Angel investor
An angel investor is a person who invests in the early stages of a startup. Startup founders or partners should not seek just any investor — they should seek smart money. What does that mean? It means an angel investor who will add synergy to their business, whether through their expertise or through their network.
Do not waste your time chasing an angel investor if all you have is a business idea. Among themselves, they say ideas are a dime a dozen. It is highly unlikely that an angel investor will invest in a mere idea. Those days are over. They want scalable startups (with high growth potential) at the traction stage — meaning the MVP has already been validated, the company is already generating revenue and growing consistently, but needs capital to scale.
If you truly decide to bring on an investor, keep in mind that they will not simply hand over their money and wish you well. No. You will have a semi-boss — someone who will demand results. They want their investment back, and preferably many times greater than the amount they put in. They achieve this return, when they do, at the exit (they typically ask about their exit from the business during the pitch), which means selling their stake during a second funding round.
Why are some investors choosing angel investing?
A few years ago, with the interest rates that were in place, it was possible to double invested capital every six years without taking on significant risk.
While extremely safe fixed-income investments — such as government bonds and CDs from major banks — were paying high returns, there was simply no incentive to seek investment alternatives outside the traditional market.
Some time later, inflation and the consequent rise in prices was brought under control, and Brazil's Central Bank was able to cut the interest rates that had so heavily burdened small and medium-sized entrepreneurs — but which, on the other side, had been a boon for investors.
The decline in interest rates was not solely a local phenomenon: in the wake of the 2008 financial crisis in the United States and the European crisis in the middle of that decade, central bankers led by Ben Bernanke (USA) and Mario Draghi (European Central Bank) slashed benchmark interest rates in the hope that monetary easing could stimulate the economies of the countries in crisis.
Since withdrawing this stimulus — that is, returning interest rates to normal levels — could result in a renewed economic slowdown, central banks have doubled down on this strategy.
As a result, what was meant to be merely a temporary countercyclical measure has transformed into a new paradigm for global financial markets.
In this environment of low interest rates and shrinking returns, what becomes of investors accustomed to the high yields of fixed-income assets?
To continue obtaining decent gains, it became necessary to seek alternatives.
One solution found by major investors was to shift capital from financial assets toward equity stakes in companies — particularly early-stage technology companies with high scalability potential: startups.
Indeed, over the past decade the global venture capital market has developed at an accelerated pace, growing strongly year after year.
But while large funds, professional investors, corporations, and asset managers were making money by investing in the best and most promising businesses, the individual retail investor was left with the same investments of the past — those whose returns were no longer what they once were.
In 2018, global investment in startups reached approximately 1.4 trillion reais, triple the volume of five years prior.
The movement continues strong and vibrant: thousands of new investors (both individual and corporate) join startup investing every day in search of the exponential returns characteristic of this market. After all, it only takes one startup to succeed for the gains to be exponential.
Is investing in startups the same as buying a stock on the exchange?
This analogy is a valid one.
There are obviously some differences, but both are regulated offerings that grant equity participation in companies.
The main difference is that, when investing in startups, you do not become a shareholder on day one.
The agreement is executed through a Convertible Note, which is essentially a debt instrument that can be converted into company shares in the future, once the company becomes a corporation (S/A).
The startup — which is typically a limited liability company (Ltda) — will need to convert into a corporation (S/A) in order for you to receive the shares to which you are entitled.
This approach is chosen to provide greater security to the investor, as it is considerably riskier to join as a partner in a Ltda, given the labor and tax liabilities involved.
Furthermore, requiring the startup to convert into a corporation from day one can generate a range of costs that may hinder its growth.
Therefore, the best way to invest is through a Convertible Note.
However, as mentioned, by investing in a startup you will be receiving company shares in the future.
That is to say, suppose you invest in one of the startups listed on CapTable (www.captable.com.br) and that each of these startups issues one million shares on the date of conversion to a corporation.
In this case, the value of each share of these startups today would be:
TrashIn — 11 reais
NOC — 7 reais
InBeauty — 7 reais
It is that straightforward! You will be acquiring a block of shares (given that our minimum investment is 1,000 reais) that will entitle you to a percentage of shares at the time of conversion to a corporation (this percentage is defined for each startup in the investment agreement).
And what happens if, on the date of conversion to a corporation, that startup has grown and its market value is worth significantly more — say, ten times as much?
You have multiplied the value of your investment tenfold!
You continue to receive the same percentage of shares (bearing in mind that it is already defined in the agreement).
In other words, there is no way not to receive that percentage. However, the value of each share may be far greater than its value at the time of investment.
Therefore, if you sell your shares to someone else, you will have realized your profit! You may also choose to hold the shares and receive dividends (the annual distribution of the company's profits, which a corporation is required to distribute each year). See how investing in scalable businesses can be straightforward and uncomplicated?
