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The Comet Tail of Investments in Venture Capital in the post-pandemic

Over the last 18 months, the Venture Capital market has been growing and transforming in Brazil and around the world. After a record year of VC investments in the country in 2020, the scenario continues to rise. According to the Distrito platform, to date, the total volume invested in M&A transactions for Brazilian startups in 2021 was US$6.6 billion, 89% above the volume invested in 2020, with 457 investment rounds completed - representing 95 % of the total made last year. These numbers outline a new profile of the VC market in the country in 2021, with higher average volumes per transaction and several new consequences for the local investment environment.

Firstly, the growth of this market illustrates that investment checks and the range of investors interested in exposing themselves to the ecosystem have increased.

This phenomenon, called “seller’s market”, raises a series of doubts and concerns for entrepreneurs who want to be successful in fundraising processes. Among them, choosing the best partner to unlock growth projects, finding the best timing to approach these potential investors or even what to present in a structured investment round process.

Given the concerns, it is crucial to know how to take advantage of the current positive cycle in the VC ecosystem and devise a clear strategy for accessing potential investors.

How to begin?

To achieve this, the first step is to know how to linearly construct the purpose behind fundraising, that is, which projects will be leveraged from an injection of third-party capital and how these projects connect with the entrepreneur's story and the company's performance. your startup.

This narrative construction, known as the company's “equity story”, has gained prominence in the investment scenario in recent years, especially due to the growth cycle of investments in VC and the greater exposure of investors to innovative projects, but without a great track record. still growing.

Therefore, management increasingly points to business models with clear purposes, well-structured products, solid performance – even if short-term – and sustainable growth projects.

In this way, part of the potential return on investment for the investor lies in gaining more initial exposure to the investee's growth trajectory and supporting the company's strategic decision-making to accelerate its future growth trajectory.

This more constant presence of the investor in the day-to-day activities of companies is what we call “smart money investment” and has become a relevant competitive differentiator when choosing a partner. With the growth of the market, VC investors have made their “preferred” niches clearer and opened doors for entrepreneurs to understand in greater depth which investors best fit into building their strategic future.

It's not just money

Partners such as Softbank Latin America Group, Valor Capital Group, Monashees and Astella Investimentos have created true hubs in certain segments in recent years, bringing benefits beyond “money” and further accelerating the growth potential of their investees.

Support in the stages of hiring professionals, suppliers, partners, monitoring controls, indicators and internal processes have become differentiators in building an optimal partnership between investors and entrepreneurs.

At the same time, this support and more constant presence of the investor has its price. Expectations for returns on investments made have become more aggressive and, consequently, so have the protection mechanisms to guarantee these returns.

The vast majority of VC investment events – especially the early stages – involve offers without raising capital for the partners, just injecting resources into the company's cash flow. Other contractual mechanisms, such as preferential liquidity rights, requirements for founding partners in the operation and anti-dilution clauses when carrying out new rounds, have become increasingly frequent in the negotiation of investment contracts.

Therefore, the investor x entrepreneur relationship involves a sequence of steps, qualities and obligations that need to be well priced in the negotiation process to carry out a successful investment event.

With the rocket engine turned on, it is important to equalize all these variables correctly to hitch a ride on this comet tail. And within this ecosystem where the concepts that were applicable in the last twelve months already represent a vision of almost a decade ago, we will certainly need to revisit all these themes again.

But that's a conversation for another article.


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