubank acquired Plataformatec, a technology consultancy. The movement, which we identify as an Acqui-hire, aimed to reinforce its technology team and its execution capacity using agile methodologies.

It then acquired Cognitech, also a technical consultancy that created technologies that the bank used, such as Clojure and Datomic.

In the same year, it made the first acquisition that would become an investment business unit: Easyinvest. This was a movement that we classified as horizontal expansion.

In 2021 the bank made two strategically significant acquisitions. One of them, Spinpay, was also incorporated as a new line of business, payments for retailers, called NuPay.

The other, Olivia, was a financial management assistant, with a conversational interface. This acquisition has special relevance for understanding this most recent movement, for two reasons: 

(i) Olívia was not incorporated as a new line of business. In fact, its business was discontinued and the bank promised to incorporate the technology into its application. Olivia's former consumers remain frustrated after 3 years of expectations about this integration. But I want to stick to the strategy. This was a technology purchase, different from the other acquisitions. 

(ii) Olívia had a conversational technology using artificial intelligence, long before the popularization of LLMs (the great language models) that make up the basis of Hyperplane's technology.

How to interpret this acquisition in Nubank’s strategy

Nubank has been making acquisitions strategically to put together a puzzle of what it wants to offer its consumers, whether as an experience or as new products/lines of business. Hyperplane fits perfectly into this thesis. 

The company, whose customers are Nubank's competitors, will not continue serving them and will exclusively serve the purchasing bank. The acquirer even guarantees that the acquired company's integration process includes deleting data from competing banks.

This, therefore, was another technology acquisition, consistent with previous movements. But there's a catch. From 2021 to now, the hype around AI, especially due to the exposure given to the topic by ChatGPT and the new language model technology it carries, has increased exponentially. This makes a Hyperplane, for a bank, a hotter acquisition target than Olívia was back then. Not only that. A startup may have more agility to master and adapt technology like this to the banking system than a large player. Even Nubank.

Hyperplane chose a niche focused on a few large, but very rich, players. There are not many companies with this positioning. The value it can add by bringing its technology to Nubank could be dangerous for the bank in the hands of a competitor, let's say, an orange one. 

This movement defensively removes access to the startup's technology from the market, even commercially, and leaves Nubank steps ahead of its competitors in the area of ​​generative AI. 

Deal Analysis

There is no public data on the value offered by Nubank. The company raised a Seed round at the end of 2023, worth 6 million dollars (around 30 million reais). A typical dilution for this stage would be 15 to 20%, which would value the company between 30 and 40 million dollars (150-200 million reais). Entering the realm of speculation, let's say that the acquisition was in the same order of magnitude of hundreds of millions of reais. The bank which had revenues of 8 billion dollars in 2023 with growth of approximately 57% year on year, and profit of 1 billion dollars with growth of almost 500%, can quickly extract returns if the startup brings it, and only it, some of the benefits it promises to its customers. These might include reduced defaults, churn, increased conversion, etc.

A contribution of less than 1% to the bank's revenue would make this acquisition pay for itself in less than 4 years, even if it reached a valuation of US$ 200 million. 

Although I believe these numbers are calculated precisely in the Nubank M&A team's business case spreadsheets, I imagine that much of the special flavor of this acquisition is not. How much is it worth to take this sweet technology out of your competitors' mouths?

How much is a consumer experience empowered by specialized LLMs and based on bank data worth?

My analysis is that this was another powerful strategic move by the bank. Perhaps their best yet. An excellent acquisition.

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