Angel Investment – How to support Brazilian entrepreneurship
We are proud to make it possible for anyone to invest in startups and thereby support entrepreneurship in Brazil.
CapTable, the startup investment platform by StartSe, is entirely focused on raising investments in a distributed manner, giving you access to this market with investments starting from 1,000 Brazilian reais.
We believe that education — including education about new investment modalities — and entrepreneurship are the primary drivers of wealth creation in society.
Even if you do not have time to start your own business, you can still participate in the New Economy as a partner of outstanding entrepreneurs whose businesses have high scalability potential.
In doing so, in addition to supporting entrepreneurship in Brazil, you can share in the gains as their companies grow in value.
But how does it work?
I invite you to learn about 3 companies currently raising funds on our platform to invest in the growth of their businesses.
All of them are already generating revenue, with customers, employees, and products that help people every day. They are:
NOC
The Uber of advertising. A company with 15 employees and a projected headcount of 40 by year-end. Monthly revenue exceeding 70,000 Brazilian reais. NOC helps advertising professionals work with what they love and do best, while also supporting businesses in effectively promoting their products or services.
INBEAUTY
A company with 12 employees and 144 percent sales growth over the past year. Its product delivers essential vitamins that our bodies need but that are increasingly difficult to obtain through our busy, industrialized daily diets, using nanotechnology.
TRASHIN
A company with 6 employees and a projected headcount of 18 by year-end. Monthly revenue of 15,000 Brazilian reais. It supports waste management by directing each type of waste to the appropriate destination and generating income for various waste-picker cooperatives. The startup tracks all waste throughout the process, generating large volumes of data that can be monetized in a variety of ways.
StartSe's crowdfunding platform raises 1.2 million reais for Brazilian startups
I want to tell you a bit more about what happened during the nearly two months since we launched CapTable, the startup investment platform by StartSe.
We understand that education — including about new investment modalities — and entrepreneurship are the great drivers of wealth creation in society.
And I believe that, of all existing forms, investing in equity stakes in high-growth-potential technology companies is perhaps the one that offers the greatest possibilities of achieving extraordinary returns.
I also believe that this type of investment should not be restricted only to large investors and investment funds.
With equity crowdfunding, it is possible for a group of people, with the most varied contribution amounts, to invest collectively so that a company can obtain the resources to finance its operations.
In addition to encouraging Brazilian entrepreneurship during a challenging period for the country's economy, equity crowdfunding is enabling innovative solutions to gain market share and transform the lives of millions of people.
Four new entrants to the technology market have already raised more than 1.2 million reais in just over a month on StartSe's startup investment platform, CapTable.
One of these companies, Eirene, an agtech that develops technological solutions for precision spraying – reducing the use of agrochemicals by up to 90 percent – raised the 750,000 reais needed to expand its business to the Central-West region in just 30 days.
In this same round, the other three startups secured nearly 600,000 reais in investments combined.
Meet the startups raising investment through Captable
According to Sebrae-SP, one of the main challenges faced by Small and Medium-Sized Enterprises is investing in advertising and marketing.
Added to entrepreneurs' lack of resources and time for this type of initiative is also the high cost of advertising agencies.
NOC comes to address the demand of this enormous market, connecting content creators — who are closer to small businesses — to produce instant campaigns with agility and quality.
Through its technology, the application ensures that the campaign reaches the right audience, on the right channel, at the right moment, responding at the speed that brick-and-mortar retail demands.
The adtech has already raised 93 thousand reais, reaching more than 25 percent of its target.
With the funds in hand, NOC plans to invest on three fronts: the first is to expand its commercial operations, with new offices in São Paulo, Belo Horizonte, Curitiba, and Rio de Janeiro.
There is also a roadmap to improve the application and a focus on consumer service.
Angel Investment in the Sports Sector
The startup Let’s Do This has a board of heavyweight investors in the sports arena. The company, which operates as a platform for events such as marathons, triathlons, and Ironman races, raised a seed round of US$ 5 million led by NFX, with participation from Serena Williams, an established startup investor, Usain Bolt, who has been venturing into this world since his retirement from the track, and marathon runner Paula Radcliffe.
Investment Funds
While angel investors typically enter in the first funding round, investment funds usually come in at later stages with much larger contributions, once the startup is already scaling strongly. At this stage, the angel investor typically realises their return by exiting and selling their stake.
Funds Invest Up to 500 Million in Brazil
Joining Forces
Softbank, the Japanese fund that has been making a series of investments in Latin America, found a partner to further amplify this process. The other half of this powerful duo is Valor Capital Group, whose investment portfolio includes startups such as Gympass — which, incidentally, received a US$ 300 million funding round last week, led by Softbank — Loft, Guiabolso, Gupy, and Pipefy, among others.
According to Bloomberg, there are still many deals on the table under analysis. Scott Sober, partner at Valor Capital, stated in an interview that one of the partnership's strategies is also to facilitate the entry of other Softbank-backed startups into the Brazilian market.
