“Dwell on the beauty of life. Watch the stars and see yourself running with them.” Marcus Aurelius, Meditations
Venture Capital is very dynamic, despite the pandemic, entrepreneurs continued to disrupt the market and with the support of Venture Capital funds, who have the ability to see opportunities in uncertain times, they managed to close around 22 thousand investment rounds of Venture Capital globally for an amount of 300 billion dollars. This amount is 4% higher than the amount collected in 2019.
The origin of all these transactions has different ways, most of them originate through the “Demo Days” of incubators and accelerators, innovation and entrepreneurship forums of universities and government, angel networks and crowdfunding, and investment networks.
Venture Capital funds aim to invest in the best teams and in those opportunities where they can have a return on capital of 10 times or more. However, not all Venture Capital funds can access the best transactions. For example, perhaps the most recognized accelerator in the world is Y Combinator; many funds seek the opportunity to invest in startups that graduate on their “Demo Day”. However, since attendance at the event is by prior invitation, not all funds can access the list of startups for each batch at the appropriate time. Some funds even hire “scouters” or pay entrepreneurs graduated from one of the previous years at YC to have access to startups before this Demo Day, creating relationship asymmetry and exploiting unequal information with the market.
In the early years of a VC fund’s life, your investment team uses a telescope to find a star in the sky; in other words, a startup that can shine so bright that it becomes a supernova.
Usually, generation pipeline is the activity that poses the greatest challenge to overcome. Therefore, developing a brand positioning and building networks in the ecosystem is relevant.
The first will lead you to make yourself known in the ecosystem through events, publications, and most importantly quality investments. This construction builds a reputation for the fund and for each of its investors. For example, YC has a page where entrepreneurs post comments on the relationship they have with different funds.
The Venture Capital ecosystem, like any other business ecosystem, moves through networks. The most important questions are who you know and who knows you. Networks are built at different levels, with participants such as entrepreneurs, Venture Capital funds, accelerators and incubators, angels, universities and governments, corporations, other participants of the Venture Capital ecosystem, etc. Another level, more specific according to the strategy, is to build networks in different geographies and industries.
Some other strategies to discover an investment opportunity are conducting market research and cold calling to entrepreneurs, participating in trade shows or conferences, closely following transaction marketplaces such as AngelList, Kickstarter and Funders Club, and participating in funding competitions for entrepreneurs.
But, in the VC ecosystem there are solid and very well consolidated backgrounds that no longer need a telescope to search for the supernova, they simply look up at the sky and contemplate a shower of stars. Usually, these funds have a great position in the market, they are widely recognized in the ecosystem and their track record validates their preponderance. They even have no need to go out looking for the next supernova, they come straight to them.
For example, Ula in Indonesia was founded by an ex-Sequoia who had the opportunity to raise capital from his ex-employer and other relevant funds such as BCapital (founded by Eduardo Saverin, Co-founder of Facebook) without the need to make extensive and exhaustive round of capital raising. A similar case is Casai who raised money from A16z without having a highly promoted round. The founder worked at Monashees, who also invested in the company.
The funds that attract transactions using strategies such as word of mouth generate a positive reputation, broad and long-lasting investment networks, companies in their portfolio become brand ambassadors, they generate value by adding them and have an important sectorial, geographic or impact-related positioning.
Although LATAM Venture Capital is a business with a short history, and there is still much to build to have funds such as Bessemer, Lightspeed or NEA, there are already funds that have stood out for their ability to detect the next supernova and support it until to get it. An example is the recent unicorn, Kavak, where Kaszek Ventures participated.
For the proper development of the Venture Capital ecosystem, not only good entrepreneurs are required, but also trained, professional investors, with the ability to discover and support the next supernova, with robust investment processes and a visionary and opportunistic mentality. As this is accomplished, the firmament of emerging countries will begin to shine brighter every day.
Note: please refer to the original publication at EL CEO: El dilema de atraer o buscar oportunidades de inversión (elceo.com)
Hector Shibata Salazar, adjunct Professor at EGADE Business School and Director of Investments and Portfolio at AC Ventures Fund
Ana Maury Aguilar, VC Investor at AC Ventures
ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.
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