The Genesis of Venture Capital Funds

  • Investment thesis discipline and track record: it is important to build a track record with robust and outstanding returns during the life of the fund. Having unicorns within the portfolio is relevant for Venture Capital funds, as they can return the full value of the fund. The most recognized Venture Capital funds are those that have more unicorns in their investment portfolios, also called Unicorn Hunters. Among the most prominent funds in this category (as of May 2019) are: Tiger Global Management (32+ unicorns), Tencent (30+), Softbank (28), Sequoia Capital China (25), Sequoia Capital (23) and Kleiner Perkins (20).
    - Disruptive investment thesis: Usually the funds that manage to grow and be winners are those that have innovation and disruptive technologies in their investment philosophy. They only invest in startups with novel business models and a vision for the future. A clear example of this vision is the one Marc Andreessen had in 2011, when he published his essay “Software is eating the world”.
  • Brand building and growth: The success of a fund is the generation of a brand that transmits confidence to investors, support to entrepreneurs, and impulse to the Venture Capital ecosystem.
  • Pipeline generation: This is one of the main characteristics of successful fund managers. They have the ability to generate their own pipeline, supported by their brand, their networks and their knowledge of the ecosystem. In order to build a portfolio with 1% of the most outstanding startups, a fund must see around 3,000 startups during its investment period, thus building a selective portfolio of 30 companies.
  • Strategic relationships with GPs: The VC ecosystem is the aggregate of participants, and as such, a manager should forge long-term relationships with other funds, considering them allies, not competitors. This will allow you to access better investment opportunities and be able to sell to the startups in your portfolio more easily.
  • Building long-term relationships with LPs: Without capital there would be no Venture Capital fund. Limited Partners are the fuel that drives the Venture Capital ecosystem. They have a long-term vision and their job is to find the best fund managers for above-market returns.
  • VC funds are organizations made up of individuals, if there is no focus on organizational development, the organization is not destined to endure. Individuals pass, organizations endure.
  • Funds should establish robust investment processes, so that they can better choose their investments, and give entrepreneurs more visibility and understanding of the process.

Why are VC funds in Mexico not growing?

  1. Limited entrepreneurship ecosystem: The triggers for innovation and entrepreneurship in Mexico are scarce, with limited government initiatives and few universities that encourage a culture of entrepreneurship in society, which causes the few opportunities to create a potential unicorn to be highly competitive among only a few funds.
  2. Lack of professionalization of the industry: The practice of Venture Capital in Mexico has not been professionalized, and few funds have managed to raise multiple investment vehicles over the years, which has also caused the raising processes to be very late and complicated.
  3. Regional and global competition: Although Mexico is the key market for any startup looking to expand into Latin America, there is increasing competition from VC firms in Brazil or the United States that have the ability to offer a more attractive value proposition to entrepreneurs in terms of experience, contacts and capital.
  4. Portfolios without global vision: Investment theses and strategies are very regional, with very few funds trying to find opportunities in other countries. This limits the ability of local funds to identify truly innovative and disruptive opportunities.

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ACV

ACV

ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.