Funding, Financing and Investment - Engines of Startup Growth? Antonio José Junqueira Botelho PhD Professor Titular / Coordenador do Programa de Pós-Graduação em Ciência Política e Relações Internacionais / Coordenador do Laboratório de Estudos em Ciência, Tecnologia, Inovação & Sociedade LECTIS, Instituto Universitário de Pesquisas do Rio de Janeiro - Iuperj / UCAM Presidente do Conselho Diretor, Gávea Angels 3ª Conferência Consórcio Internacional de Estudos sobre Inovação e Empreendedorismo:Políticas e Recursos de Apoio ao Empreendedorismo Mesa 3: Startups: Funding and Financing /Investimento e Financiamento de Startups Rio de Janeiro, 21 de novembro de 2013
Agenda 1. Funding, Financing and Investment 2. Startup Growth 3. Context 4. Funding & Financing in Brazil 5. Engines of Startup Growth?
1. Funding, Financing and Investment
Agenda 1. Funding, Financing and Investment 2. Startup Growth 3. Context 4. Funding & Financing in Brazil
Existing 1.0 Technology 0.5 Market Discontinuity Digital Cameras DVD Cell- Creative Destruction MRI phone 0.0 Automobiles Evolutionary Electronics businesses Cameras ] Existing 0 0.5 1 Market Leverage base IBM PC New 5
Gomper s Entrepreneurial Financing 4 Factors for assessing startup financing Uncertainty is the measure of of the array of potetial outcomes for a company or a project Asymmetric information moral hazard / adverse selection Nature of firm assets tangible / intangible Market conditions different supply and cost of capital-public vs private / nature of product market shifts
Sanlman s 4 Critical Success Factors People key players / experience opporunity / s & w / add-remove Opportunity nature / competitive advantage / barriers to entry / exploitation timing / milestones Deal right structure / incentives and contingencies Context most dificult / government polocies+> market size & industrial structure 3 Questions: What can go right? What can go wrong? What actions can be taken to increase the probability that things go right and to minimize the chances that things will go wrong? => FIT
1. Startup Growth
Startup Life Cycle Source: Chandra, A. (2007)
Venture Capital Mercantil Clássico Competência em Negócios Pre-Venture Capital Transição Proof of Concept Financing Competência Tecnológica Differents Forms of Startup Growth Capital Funding: R&D Capital / Concept Capital Descoberta e Invenção Financing: Innovation Capital Investing: Angel Capital Startup Capital Seed Capital Development / Growth Capital Mezzanine Capital
1. Context
Globalization of competition at startup level Makes angel capital more important, as time-to-market is now critical Pushes VC to internationalize launch market and production Beyond Guerrilla /Bootstrap/Royalty Financing Brings discipline and structure to startup Takes startup from proof of concept to optimized business model faster ( Moore Geoffrey) Crossing the chasm 12
Nível de risco p/investidor Funding and Financing Mechanisms - Brazil Alto Founders, friends and family Capital semente SENAI Inovação Startup Brasil, Rio Faperj e Rio PM Tecnova Fundos incubadoras Fundos Semente Fundos VC INOVAR Desenvolvimento e financiamento de empresas Capital de risco Inova Empresa Bancos Empresas não financeiras Mercado de capitais Baixo Inicial Emergente Crescimento Consolidada Estágio 13
US$ Millions 16,000 12,000 8,000 4,000 0 1,700 6,231 Funding by Source and Stage- 2010 5,321 9,976 8,583 3,491 6,371 Seed Early Expansion Later Investment Stage Venture Capital Angels Angels: Majority of US Startup Funding Angel Investors 2011 Venture Capital 2011 US $22.5 billion ~66,200 deals 42% seed/startup 57% early/expansion stage 318,500 individuals US $28.4 billion ~3,750 deals 3% seed/startup/ 29% early stage 68% later/expansion capital 462 firms active
Angels Invest in the Majority of Startup & Early Stage Deals Number of Deals in 2009: Angel Investment and Venture Capital 30,000 25,000 20,000 15,000 10,000 20,029 309 24,035 889 1,604 Venture Capital Angel Investment 5,000 0 11,445 Startup/Seed Early Stage Expansion/Later Source: Jeffrey E. Sohl, Center for Venture Research and 2010 NVCA Yearbook
ACA Members and Innovative Startups Fund about 800 new companies every year (mostly USA, Canada) More than 5,000 companies in portfolio Typically on Board of Directors (or observers) See 75,000+ companies every year lead deal flow in their communities Exits by acquisition and IPO more members are partnering with strategic corporations for early exits
Gávea Angels Founded November 2002 Associates: 30 => 36 Angels who made at least 1 investment: 12 => 22 Angels with > 1 investment: 6 => 12 Gávea Angels Forum: to date 25 => 2013: 5 Deals closed: 10 (2010:1 /2011:2 /2012:3 => 2013: 6 1 syndicated investment (RJ/SP) 1 Series A, 1 Series B 1 Seed follow-on in negotiation Average deal size (with follow-on): US$ 300K Negotiations: 2012= 8 / 2013 = 12 Investment proposals reviewed: 2012: 600 III International Angel Investor Workshop, 8-9 November 2012: 100 participants (LA/Europe/US)
Other Angel Groups in Brazil Gávea Angels Estimated number of active angels:500 Gávea Angels Estimated number of potential angels: 10,000 São Paulo Angels (July 2008):CLOSED? Floripa Angels (2009): ~10; absent Bahia Angels (2009) inactive C2i Anjos (Curitiba PR) (2011): 20+ Vitória Anjos (ES) (2012): 10+ HBS Angels (Sao Paulo) (2013) : 30+ Other angels Boutiques: Emidee (2005): one man angel fund Ipanema Ventures (RJ) (2011): dormant Jacard (SP and SC) (2010) Bossa Nova Angels (SP) (2010) Other angel organizations: Inovar Seed Funds: 200+ ; passive Anjos do Brasil, loose network individual angels + financial investor super-angels, passive, risk averse
Pais Número de redes (año 1a red) Latin America Inversionistas ángeles en las redes Inversiones Valor (US$ milliones) Argentina 3(2006) 150 25 3.5 Bolivia 1(2008) nd 1 nd Brasil 4 (2002) 88 9 1.1 Chile 7(2004) 127 30 9 Colombia 2(2010) +3 93 6 0.5 México 3(2009) 100 8 8.2 Panamá 1(2009) 26 3 nd Perú 2(2009) 24 6 nd Dominicana 1(2008) 57 (20) 0.270 nd Venezuela 2(2000) 20 22 nd Uruguay 1(2006) 26 5 nd
1. Engines of Startup Growth?
Innovation clusters Global distribution of VC (2012): top 5 regions represent 52% of $42.3 billion in global VC investments: SV, New England, S. Calif, Ny Metro UK. followed by Beijing, Germany, Israel NO LA country or region How to? Entrepreneurial communities, Brad Feld s network bottom-up model Beijing innovation cluster state leverage, large market autarkic model Israel military-entrepreneurial model: competences spillover and skillful incentives Ontario s Waterloo state-private model: future tech to create newq market Silicon Valley model it IS NOT ABOUT funding and financing, is it about investment ($ 11 billion VC in 2012)? Bilions $ spent in attemps to replicate top down strategy a failure Kendal Square densesr concetration of startups in the worls : 450+ next to $ 8.7 billion VC investments 52% (1995-2005) of founders with at least one foreign-born founder 21
MUITO OBRIGADO Antonio José J. Botelho Professor Titular, Iuperj/ UCAM abotelho.iuperj@gmail.com (21) 2216 7421 / 9347 0472