ELIAN D. ALVAREZ

- VENTURE CAPITAL - ANGEL INVESTMENT -
- ENTREPRENEURSHIP - LATAM - INNOVATION -
- INVESTMENTS - PRIVATE EQUITY - FINANCE -

Wave of Change in the VC Sector

Sep
01

Every day many venture capitalists invest in startups with the hope that it will be yet another unicorn. Venture capitalists are a type of investors who are also futurologists. They invest in new businesses with an anticipation that it will turn out to be the next Facebook or Uber and their investment will multiply several times.

A perfect example of such investment is the one made by Mark Tluszcz in Skype. In 2001, he invested $2.5 million and now is worth $250 million.

Investors have the chance of winning big or losing all of their investment. Tluszcz also shared his experience stating that 50 percent of the startups they invest in, end up as a failure; 20 percent of these investments only make as far as returning their investment money and another 20 percent increase their stake three times. It is the remaining 10 percent that makes it big, he added, and keep the venture capital (VC) firms going.

 

A Wave of Change in the VC Sector

Keeping all of this in mind, it is an undeniable truth that VC firms have undergone massive changes over the last two decades.

In the UK, the amount of investment by venture capitalists has increased from £453 million to £1961 million between 2011 and 2016. A number of these firms are filled with entrepreneurs who are passionate about building a business and not just a career.

 

Lack of Diversity

Despite all the changes, there is still a lack of diversity in the sector. Debbie Wosskow, a VC investor who was once an entrepreneur, came face to face with the harsh reality that 95 percent of all the investments made by venture capitalists go to male-led startups and most of these investments are made by male venture capitalists.

According to a research in Harvard Business Review, when it comes to female entrepreneurs, the focal point of venture capitalists is always toward potential losses, but with male founders, they look at it from the perspective of potential gains. Regardless of what the reason is, things have started to change in the VC sector.

 

Wind of Change — A Step Toward Revolutionizing the VC Sector

According to a venture capitalist, Suranga Chandratillake, said that those who present their ideas before a group of investors have to sell their idea of making it big. He further said that investors need a convincing idea that has a potential to generate good profits and not a presentation that just talks about becoming another unicorn like Uber. Investors need to see that entrepreneurs are not just into organic growth; in fact, they should be willing to take risks of revolutionizing the entire sector with a proper plan and potential to bring the right people in their team.

 

Self-awareness — A Trait of Successful Entrepreneurs

Another venture capitalist, Jillian Manus, believes the best ideas come from those startups where one partner has a sales and operation background whereas the other one is into technology. They come together as a team to sell their idea along with a well-devised plan of how they will achieve their goals. She added that a founder must be honest with exciting ideas as the most important question she asks the entrepreneurs is to tell how they failed. Those who say they have never failed are either hiding the truth or they lack self-awareness.

To secure an investment, a founder of a new startup should show that they have learned from their mistakes and be honest about it as it enables them to identify a problem ahead of time. All in all, venture capitalists do believe that honesty is the best policy when it comes to investing in new startups, because if an entrepreneur needs a venture capital, he or she must tend to scale up and expand their business quickly.

New Unicorn Wannabe

Jan
19

A number of Venture Capital (VC) investors are predicting 2017 to be the year when a large amount of money will flow into startups, especially if those startups have the opportunity to become “Unicorns”. Although, 2016 was not the best year for the startups as 70 percent reduction was observed in the companies that made it to unicorn status, 2017 seems quite promising.

For example, a number of VC firms, including Founders Fund and Andreessen Horowitz, managed to raise around $40.6 billion – a huge sum of capital needing to be deployed.

 

Rising Trend of Unicorn Companies

A rising number of unicorns from different industries have made it big.

  • Uber – Transportation service
  • Xiaomi – Consumer electronic
  • Airbnb -Lodging services
  • Snapchat – Social media
  • SpaceX – Aerospace

The marketplace for used goods has also picked up the pace during the last ten years as a number of startups have emerged in the market, such as OfferUp, 5miles and OLX.

 

Boom of the Unicorns in the Used Goods Marketplace

The online market for used goods has dramatically increased over the past decade as more and more e-commerce companies have made their entry. Encouraging the users to get rid of the items they no longer need, these companies have created a multibillion dollar market.

Recently, Letgo, a company that allows users to purchase and sell products secured $175 million in new financing. It has previously grabbed on to $325 million since it was initially launched and is currently approaching one billion dollars in valuation.

Moreover, some of the big unicorn names like Facebook launched a Marketplace Tab on the lower bar of its mobile application that allows quick access to shopping and selling on the basis of location. This goes to show how it is planning to penetrate in the e-commerce industry rather more aggressively.

 

LatAm Unicorns – Making it Big

On the other hand, in Latin America, some of the talented entrepreneurs are hosting five of the world’s biggest Unicorns ($1 billion in valuation). Although, the list of tech startups founded in Latin America is short, yet, these companies have made it possible for other new entrants to envision themselves as growing on a global scale. Argentina is the only country in Latin America with 4 (soon to be 5 with Letgo) out of 6 Unicorns. Those Unicorns are MercadoLibre, Despegar, OLX and Globant.

MercadoLibre is an online company from Argentina that is involved in online auctions and e-commerce. eBay made a strategic alliance with this company back in 2001. Apart from Argentina, the company currently has its presence in Colombia, Brazil, Costa Rica, Chile, Mexico, Dominican Republic, and a lot of other countries.

B2W is another name in the same sector. It was founded in 2006 and its headquarters are based in Rio de Janerio. B2W is a retail company that came into existence as a result of a merger between Americanas.com (holding a control share of around 53 percent) and Submarino.com (controlling the remaining percentage of share). The market-share of a company in the year it was founded was almost 50 percent of the online sales sector in Brazil.

Similarly, another renowned Argentine unicorn company from the e-commerce sector is OLX, which was founded by Fabrice Grinda and Alec Oxenford in 2006. Its headquarter is based in New York. The company is currently operating in more than 40 countries around the world.

The total number of internet users in Latin America is closer to the users in the U.S., but it has shown rapid growth in the past couple of years with the growth rate that is 8 to 10 times more than the U.S. rate. It means that the potential for new startups to make it big is huge in this region. Besides, there is a strong institutional and government support for entrepreneurial companies, which can further increase the expected number of unicorns in that area.