In 2018 alone, Latin American startups attracted US$ 2.22 billion in foreign capital, more than double the figure recorded in 2017. If funding rounds from foreign funds maintain this pace, 2019 is expected to be even more substantial. Still according to Sobel, with the growing maturity of Brazilian startups, there remains significant room for outside investment.
Experts see Brazil as the country with the greatest economic potential in Latin America. According to LAVCA, venture funding in Brazil exploded in 2018, reaching US$ 1.3 billion – representing nearly ⅔ of all such investments in Latin America.
This also represents a 52% increase compared to 2017 and an impressive 369% increase compared to 2016 – when total investment stood at US$ 279 million.
Crunchbase conducted a review of the last decade on Seed and Early Stage funding trends. According to the study, investment rounds below US$ 1 million are in sharp decline, and smaller investments (up to US$ 5 million) have also slowed. In contrast, mid-sized and large investments have shown consistent annual growth.
According to Crunchbase's survey, 2018 was a year of “mega-investment rounds”, as they call them. Contributions above US$ 100 million actually represented a small share when considering the total volume of deals. However, they account for more than 56% of the volume in dollars.
As the NYT has already established, the days when US$ 100 million was considered a high investment figure for startups are long gone – that has since become commonplace. Crunchbase now also introduces, in addition to “mega-investments” (of which there were around 500 in 2018), the “hyper-mega-investments”, exceeding US$ 250 million.
The year 2019 also started on a strong note, with a US$ 70 million investment in Loft (as previously mentioned) and US$ 150 million for Grow Mobility (the merger of Mexico's Grin with Yellow).
This year has already seen 51 investments of this kind. Among them, Colombia's Rappi and Brazil's Gympass — both with investment rounds led by SoftBank.
With these substantial investments, Brazil reached its eighth unicorn. On Wednesday, Loggi, a logistics startup, reached a valuation of US$ 1 billion following a US$ 150 million investment round once again led by SoftBank – which has been making waves across Latin America — and also included GGV Capital, Fifth Wall, Velt Partners, and Microsoft.
Today, Loggi handles 100,000 deliveries per day, with a target of reaching 5 million within the next five years. To achieve that scale, the startup has been investing heavily in hiring technology professionals, primarily through the acqui-hiring model. To that end, it acquired the artificial intelligence startup WorldSense, adding 400 engineers to the Loggi team.
Since its founding in 2014, Loggi has raised a total of US$ 295 million.
Another unicorn that could benefit (even more) from the SoftBank fund is Nubank. Behind-the-scenes conversations disclosed by Reuters indicate that the fintech could receive an investment of up to US$ 1 billion, reaching a valuation of 10 billion dollars.
Another day, another tech public offering…
However, Slack, a corporate messaging platform, opted for a direct listing. Unlike an IPO, the company does not issue new shares and does not raise additional capital. It is a way to generate liquidity for existing shareholders.
On Thursday, the startup saw its shares rise 48.54%, closing the day with shares valued at US$ 38.62 – well above the initial R$ 26. With this appreciation, Slack reached an impressive US$ 23.1 billion in market capitalization. Its debut day on the New York Stock Exchange was the third largest in history in terms of trading volume (US$ 1.75 billion), trailing only Alibaba (US$ 4.5 billion) and Facebook US$(3.2 billion).
Still riding the wave of unprofitable startups – but ones seeing their revenue grow considerably year over year – the loss recorded in 2018 was US$ 140.1 million, 5% lower than in 2017. Revenue expectations for 2019 stand at US$ 400 million, double the previous year.
Currently, the startup has more than 10 million active users across at least 150 countries, with a particular focus on North America and European countries.
HR techs
Keeping pace with accelerated investment activity, yet another HR startup received a substantial funding round. Revelo, a recruitment and selection platform, received a Series B round led by IFC, the investment arm of the World Bank. With the funding, they will continue expanding their operations, which tripled in size in previous years.
The Multiplication of Venture Capital Funds
The world is experiencing a phenomenon of VC proliferation, particularly in the Corporate Venture format. Examples include Next47, from Siemens, Decibel, led by Cisco, and the well-known GV (Google) and M12 (Microsoft). In this link, Crunchbase explores VC formats, including VC-as-a-service.
American athletes (those who earn enormous sums of money) are also joining the trend of forming Venture Capital funds. The most recent to embrace this endeavor was quarterback Aaron Rodgers, with Rx3 Ventures, valued at US$ 50 million — modest compared to basketball player Kobe Bryant's fund of US$ 100 million.
Fund Connects Brazilian Investors to Silicon Valley Startups
While a number of Latin American startups have been drawing the attention of international investors, the Mindset Ventures fund is connecting Brazilian investors to startups in Israel and Silicon Valley — particularly those interested in entering the domestic market. Read here the interview with my friend Daniel Ibri, founder of the fund, published by Estadão.
Sources: Startse and Ace