Angel investing shows coming-of-age signs in Brazil

When he founded his first startup company, in 2007, together with two partners, mechanical engineer Wladomiro Nunes Teixeira Junior had just turned 60 and had a baggage of decades dealing with mergers and acquisitions, first as investment banker and then ahead of his own consultancy. The firm opened in 1993 was a natural extension of his banking work, within, therefore, his professional comfort zone. Thus, Mr. Teixeira Junior considers the experience that resulted in the creation of Vivere, an outsourcer of mortgage transactions, as his debut in the startup universe.

At that time, he recalls, “no one talked of startups, we didn’t even know properly what the English word meant.” Eight years ago, in a moment of abundant credit and amid a wave of IPOs of real-estate developers, Vivere followed the manual of successful startups: it flourished rapidly and attracted the attention of institutional investors. “In 2012, BTG Pactual joined as minority shareholder, and in the following year Accenture bought the company,” he says.

The arrival of the international group meant the engineer’s departure from Vivere, by the sale of his entire stake in the business. The entrepreneurial fever, however, had already become part of his life. “The challenge of success as entrepreneur and the personal satisfaction of building a successful business” have become powerful motivations for the businessman. But instead of opening a new startup, the engineer realized he could share his experience as businessman, consultant and investment banker.

“A BTG financial director, placed by the bank at Vivere, told me about accelerators and how more experienced professionals have helped to develop emerging businesses,” he recalls. The talk was the spark for Mr. Teixeira Junior to become an angel investor, that is, an individual who gets money from his own pocket to invest in startups, takes minority stakes and puts the professional experience to help the development of the supported company.

Angels inject so-called smart money, which is not limited to financial resources, but adds business expertise, contact networks and guidance to the support package. Despite the existence of investment cases of the type since the 1990s, the development of this venture-capital ecosystem focused on companies in early stages is very recent. The first organized angels group, Gávea Angels, was created in 2001, when the number of individuals investing their own money in startups could be counted by hand.

In ten years, the segment had a fast expansion. A survey by Anjos do Brasil, an association to foster such type of investment, counted in July 2014 a total of 7,000 angels in the country, up 9% from a year earlier. From the second half of 2013 to the first of 2014, this group injected R$688 million in startups, up 11% year on year. Since the first survey, in 2010/2011, the amount invested grew 53% and the number of angels rose 32%.

This year, the average investment per person is estimated at R$170,000, which points to a potential infusion of R$1.4 billion. If such figure is achieved, it will represent an increase of more than 100% from the 2013/2014 period.

Another survey, conducted in the first quarter of this year by Anjos do Brasil and the Entrepreneurship and New Business Center (CENN) of Fundação Getulio Vargas (FGV), shows that 53.6% of the angels interviewed intend to maintain or increase their investment through 2016, even with the crisis. The average portfolio of the surveyed investors had 3.4 companies.

The survey also outlined a social-economic profile of the country’s angels. According to the survey, 41% of the interviewees have graduate degrees, whereas 19.7% have college degrees. Professionally, the greater number, 48.2%, is of those who declare themselves entrepreneurs, whereas 23.2% are executives. Other 14.3% are professionals, such as doctors, lawyers and accountants.

Even though profit from the operation is a logical motivation, not always is it the top incentive for such investors. “I see in these startup world a different Brazil, a visionary and optimistic Brazil, which looks ahead. You see vigor in the entrepreneurs, people who want things to work out. This is a very strong reason for me,” Mr. Teixeira Junior says.

“Take part in the creation of value, philosophically, it is what I like. Brazil desperately needs venture capital for creation of value,” says angel investor Leonardo Teixeira, 37. Production engineer with a degree from the Polytechnic School of the University of São Paulo, Mr. Teixeira made his career in the financial market at investment banks in Brazil and abroad.

After more than a decade working with trading operations, the former executive decided to take a sabbatical to reassess his professional path in 2013. “When I decided to take the sabbatical I was tired of what I had been doing for the last 11 years, but didn’t know where this change would take me.” He might not have planned it, but the attraction for entrepreneurship led him naturally to angel investing. “I have always had interest in innovation and companies,” he says.

The year 2013 unites Wladomiro Teixeira Junior and Leonardo Teixeira: both deputed as angels that year. The first put money in Stok, a startup that manages inventories for large companies, whereas the second invested in an education project, which he prefers not to name. The two also share one bet: investment in Netshow.me, a streaming platform that allows users to make money with concerts, speeches and other events.

Two years after his first investment, Mr. Teixeira Junior has four companies in his portfolio, with plans to increase the portfolio to seven startups. “When you join such a new company, the chance of losing everything is very big. Because of this, I think a portfolio of up to seven companies is ideal for me,” says the investor, who injected a total of R$700,000 in the current group. Mr. Teixeira Junior says the expected horizon to get out the investment, that is, the sale of stake for profit, is between five and six years, with projection to gain eight to ten times the invested amount.

As for Leonardo Teixeira, he’s supporting seven companies and intends to invest in three more by year-end. “And in 2016 I also intend to make more investments,” he says, declining to disclose how much he has already invested. In relation to exit and return, the engineer says he doesn’t have a set plan. “Actually, being quite honest, I don’t have quite defined expectations about timeframe for getting out. Anything around five years is outside the average. The expectation is of up to ten years,” he says.

Creating a startup was also the path to venture capital for consultant Fernando Kuzuhara, 34. Between 2005 and 2008, having just concluded the business administration course at FGV, Mr. Kuzuhara and a partner kept Vídeo Hunter, “a Brazilian version of Netflix” — at a time in which the American company was synonymous of monthly subscription for DVD rentals over the internet. “This model worked during three years, but then we decided to sell the company’s assets to competitors.”

The passion for entrepreneurship that he had since college, amplified by the experience with the DVD rental service, led him to create in 2013 F2 Investimentos, a structure that has workers of varied formations dedicated to support early-stage companies not only financially, but also in management, relations and fundraising, to fully devote his time to angel investing. The model came from the period in which, he says, he worked at a family office, precisely at an arm of the asset manager turned to stakes in startups with high growth potential.

“In my case, the investment in startups is done through F2, but it is basically the same that an angel investor does: the ticket, profile and timing are the same. The difference is that, whereas the traditional angel has this activity as something secondary, we do this in full time,” Mr. Kuzuhara says. He adds that F2 currently has a portfolio with 19 invested companies, with investments ranging from R$30,000 to R$150,000 per startup. Of this total, 6 are Brazilian and 13 foreign companies.

Mr. Kuzuhara says that the option for foreign companies comes from the perception that in Brazil there are still few entrepreneurs with global vision. “Most foreign startups in which we invest are of entrepreneurs in Latin America, but that operate throughout the world,” he says.

Cidinaldo Boschini Filho, a 35-year-old angel investor based in Goiás, echoes Mr. Kuzuhara. “There is still a lack of good companies, good entrepreneurs and disruptive businesses in which to invest here in Brazil. There is a lack of ambition to become global,” he says.

Mr. Boschini estimates that of every 100 projects analyzed, only 1 gets support. “The calculation is that: in Brazil only 1% of the startups are ready to receive investment,” he says.

With a degree in economics, Mr. Boschini is partner of a consultancy specialized in restructuring of companies in bankruptcy reorganization. “Since I have this experience of acting on troubled companies, I have a very critical view of business and saw that I could help greatly the entrepreneur,” he says. His current portfolio has eight startups in which he invested directly, but he adds that as partner of an accelerator, Acelera Partners, he has “indirectly a portfolio of nearly 50 companies.”

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